DFIN Reports First-Quarter 2021 Results

CHICAGO, May 5, 2021 /PRNewswire/ -- Donnelley Financial Solutions, Inc. (NYSE: DFIN), (the "Company") today reported financial results for the first quarter of 2021.

First-quarter 2021 financial highlights:

• Net sales of $245.3 million, up $24.6 million, or 11.1%, from the first quarter of 2020, driven by continued strength in capital markets and growth in software solutions sales, partially offset by lower print volume as a result of SEC Rule 30e-3.
• Record quarterly software solutions net sales of $60.3 million, up 27.5% from the first quarter of 2020; software solutions net sales accounted for 24.6% of total first-quarter 2021 net sales, up from 21.4% in the first quarter of 2020.
• Actions to mitigate the impact of SEC Rules 30e-3 and 498A are on plan; first-quarter 2021 gross margin for print and distribution was 32.6%, an improvement of 770 basis points from the first quarter of 2020, despite a decline in print and distribution sales of $25.0 million, or 27.3%, from the first quarter of 2020.
• Net earnings of $35.2 million, up $31.1 million from the first quarter of 2020, primarily driven by a favorable sales mix, operating leverage on sales growth and cost control initiatives, partially offset by the LSC multiemployer pension plans obligation charge, higher incentive compensation and selling expenses.
• Adjusted EBITDA of $71.1 million, up 136.2% from the first quarter of 2020, and Adjusted EBITDA margin of 29.0%, more than double the first-quarter 2020 Adjusted EBITDA margin; the significant improvements in both Adjusted EBITDA and Adjusted EBITDA margin were primarily driven by a favorable sales mix, operating leverage on sales growth and cost control initiatives, partially offset by higher incentive compensation and selling expenses.
• Non-GAAP gross leverage of 1.2x and non-GAAP net leverage of 1.0x as of March 31, 2021; down 1.1x and 1.3x, respectively, from March 31, 2020.
• During the first quarter, the Company repurchased 126,682 shares in open market transactions for $3.4 million at an average price of $26.92 per share. As of March 31, 2021, the remaining repurchase authorization was approximately $46.7 million.

"We are pleased with the excellent performance to begin the year, highlighted by nearly 28% growth in our software solutions sales versus the first quarter of 2020; more than 136% growth in Adjusted EBITDA versus the first quarter of 2020; and Adjusted EBITDA margin of 29.0%, more than double the margin we achieved in the first quarter of 2020. In addition, we are encouraged by client adoption of our new recurring software products. ArcDigital, which we launched last May, is off to a strong start in 2021, and our next-generation, built-from-the-ground-up ActiveDisclosure platform, which we launched in the first quarter, will begin contributing to our software solutions sales in the second quarter, as we convert clients from ActiveDisclosure 3.0 and onboard new clients," said Daniel N. Leib, DFIN's president and chief executive officer.

Leib continued, "The momentum of the transactional activity, including demand for our Venue data room, within equity capital markets that began to build in the second half of 2020 accelerated in the first quarter, as did our shift in business mix, growing our software solutions and tech-enabled services sales, and reducing our sales derived from print and distribution. Excluding print and distribution, our net sales grew over 38% in the quarter."

"The momentum in the equity capital markets has, so far, continued into the second quarter, and given our market leadership, we are well positioned to benefit from this momentum. Importantly, we remain focused on investing in our software products and growing our software solutions sales in support of our "44 in '24" strategy, which we believe will translate into significant and sustainable value for our shareholders," Leib concluded.

Net Sales

Net sales in the first quarter of 2021 were $245.3 million, an increase of $24.6 million, or 11.1%, from the first quarter of 2020. Net sales increased primarily due to higher capital markets transactional activity and software solutions net sales growth, partially offset by lower print volume as a result of SEC Rule 30e-3 eliminating print requirements.

Net Earnings

For the first quarter of 2021, net earnings were $35.2 million, or $1.02 per diluted share, as compared to net earnings of $4.1 million, or $0.12 per diluted share, in the first quarter of 2020. Net earnings in the first quarter of 2021 included after-tax charges of $4.6 million, or $0.13 per diluted share, primarily related to estimated multiemployer pension plans obligation arising from the bankruptcy of LSC Communications, Inc. Net earnings in the first quarter of 2020 included after-tax losses of $4.6 million, or $0.13 per diluted share, related to restructuring and share-based compensation expense and an after-tax gain of $1.7 million, or $0.05 per diluted share, related to the extinguishment of debt.

Adjusted EBITDA and Non-GAAP Net Earnings

For the first quarter of 2021, Adjusted EBITDA was $71.1 million, an increase of $41.0 million, or 136.2% as compared to the first quarter of 2020. For the first quarter of 2021, Adjusted EBITDA margin was 29.0%, an improvement of approximately 1,540 basis points versus the first quarter of 2020, primarily driven by a favorable sales mix, operating leverage on sales growth and cost control initiatives. 

For the first quarter of 2021, non-GAAP net earnings were $39.8 million, or $1.15 per diluted share, compared to $7.2 million, or $0.21 per diluted share from the first quarter of 2020.

Reconciliations of net earnings to Adjusted EBITDA, non-GAAP net earnings and Adjusted EBITDA margin are presented in the attached schedules.

Regulatory Impacts 

As previously disclosed in a Current Report on Form 8-K on July 22, 2020, the implementation of SEC Rule 30e-3 (elimination or reduction of print annual and semi-annual reports), Rule 498A (elimination or reduction of print summary prospectus) and the Company's exiting of certain printing and distribution relationships is expected to reduce the Company's print-related 2021 net sales by approximately $130 million to $140 million, and the associated reduction in net earnings and Adjusted EBITDA is expected to be approximately $4 million to $7 million and approximately $5 million to $10 million, respectively, in 2021. The Company reaffirms these estimates at this time.

Conference Call Details

DFIN will hold a conference call and webcast on May 5, 2021 at 9:00 a.m. Eastern time to discuss financial results for the first-quarter 2021, provide a general business update and respond to analyst questions.

A live webcast of the call will also be available on the Company's investor relations website. Please visit investor.dfinsolutions.com at least fifteen minutes prior to the start of the event to register, download and install any necessary audio software.

If you are unable to participate live, a replay of the webcast will be available following the conference call on the Company's investor relations website, along with the earnings press release, and related financial tables.

About DFIN

DFIN is a leading global risk and compliance solutions company. We provide domain expertise, enterprise software and data analytics for every stage of our clients' business and investment lifecycles. Markets fluctuate, regulations evolve, technology advances, and through it all, DFIN delivers confidence with the right solutions in moments that matter.  Learn about DFIN's end-to-end risk and compliance solutions online at DFINsolutions.com or you can also follow us on Twitter @DFINSolutions or on LinkedIn.

Use of non-GAAP Information

This news release contains certain non-GAAP financial measures, including non-GAAP gross profit, selling, general, and administrative expenses ("SG&A"), non-GAAP income from operations, non-GAAP operating margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax rate, non-GAAP net earnings, non-GAAP diluted earnings per share, Free Cash Flow and organic net sales. The Company believes that these non-GAAP financial measures, when presented in conjunction with comparable GAAP measures, provide useful information about the Company's operating results and liquidity and enhance the overall ability to assess the Company's financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. 

The Company's non-GAAP statement of operations measures, which include non-GAAP gross profit, SG&A, non-GAAP SG&A as % of total net sales, non-GAAP income from operations, non-GAAP operating margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax rate, non-GAAP net earnings and non-GAAP diluted earnings per share, are adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items that management believes are not indicative of our ongoing operations. These adjusted measures exclude the impact of expenses associated with the Company's COVID-19 related recoveries and expenses, LSC multiemployer pension plans obligation, pension settlement charges, non-income tax charges, accelerated rent expense, share-based compensation and eliminate potential differences in results of operations between periods caused by factors such as historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges and gain or loss on certain equity investments and asset sales. 

Free Cash Flow is a non-GAAP financial measure and is defined by the Company as net cash flow provided by operating activities less capital expenditures. By adjusting for the level of capital investment in operations, the Company believes that free cash flow can provide useful additional basis for understanding the Company's ability to generate cash after capital investment and provides a comparison to peers with differing capital intensity.

Organic net sales is a non-GAAP financial measure and is defined by the Company as reported net sales adjusted for the changes in foreign exchange rates.

These non-GAAP financial measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. In addition, these measures are defined differently by different companies in our industry and, accordingly, such measures may not be comparable to similarly-titled measures of other companies.

Use of Forward-Looking Statements

This news release includes certain "forward-looking statements" within the meaning of, and subject to the safe harbor created by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans of DFIN and its expectations relating to future financial condition and performance. Statements that are not historical facts, including statements about DFIN management's beliefs and expectations, are forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. While DFIN believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond DFIN's control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from DFIN's current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in DFIN periodic public filings with the SEC, including but not limited to those discussed under "Risk Factors" in DFIN's Form 10-K for the fiscal year ended December 31, 2020, those discussed under "Cautionary Statement" in DFIN's quarterly Form 10-Q filings, and in other investor communications of DFIN's from time to time. DFIN does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.