DFIN Reports Fourth Quarter and Full Year 2022 Results

CHICAGO, Feb. 21, 2023 /PRNewswire/ -- Donnelley Financial Solutions, Inc. (NYSE: DFIN) (the "Company" or "DFIN") today reported financial results for the fourth quarter and full year 2022.

Highlights for the fourth quarter of 2022:

• Software solutions net sales of $68.7 million; software solutions net sales accounted for 41.0% of total net sales, up from 31.7% in the fourth quarter of 2021.
• Net earnings of $10.9 million, or $0.36 per diluted share; Adjusted EBITDA^(a) of $39.3 million and Adjusted EBITDA margin^(a) of 23.4%.
• Net cash provided by operating activities of $73.3 million; Free Cash Flow^(a) of $58.5 million.
• During the fourth quarter, the Company repurchased 366,197 shares for $13.7 million at an average price of $37.27 per share. As of December 31, 2022, the remaining share repurchase authorization was $124.3 million.
• Completed the sale of EdgarOnline.

(a) Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow are non-GAAP financial measures that exclude the impact of certain items noted in the reconciliation tables below. The tables below provide reconciliations to the most comparable GAAP measures.

"We are pleased with the continued progress we made in the quarter toward becoming a software-centric company. Software solutions net sales made up 41.0% of fourth-quarter 2022 total net sales, a record level of software sales mix and an increase of approximately 930 basis points from last year's fourth-quarter sales mix. The momentum of our recurring compliance software platform continued to build in the quarter, led by 9% growth in Arc Suite sales. In addition, we delivered an Adjusted EBITDA margin of 23.4% in the quarter, despite a nearly 50% reduction in capital markets transactional revenue from the fourth quarter of 2021, as very challenging external market conditions persisted. Further, we continued our track record of prudent capital deployment, increasing organic investment in software development to drive growth and repurchasing shares, while also maintaining the financial flexibility to execute our strategy" said Daniel N. Leib, DFIN's president and chief executive officer.

Leib continued, "Throughout 2022, we executed well in a very challenging demand environment, delivering $218.3 million of Adjusted EBITDA and an Adjusted EBITDA margin of 26.2%, despite capital markets transactional revenue being down nearly $170 million, or 41%, for the year. While the visibility into transactional activity is limited, we remain ready to serve this market when activity resumes. Further, we recorded $279.6 million of software solutions net sales in 2022, which represents approximately 34% of our full-year net sales, up from 27% of total net sales in 2021, and remains a key focus area going forward. The progress we made throughout 2022 to scale our portfolio of recurring compliance software solutions, combined with new regulations such as Tailored Shareholder Reports and Pay Versus Performance, create a strong foundation to achieve our goal of deriving 55% to 60% of total net sales from software solutions by 2026."

"Looking ahead, by continuing to execute against the key pillars of our strategic transformation – investing to drive a more favorable sales mix of recurring software with high-quality margins, managing our costs in a disciplined manner, and enhancing our financial flexibility – we are well positioned to create additional value for our clients, employees, and shareholders going forward." Leib concluded.

Net Sales

Net sales in the fourth quarter of 2022 were $167.7 million, a decrease of $65.1 million, or 28.0%, from the fourth quarter of 2021. Net sales decreased due to lower capital markets transactional volumes and Venue dataroom activity, which, in aggregate, decreased approximately $57 million year-over-year, and lower print volumes as a result of regulatory impacts eliminating print requirements, partially offset by higher software solutions net sales in Arc Suite and ActiveDisclosure.

Net Earnings

For the fourth quarter of 2022, net earnings were $10.9 million, or $0.36 per diluted share, as compared to $25.6 million, or $0.73 per diluted share, in the fourth quarter of 2021. Net earnings in the fourth quarter of 2022 included after-tax charges of $7.1 million, or $0.23 per diluted share, primarily related to share-based compensation expense and restructuring, impairment and other charges, net. Net earnings in the fourth quarter of 2021 included after-tax charges of $12.1 million, or $0.34 per diluted share, primarily due to loss on debt extinguishments, restructuring, impairment and other charges, net and share-based compensation expense.

Adjusted EBITDA and Non-GAAP Net Earnings

For the fourth quarter of 2022, Adjusted EBITDA was $39.3 million, a decrease of $22.0 million as compared to the fourth quarter of 2021. For the fourth quarter of 2022, Adjusted EBITDA margin was 23.4%, a decrease of approximately 290 basis points as compared to the fourth quarter of 2021. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was primarily driven by lower capital markets transactional sales volumes, partially offset by lower selling expense as a result of the decrease in sales volume, lower incentive compensation expense, and the impact of cost savings initiatives.

For the fourth quarter of 2022, non-GAAP net earnings were $18.0 million, or $0.59 per diluted share, a decrease from $37.7 million, or $1.07 per diluted share, in the fourth quarter of 2021.

Reconciliations of net earnings to Adjusted EBITDA, Adjusted EBITDA margin, and non-GAAP net earnings are presented in tables below.

Share Repurchase Program

During the fourth quarter of 2022, the Company repurchased 366,197 shares for $13.7 million at an average price of $37.27 per share. For full-year 2022, the Company repurchased 4,733,875 shares for $152.5 million at an average price of $32.21 per share. As of December 31, 2022, the remaining share repurchase authorization was $124.3 million.

Regulatory Impacts

The Company previously disclosed in a Current Report on Form 8-K filed with the SEC on July 22, 2020, that 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 were expected to reduce the Company's print-related 2021 net sales by approximately $130 million to $140 million, with the associated reduction in net earnings and Adjusted EBITDA of approximately $4 million to $7 million and approximately $5 million to $10 million, respectively, in 2021.

In 2021, the Company realized reductions in net sales, net earnings, and Adjusted EBITDA of approximately $100 million, $2 million and $3 million, respectively. In 2022, the Company realized an incremental reduction in print-related net sales of approximately $30 million with a de minimis impact on net earnings and Adjusted EBITDA. For 2023, the Company does not expect any additional material impact.

Company Results and Conference Call

DFIN's earnings press release for the fourth quarter and full year 2022, which is included as Exhibit 99.1 to the Company's Current Report on Form 8-K that has been furnished to the SEC on February 21, 2023, is available on the Company's investor relations website at investor.dfinsolutions.com. A supplemental trending schedule of historical results, including additional breakouts of segment-level net sales, is also available on the Company's investor relations website.

DFIN will hold a conference call and webcast on February 21, 2023 at 9:00 a.m. Eastern time to discuss financial results for the fourth quarter of 2022, 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, adjusted non-GAAP gross profit, non-GAAP gross margin, adjusted non-GAAP selling, general, and administrative expenses ("SG&A"), adjusted non-GAAP income from operations, adjusted non-GAAP operating margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax rate, adjusted non-GAAP net earnings, adjusted 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, adjusted non-GAAP gross profit, non-GAAP gross margin, adjusted non-GAAP SG&A, adjusted non-GAAP income from operations, adjusted non-GAAP operating margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax rate, adjusted non-GAAP net earnings and adjusted 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, LSC multiemployer pension plans obligations, non-income tax, net, 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, net and gain or loss on certain equity investments, business sales 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 currency 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 "Special Note Regarding Forward-Looking Statements" and in Part I, Item 1A. Risk Factors of DFIN's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, those discussed under "Special Note Regarding Forward-Looking Statements" in DFIN's Quarterly Reports on Form 10-Q, 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.