Donnelley Financial Solutions Inc

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelly Financial Solutions first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Mike Zhao, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Donnelly Financial Solutions' first quarter 2025 results conference call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results. Copies of which can be found in the investors section of our website at defense solutions dot com. During this call, we'll refer to forward looking statements that are subject to risks and uncertainties. For complete discussion, please refer to the cautionary statements included in our earnings release. And further details in our most recent annual report on form 10 K. Quarterly report on form thank you and other filings with the SEC. Further, we will discuss certain non gap financial information. such as adjusted EBITDA, adjusted EBITDA margin, and organic net sales. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Dan Lieb, Dave Gardella, and other members of management. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. We delivered strong consolidated first quarter results with net sales of $201.1 million, adjusted EBITDA of $68.2 million, and adjusted EBITDA margin of 33.9%. Given our stock trading levels, strong balance sheet, and perspective on long-term value, during the first quarter and into the second quarter thus far, we have repurchased approximately 5% of the company's outstanding shares. While we recognize the uncertainty in the near-term global operating environment, recent trading prices have provided an opportunity to be more aggressive in this area. I am encouraged by the continued growth in our software offerings, where we delivered year-over-year net sales growth of approximately 6% on an organic basis, driven by approximately 16% growth in our recurring compliance and regulatory-driven products, Active Disclosure and ArcSuite, that more than offset a decline in the venue data room product. Software Solutions net sales represented 42.1% of total net sales in the first quarter, an increase of approximately 260 basis points from last year's software solutions net sales mix. On a trailing four-quarter basis, software solutions net sales made up 42.8% of total net sales, an increase of approximately 500 basis points from the first quarter 2024 trailing four-quarter period. On both a quarterly and trailing four-quarter basis, software solutions represented the largest component of our overall sales mix, a positive proof point of our progress in becoming a software-centric company. This positions us well to achieve our long-term target of deriving approximately 60% of total net sales from software solutions by 2028. During the quarter, Active Disclosure and ArcSuite each posted double-digit sales growth for the second consecutive quarter. For active disclosure, this improvement was primarily driven by the continued adoption of our service package offerings, combined with growth in subscription revenue as a result of higher net customer count from recent wins, as well as higher value per client. In the case of ArcSuite, the improved growth rate was primarily driven by the tailwind from the tailored shareholder reports regulation, which became effective mid-last year. As it relates to venue, following robust growth over the last several quarters, venue sales declined moderately in the first quarter as we overlapped several large deal rooms. We remain encouraged by venue's performance, which benefits from stable demand from both announced and unannounced deals across public and private companies alike, despite some volatility inherent in the broader M&A market in terms of completed deals. While Venu serves both public and private company deals, whether announced or still in the diligent process, our capital markets transactional offering primarily serves public company, M&A, IPO, and debt transactions. Our capital markets transactional revenue, while improved on a sequential basis from the fourth quarter of 2024, continued to be depressed by the combination of market volatility, macroeconomic headwinds, and heightened uncertainties. Despite the ongoing downturn in global capital markets transactional activity, our business has proven to be fundamentally and substantially more profitable than historically. Our adjusted EBITDA margin of 33.9% in the quarter reached 29.5% on a trailing four-quarter basis despite the ongoing headwinds of a weak transactional market. Our performance reflects our evolving sales mix, permanent changes to our cost structure, and continued cost discipline. and further demonstrates our ability to sustainably operate at a higher level of profitability across a range of market conditions. We continue and invest to shift toward a more favorable recurring sales mix while continuing to aggressively manage our cost structure and being disciplined stewards of capital. A key factor behind our margin performance has been the progress we have made toward creating a cost structure and operating model that better aligns with our business mix, part of which is driven by cyclical market factors. Over the last several years, to establish an optimized and variable cost structure in areas of the business that have both seasonal and cyclical fluctuations, we took aggressive actions that targeted many aspects of our fixed cost base, including downsizing our print production platform, driving internal efficiencies, and reducing our physical footprint. During the quarter, we maintain the same disciplined approach and will continue to manage our cost structure prudently, especially in light of the current economic landscape and uncertainty. As we continue to gain efficiency across our operations, we also remain focused on reinvesting in areas of our business to accelerate our transformation. In the first quarter, we continue to invest in our software offerings and the associated technologies to support continued innovation and growth. The investments we are making also enable us to modernize our business operations by applying automation and AI-driven tools, including commercial AI solutions and our own agentic AI development to streamline workflows, improve productivity, and support profitable growth. These investments will help to profitably scale existing products, increase our speed to market for future offerings, and enhance client experience. Before turning the call over to Dave, I'd like to provide some perspective on DFIN's operating characteristics as we operate in a new and evolving global economic environment. While much uncertainty exists, we presently do not anticipate any significant impact on our operations based on the recently announced tariffs, in large part due to the nature and structure of our business. Our business is primarily software and services and predominantly US-based. We have a relatively simple supply chain that has continued to operate without disruption. With approximately 90% of our revenue derived from the U.S., our software products and services are largely insulated from current trade pressures. In the cases where we do see input costs rising, we expect to be able to increase our prices. In addition, approximately 75% of our revenue is based on recurring and reoccurring sources. the vast majority of which is related to ongoing SEC compliance, for which core regulations have thus far not been impacted. Our strong mix of recurring compliance offerings provides stability during times of market volatility. Of course, our clients that operate across different industries will have varying impacts to their operations. As it relates to our event-driven capital markets transactional offering, While the global deal environment is yet to emerge from more than three years of historically low activity, the underlying latent demand for transactions remains intact. From a market demand perspective, recent comments from the SEC are encouraging. The Commission's desire for regulations to be more tailored, avoiding unnecessary burdens on public companies, will support future IPO activity and ongoing compliance needs. And while we do not expect the return to normalize levels of transactions until market uncertainty subsides, DFIN remains very well positioned to support our clients when that occurs. Finally, our strong balance sheet and ample liquidity enable us to confidently execute our strategy and drive long-term shareholder value. With our non-GAAP net leverage ratio under one times and robust annual free cash flow generation, Our strong financial flexibility enhances our ability to execute our transformation. We will continue to allocate capital in a disciplined and thoughtful manner that best advances our strategy and maximizes shareholder value. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our first quarter results and our outlook for the second quarter. Dave?