Q2 2021 Donnelley Financial Solutions Inc Earnings Call
Per unit.
[music].
Ladies and gentlemen, thank you for standing by and welcome to day Donnelley Financial solutions second quarter 2021 earnings Conference call.
This time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to turn the conference over to your Speaker today, Mike <unk> head of Investor Relations. Thank you. Please go ahead Sir.
Thank you.
Hi, everyone and thank you for joining Donnelley financial solutions second quarter 2021 results conference call.
This morning, we released our earnings report a copy of which can be found in the investors section of our website at decent 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 detail on most recent annual report on form 10-K.
Quarterly report on form 10-Q, and other filings with the SEC.
Further we will discuss non-GAAP financial information.
We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is.
As an appropriate way for you to evaluate the company's performance.
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.
This morning on <unk>.
Joining by Dan Leib, Dave Gardella.
Greg Clay, Eric Johnson Floyd streamline and can return on.
I will now turn the call over to Dan.
Thank you, Mike and welcome to your first earnings call at deepen Mike.
Mike recently joined <unk> from Terra data and enterprise SaaS company, where he led finance for 1 of their go to market segments.
Deepen Mike is heading up the financial planning and analysis as well as Investor Relations working closely with Dave.
Look forward to you meeting Mike.
Good morning, everyone and from all of US are deep and we hope that you and your families.
We are staying safe and healthy.
After a very strong start to the year in the first quarter I'm again pleased with the momentum in our second quarter operating performance as well as within our end markets on our last few quarterly calls we noted that we had been seeing a return to a more normalized level of growth in software sales and a significant increase in transactional.
Activity.
The momentum in software sales.
Accelerated in the second quarter, while the transactional environment within capital markets remained strong.
Our second quarter results offer another proof point of the success of <unk> transformation and our 44 in 2004 strategy, specifically targeting 44% of our sales from software solutions by the year 2024, and more importantly, the resulting financial profile.
Phil from such a business mix.
For 8 consecutive quarters, we have expanded year over year, adjusted EBITDA margins as our business mix changes.
This has involved investing heavily in some areas for profitable growth aggressively managing expenses and other parts of our offerings and eliminating some offerings altogether.
Over this 2 year period on a trailing 12 month basis, our overall revenue increase of 3% or $27 million reflects our changing mix.
Our revenue change is comprised of growth in software sales of $50 million or 27%.
<unk> enabled services growth of $87 million or 23% and a decline in print and distribution of a $110 million or 32%.
These are large changes over a 2 year period, yet they are positive changes for our business our software offering now totals $232 million with roughly 2 thirds of that being recurring high retention rate offerings.
The balance of our software offering is largely driven by the corporate transactions market.
By year end, we expect our software sales to exceed our print sales for the first time in the Companys history, representing approximately 30% of our total revenue.
And when we talk about our 44% and 24 strategy. We note. In addition to the mix shift what's more important is the resulting financial profile from such a business mix.
2 of the resulting financial aspects are an increase in profitability and an increase in margin.
Over the same 2 year period, adjusted EBITDA has been up by over $100 million.
Driving margin up a 1000 basis points to 25%.
At quarter end, our trailing 4 quarter adjusted EBITDA is $233.5 million.
In short our strategy is delivering strong results.
We look forward to sharing ongoing progress with you as we execute our strategy.
As it relates specifically to the second quarter results total sales grew 5.3% from last year's second quarter <unk>.
Excluding print and distribution year over year net sales increased 23% in the quarter as software solutions sales grew 40% and tech enabled services grew 16% overcoming a decline of 26% in print and distribution related sales.
As a reminder, the.
The decline in print and distribution center as a result of the regulatory change in the investment companies business.
And our proactive exiting from low margin printing contracts consistent with our strategic priority of investing to grow the more attractive recurring software and tech enabled services aspects of our business.
The record high quarterly software solutions sales was led by our recurring compliance products, which in aggregate grew 36% over the second quarter of last year.
We've received positive market feedback and strong client adoption for our recent product launches, particularly in active disclosure and total compliance management component of our arc digital offering along with our CRO contributing to the 36% growth in our recurring compliance software sales.
In addition, our virtual data room product venue achieved another all time high for quarterly sales and grew approximately 50% year over year, largely driven by an increase in M&A deal activity and once again, what we believe to be market share gains.
Similar to the last few quarters, the strength of the capital markets transactional activity and our strong market share resulted in robust sales growth with transactional sales increasing more than 38% from the second quarter of 2020.
The growth in our higher margin software solutions and Tech enabled services net sales on a proactive pruning of low margin print work along with the significant impact of our ongoing cost control efforts, including execution of our aggressive plan to rightsize, our print platform in light of the regulatory impact on print demand.
Again resulted in strong quarterly earnings.
Second quarter non-GAAP, adjusted EBITDA was $79.9 million, an increase of over 31% from last year's second quarter.
And adjusted EBITDA margin was 29, 9%.
Up 600 basis points from second quarter 2020, adjusted EBITDA margin.
Given the trend I noted earlier with 8 consecutive quarters of expanding year over year EBITDA margin, our trailing 4 quarter. Adjusted EBITDA margin is currently 25% tracking well ahead of our long term target of at least 20%.
As I highlighted on our last call. The steps we took during 2020 and continue to take in 2021 to optimize our operations streamline our organizational structure and real estate footprint contributed to our second quarter growth in adjusted EBITDA and expansion of adjusted EBITDA margin at the <unk>.
Same time as having aggressively manage the cost structure in certain areas. We have also increased investment levels in support of our strategic priorities, specifically, we've allocated more resources in terms of both people and dollars toward our software products and the technology that supports these products to be clear, while we've increased investment in this.
Area to accelerate our transformation, we have done so with the same disciplined approach we've taken historically.
Targeting areas on projects, where we expect to deliver superior economic returns.
Free cash flow in the quarter improved by $16.5 billion, despite funding $15.7 million related to the LSC multi employer pension plan obligation Dave will cover this topic in more detail.
At quarter end, our non-GAAP net debt was lower than last year's second quarter by $112.3 million.
<unk> and a non-GAAP net leverage of <unk> 9 times.
1.2 times lower than the second quarter of 2020 before.
Before I share a few business highlights I would like to turn the call over to Dave to provide more detail on our second quarter financial results and our outlook for the third quarter Dave.
Thank you Dan and good morning, everyone.
On noted we delivered very strong results in the quarter, including 5.3% sales growth and significant year over year increases in non-GAAP adjusted EBITDA adjusted EBITDA margin non-GAAP adjusted earnings per share and free cash flow.
We maintained strong market share and our transit transactional filing business and posted 40% growth in our software solutions sales all while continuing to drive operating efficiencies.
On a consolidated basis net sales for the quarter were $267.5 million, an increase of $13.5 million or 5.3% from the second quarter of 2020.
Software solutions net sales in the second quarter increased by $19 million or <unk> 39, 9%, primarily due to an acceleration of virtual data room activity in venue driven by the improved M&A environment.
Accelerated product adoption within our suite as well as solid subscription growth and active disclosure.
Tech enabled services net sales increased by $18.6 million or 16, 1%, primarily due to increased capital markets transactional activity.
Britain distribution revenue decreased by $24.1 million or 26, 5%, primarily due to the regulatory driven a reduction in demand for printed materials within investment companies and less commercial printing, where we have proactively exited certain low margin contracts.
Yes.
This decline was partially offset by higher print related sales as a result of the increased transactional activity with any capital markets.
Regarding our print platform, we have made substantial changes over the past couple of years by year end 2021, we expect to be utilizing our third party network for approximately 85% to 95% of our print needs variable is on the cost structure for the majority of our print.
Production and at the same time operating our own digital only print platform to meet the demand for higher value quick turn requirements.
Second quarter non-GAAP gross margin was 56% approximately 970 basis points higher than the second quarter of 2020, primarily driven by a favorable business mix featuring growth in higher margin Tech enabled services and software solutions sales combined with lower.
Our overall print volume and the impact of ongoing cost control initiatives.
Non-GAAP SG&A expense in the quarter was $70 million or $13.2 million higher than the second quarter of 2020.
As a percentage of net sales non-GAAP SG&A was 26, 2% an increase of approximately 380 basis points from the second quarter of 2020.
The increase in non-GAAP SG&A is primarily due to sales commissions on higher sales.
<unk> in the business mix and higher incentive compensation expense.
Partially offset by the impact of ongoing cost control initiatives.
Our second quarter non-GAAP, adjusted EBITDA was $79.9 million, an increase of $19.1 million or 31, 4% from the second quarter of 2020, our second quarter non-GAAP. Adjusted EBITDA margin was 29, 9% an increase of approximately 600.
Basis points from the second quarter of 2020, again, primarily driven by the favorable sales mix and ongoing cost control initiatives, partially offset by higher incentive compensation and selling expenses.
Turning now to our second quarter segment results net sales on our capital markets software solutions segment were $43.8 million, an increase of 37, 7% from the second quarter of 2020, primarily due to increased venue virtual data room activity and continued growth in active disclosure.
<unk>.
Venue sales increased approximately 50% from the second quarter of 2020, driven by an improving M&A environment and sales and marketing efforts focused on gaining market share and accelerating growth, while our recurring compliance products active disclosure and <unk> also had a solid quarter.
Posting 26% growth in aggregate.
Non-GAAP adjusted EBITDA margin for the segment was 29% an increase of approximately 260 basis points from the second quarter of 2020 the.
The increase in non-GAAP adjusted EBITDA margin was primarily due to the increased sales a favorable sales mix as well as the impact of operating efficiencies, partially offset by higher selling expenses as a result of the increased sales volume.
Net sales on our capital markets compliance <unk> Communications management segment were $153.1 million an increase of 26, 7% from the second quarter of 2020, primarily due to increased capital market transactional activity continuing the trend that began in the third quarter of 2020.
This growth was largely driven by the ongoing momentum in IPO activity as well as increased M&A activity, including dis back transactions.
Non-GAAP adjusted EBITDA margin for the segment was 43, 4% an increase of approximately 260 basis points from the second quarter of 2020.
The increase in non-GAAP adjusted EBITDA margin was primarily due to the increased sales volume and a favorable sales mix.
As we anticipated and also communicated on our last call. We did see a sequential decline in spot IPO registration activity based on the SEC statement regarding the accounting classification of warrants and their potential action on legal protection for growth projections set.
Second quarter sales driven by spec registrations were less than $400000 compared to approximately $3.6 million in the first quarter.
Over the last 4 quarters, we've completed 139 spec registrations and have generated approximately $6.2 million in sales for these transactions.
As it relates to this activity the bigger opportunity lies ahead as the value of a destock transaction is on average 10 times the value of the initial registration transaction.
Further these transactions will provide a pipeline for recurring software subscriptions to support our clients' ongoing compliance requirements.
Net sales on our investment company software solutions segment were $22.8 million, an increase of 44, 3% from the second quarter of 2020, primarily due to strong demand for our arc digital total compliance management offering in the quarter, which continues to gain momentum.
Since we launched it in the second quarter of 2020.
With new opportunities arising out of the regulatory changes affecting investment companies.
In addition growth on our pro related to new subscription activity and organic growth from existing clients also fueled the growth in this segment.
Non-GAAP adjusted EBITDA margin for the segment was 29, 4% an increase of approximately 600 basis points from the second quarter of 2020.
The increase in non-GAAP adjusted EBITDA margin was primarily due to the increase in sales and a favorable sales mix, partially offset by higher incentive compensation expense.
Net sales in our investment companies compliance <unk> Communications management segment were $47.8 million a decrease of $37.8 million or 44, 2% from the second quarter of 2020 due to the impact of regulatory change and investment companies affecting.
Related sales and a reduction of commercial printing sales related to contracts, we have proactively exited.
Non-GAAP adjusted EBITDA margin for the segment was 10, 9% approximately 290 basis points lower than the second quarter of 2020.
The decline in non-GAAP adjusted EBITDA margin was primarily due to the lower activity levels for print and distribution.
This impact was partially offset by a reduction in overall expense within the segment, primarily due to cost savings as a result of the consolidation of the print platform and a lower allocation of overhead costs, which are now being absorbed by our other 3 operating segments.
The lower activity level in this segment results in a reduced need for such shared resources.
Second quarter has historically been our peak quarter in terms of current activity and with approximately 60% of the reduction in print demand now behind us the execution of our plans to consolidate the print platform and to capture the related cost savings continue to track ahead of plan regarding the.
Regulatory change that will continue to reduce demand for print from the segment. We continue to expect a reduction in print related net sales of approximately $130 million to $140 million and a reduction in non-GAAP adjusted EBITDA of approximately $5 million to $10 million related.
The regulatory change.
Non-GAAP unallocated corporate expenses were $11.2 million, an increase of $2 million from the second quarter of last year. The increase in unallocated corporate costs was primarily due to increased incentive compensation driven by the strong performance, partially offset by the impact of ongoing.
<unk> cost control initiatives.
Free cash flow in the quarter was $29 million, representing an improvement of $16.5 million from the second quarter of last year.
As Dan mentioned earlier this improvement was despite having funded $15.7 million related to the OFC multi employer pension plan obligation. The vast majority of which was related to lump sum settlement payments with 2 of the 3 plants.
Last year's second quarter did not include any payments related to this item as we began making payments in the third quarter of 2020, so the full $15.7 million cash outflow was incremental to last year's second quarter.
As a reminder, defend and RR donnelley agreed to share required payments equally and an adjustment and repayment will be made as needed in accordance with the final allocation determined an arbitration, which we expect to occur before the end of the year.
We ended the second quarter with $249 million of total debt and $201 million of non-GAAP net debt, including $10 million drawn on our revolver.
From a liquidity perspective, we had access to the remaining $287.7 million of our revolver.
As well as $39.9 million of cash on hand.
As of June 32021, our non-GAAP net leverage ratio was 0.9 times down 1.2 times from the second quarter last year.
Our cash flow is historically seasonal we are a user of cash in the first half and generate more than 100% of our free cash flow in the second half of the year as our sales mix continues to evolve to proportionately more subscription based software solutions, we expect the seasonality to be less significant.
During the quarter, we amended and extended our credit agreement to among other things provide for $200 million delayed draw term loan a facility and to extend the maturity of the $300 million revolving facility to May 27.2026.
Proceeds of the term loan may only be used to redeem or repurchase the company's 8.25% senior notes due 2024, which become redeemable on or after October 15.2021.
It is our intent to redeem these notes at that time, which following that transaction will lower our annual interest expense by approximately $14 million.
The company repurchased approximately 251000 shares of common stock during the quarter for $7.1 million.
At an average price of $28.19 per share we have approximately $39.6 million remaining on our $50 million stock repurchase authorization.
As it relates to the third quarter transactional activity in capital markets remained robust throughout July regarding.
Regarding our outlook for the quarter, we are expecting consolidated net sales to be in the range of $200 million to $210 million.
Approximately $5 million or 2.5% year over year at the midpoint due to the planned reduction in printing distribution for the regulatory changes related to SEC rules 33, and $4.98 days.
Excluding print and distribution third quarter revenue is estimated to grow by approximately 14% at the midpoint of our range.
We remain bullish on the near term outlook for our software solutions sales as well as on capital markets transactional activity.
From a profitability perspective in the third quarter, we expect our non-GAAP adjusted EBITDA margin in the low to mid 20 per cent range similar to last year's third quarter margin with that I'll now pass it back to Dan.
<unk>.
Thanks, Dave the execution of our strategy continues to deliver positive results, our new software offerings continue to attract strong interest and adoption.
On momentum and software combined with our strong position in the transactional market has enabled us to generate sustained sales growth over the last 4 quarters in.
In addition, we have now delivered year over year expansion on EBITDA margins per 8 consecutive quarters, demonstrating the continued improvement in our business mix and disciplined cost management, while also increasing investments to accelerate our strategy the.
The trends in our top and bottom line results reinforce the value of our 44 in 2004 strategy achieving.
Achieving this goal was driven by increases in our software solutions and tech enabled services sales and decreases in print sales, yielding strong margins and cash generation.
In closing we are excited about our very strong first half of the year and remain keenly focused on driving our 44 in 2004 strategy the adoption.
Trends for our new software products and our various operational successes illustrate the exceptional value we are delivering to our clients. We continue to find and focus on opportunities to further enhance shareholder returns before we open it up for Q&A I'd like to thank the deepen employees around the world who have been working tirelessly to develop.
New products maintain our operations and share our clients continue to receive the highest quality service without disruption.
Stay safe and healthy.
Now with that operator, we're ready for questions.
At this time if you have a question. Please press Star then the number 1 on your telephone keypad.
And your first question comes from Charlie <unk> with CJS.
Hi, Good morning, just a couple quick questions for you.
First of all the impressive software growth that you saw in the quarter.
Can you maybe dive in a little bit more detail behind the drivers of that growth.
Especially.
Excluding venue.
What are you seeing in terms of.
The drivers beyond that.
Are you seeing a pickup in kind of dispatch activity.
New business as well.
Okay. Thanks, Charlie.
And good morning all.
Start off and then I'll ask Craig and Eric to speak a bit about go to market on some of the new products.
That our engineering and product teams have recently developed and that we have in market. So if you look at our $232 million of software revenue over the past.
The past 4 quarters, we break it into our regulatory compliance offering which is the majority of our software. It's purpose built for our clients to comply with SEC regulatory and filing requirements and then to your.
Other point the balance is primarily our venue data room and so we're always looking for ways to serve clients to increase the recurring nature.
Across all of our products, we have increased our spending on technology, both existing and new products, including introducing.
Introducing 3 new offerings to the market over the past year or so.
And we're seeing great client interest and receptivity across the product suite, but in particular to the new products.
The most recent introduction as new <unk> D, which is a brand new build.
We began to sell it in the market a few months ago.
And then within our GIC business, we introduced the new product total compliance management.
To support our clients.
In response with all the regulatory change going on with 33, 498 day, and then EBIT more broadly.
We also introduced a new offering in Europe.
A year or so ago.
So let me pass it off to Craig who will then also ask Eric to make a couple of comments Craig anything to add on on new <unk>.
Sure and I think also to touch on the spot piece, maybe I'll start there, which is stacks have normalized.
So post the sort of SEC scrutiny.
What we've seen is.
Really in Q2 net total spec count surpasses 2019 total so it certainly isn't at Q1 level, but we think it's normalized.
It's a great opportunity that's back to creating increased public company nearly perfectly highlights defense value proposition.
Supporting the deal team through the traditional on new <unk> from the.
Filings on the pricing our clients are using venue on virtual data rooms, where their pipe financing.
And then as well you've got this pipeline, so 400 staff plus looking for a target.
And we're ready to support them.
So then you get to its creating great new public companies.
And the recurring high returns on software on UAV.
We took the experience of decades of servicing SEC clients in Q1 launch new IV. So built from the ground up its purpose driven.
C compliance software browser base integrates with our clients' ERP and excel, where our clients last mile of financials reside.
<unk> Onboarding and early client takeaways from those who have on boarded indicate the market wants what we have built we're very very pleased with the pipeline our clients are converting from 83 point.
<unk>, our newly public clients through the IPO or stack on UAV.
Certainly on.
Our competitive win.
Our competitor clients are welcoming having a choice at the time so.
So we're really excited about what we see with new <unk> and we're looking forward to the second half of 2021 on beyond.
Eric I'll turn it to you.
Yeah. Thanks, Craig.
Charlie Thanks for the question for.
For GIC, it's a few things.
Strong performance from our new our digital product and total complaints management solution launched.
In 2020.
As well as new regulatory compliance drivers in the U S market like ex Bureau rules 33, and 498 day.
Arc suite software helps clients operationalize Reg requirements.
Another important factor is the velocity of technology adoption and the investment companies segment as.
As many firms are focused on digitizing their internal processes and workflows supporting the middle and back office.
And arc suite is well positioned to help them achieve achieve their digitization goals.
Great. Thank you very much for that and then.
Just kind of staying on that topic for just a second if we could.
How much of it Charlie sorry, sorry, I was just going to just going to add your question on the spec market.
Craig outlined kind of the opportunity going forward.
Comment that on on the math and what we've seen historically.
The 139 stacks that that we've done per on the registration about $6.2 million in revenue over the last year.
My comment around the.
On the <unk> transaction being typically 10 times larger.
If you run through that math there is rough.
Roughly 425 specs that have completed the registration, but have yet to complete an acquisition.
So you look at the aggregate revenue opportunity in the market, it's probably call it $200 million over the next couple of years.
And then even if you haircut that for completion rates in our market share our historical market share of the M&A activity.
To think about that as $60 million to $70 million of transactional activity over the next couple of years.
Isn't unreasonable specific to stack.
Lease back transactions.
Then as Craig also noted more importantly, it is creating a nice price pipeline for us.
On the recurring.
Software subscriptions for for active disclosure.
Great and then just staying on that for just 1 more second just as you think about the.
The companies that have begun to piece back.
What do you feel like your share has been in terms of.
Garnering new business from those <unk> companies.
Yeah, I'll take a first shot at that so thank you.
Our share has been increasing certainly from.
The evolving stack I mean, it used to be sort of the blank check last resort now.
Our high quality high management team doing great things.
<unk> share has started to reflect that.
We certainly have a.
Extremely high retention.
Feedstock from the back of our own work.
And then what we're also seeing is that these facts are super Super complicated.
And we can then in those leaseback actually take share from our competitor they often upgrade their deal team.
And they often net upgrade to defend that.
The real takeaway is this creation of a new public company, that's back holding company the stack than Destocking, it's creating an amazing pipeline for us to retain those companies on a new AED.
And create this recurring revenue I'm Super excited about not just the revenue, but the ongoing reporting needs of these clients and that they will be share defend.
And Charlie just to add the current dominant on.
The spec registration where the company has also done an acquisition and it was.
Where the initial stack was handled by a competitor.
We've taken back roughly 20% or so on the <unk> transaction and then as Craig pointed out very high conversion rate, where we don't we did the initial.
Stock transaction.
Do you feel like the further context.
The stock is I think we've referenced on prior calls really small document.
So it is a leaseback.
The wheel.
Disclosure opportunity and then obviously the role reporting to Charlie.
Just on the share side on the traditional side of your business you feel like you're still taking share from competitors as well.
Yes.
We are in a strong integration across an array of product launches.
Excellent. Thank you very much.
Thank you Charles.
Your next question comes from Peter Heckmann with D. A Davidson.
Hey, good morning, everyone, great results on that last quarter on screen.
Hey on market share gain.
On the capital market side.
Do you feel like those share gains are.
More weighted towards.
Just capturing a greater share of the new issues.
Or are there.
Also a contribution from competitive takeaways of existing public company.
Well I think they are they are both to the sort of thing.
<unk> side was earlier first question.
In robust markets, we tend to do very well again, the quality of those deals the deal team.
On our sort of place in that system.
Clients on regulatory we can really well on the transactional side.
We're seeing that right now the second part of your question is on the compliance side, which is the ongoing reporting needs.
We've said on prior calls that we increased share we.
Did that in 2008 from 19, while we get it in Q1.
From 2000.
And we saw that again, so we continue to increase the number of public companies working with US is both taking share as well as retaining company newly minted company, whether its IPO or destock.
Got it got it Okay and then just on the on.
On the regulatory outlook.
Good to see.
33% and 498 on almost in the rearview mirror anything that we should be watching over the next let's say 18 months in terms of proposed new rules that could either be.
On tailwind or headwind for defense.
Yeah I'll start it out.
We monitor what's happening with the SEC very closely.
We're on a monetization process.
We're in very closely making sure that our products for us on the call today on making sure that our products are ready for that and we are.
It's an opportunity for US there is certainly nothing that we see as a net negative they're talking about ESG, they're talking about additional ex BRL requirements. So we're monitoring those none of those have been proposed but it typically is a proposal at 92, many months long process to comment.
Before Theres a rule change so we're certainly very far out from anything that would have any subsequently changed what we hear I think is a net positive as people have to disclose in rips.
Port more transparency is great.
Yes.
To that.
I think when you when you ask relative to 18 months tough to exactly pinpoint the timing but.
Craig's last comment about enhanced transparency disclosure.
<unk>.
Data.
We feel very positive about some of the things that have been discussed and that are being discussed, but not yet yet proposed and I'm sorry, Eric I think you had a couple of things that day.
Yes, Thanks, Dan and Pete Thanks for the question.
I would just say on the GIC side of things as Craig mentioned, we as well stay very close with the regulators in.
We see our software as I mentioned earlier, it's about operationalized the rig requirements. So we stay very close with U S regulators as well as EU.
As far as the near Horizon, certainly Theres, a lot of things and comment comment period.
So we'll stay close to it but again our software to really help our clients tackle any regulatory change that comes their way.
Got it that's helpful I'll get back in the queue.
Thank you.
Your next question comes from Raj Sharma with B Riley.
Hi, Good morning, guys congratulations on.
Another solid quarter.
Wanted to I wanted to understand.
Understand.
Print declines a little bit better.
<unk> was was some of the decline.
From.
Q2 to the second half of the year.
This is my recollection.
Thought that there was going to be a.
Sort of a bigger proactive decline in Q2 from print.
And so what is remaining for the balance of the year could you talk about that.
Yeah, Ross, it's Dave So when you look at the overall print numbers Theres, a couple of things going on there.
1 is the impact of the regulatory change right, which was.
33, and 498 day.
$130 million or so.
We're about 60% of the way through that now you have a couple of things going the other way.
We pointed this quarter, specifically, the the transactional environment and capital markets remained strong and so there was some.
Incremental print on a year over year basis.
Reflected in the numbers too so I think when you look at look at going forward.
On that $130 million of.
Print decline this year, we said, we're roughly 60% of the way through it.
So that last 40%.
For roughly $50.50 million.
Over the next couple of quarters.
Yes.
I'd add to that just to add to that is no.
Some of that variability outside of the regulatory change.
Yeah.
It does demonstrate the benefit of variable Isaac the print platform.
As we have done and so Dave's prepared comments.
We now have a very nice digital platform.
For higher value quicker turn types of needs.
And then we're able to go into the marketplace to scale up and obviously scaled down as demand dictates.
So is it fair.
Fair to say that the net reduction in print this year.
Would we could see is actually looking to be less than $930 million simply because of the uptake in transactions.
Yes.
The right way to think about it Raj.
Okay.
Thank you and then.
On on your Q.
Q3 guidance.
Any particular reason why the margins would you're expecting the EBITDA margins would be 500, 600 basis points lower than it would be that cash that right than Q2.
So we said.
Low to mid 'twenty similar to last year's Q3.
Again, I think when you look at the way transactional has gone over the last several quarters we've had.
$90 million plus I think now for at least 3 quarters in a row.
While the market remains strong in July.
Q3 always tends to be a little bit lighter and so that business mix is.
Always an issue, we're we're watching and like we've talked about before on the transactional work.
Is a little unpredictable.
Although we're still we're still bullish on the outlook, but.
I wanted to just make sure that we're going to deliver against.
Our guidance.
Alright, so so.
Fair to say that the margins are tight almost entirely predicated upon the transaction on.
The business, which is the wildcard sort of when you see a.
Did you see.
Good.
Strength in that in Q3, so far yes.
So far we do I would say the other aspect is the.
The growth should be thrive on the software solutions revenue comes through at very high incremental gross margins and flows through to EBITDA.
But like you say the biggest wildcard would certainly be transactional.
Great.
Thank you for answering my questions great quarter again.
Thanks Roger.
Your next question is a follow up from Charlie Strausser with CGS.
Alright. Thanks.
Drilling down a little bit more on the Q3 guidance.
It could.
Some thoughts on your assumptions for each segment how.
How should we think about building up the model from a.
Segment basis there.
And then.
On the transactional side.
Are you assuming for transactions for both like Ipos as well as M&A on policy.
On the very big seen it.
They pick up lately.
Maybe you can give us some thoughts on that side as well.
Yes.
Yes, sure. So if I if I go segment by segment.
We would expect both of the software segments.
To continue to increase pretty substantially in Q3.
And then when we looked at.
The investment companies compliance <unk> Communications management segment.
To the earlier point around B.
The regulatory impact on print I think the declines there would be similar.
What we've seen so far this year.
And then again the biggest wildcard would be.
In the capital markets compliance <unk> Communications management segment.
Certainly expecting to see growth in Q3.
Comps do get tougher as we get into Q3 and also into Q4.
But at a high level.
I think that the growth in software to growth and capital cash.
On markets compliance <unk> Communications management, and maybe again, a little bit of that offset by.
The decline in print, which which predominantly hits in <unk>.
Investment companies compliance <unk> Communications management.
And then specific to transactional for Q3.
I mentioned that you look over.
The last.
3 or 4 quarters, we had.
It's actually the last 3 quarters, starting in Q4 last year and the first 2 quarters of this year.
In excess of $90 million in transactional sales.
On.
That's a that's a pretty big number a pretty robust market there.
That we've seen over the last 3 quarters I think.
Looking specifically at transaction.
That would be a stretch to get there this quarter.
But like I said, we've started off strong in July and.
To the extent that the market holds up well.
Probably be looking in the call it 80% to $90 million range on transactional.
Obviously, you guys did should see traditional kind of until till down for the EPS from a vacation doldrums so to speak to.
Yes, that's right.
Thank you very much.
Thank you.
For any questions. Please press Star then on apparel line on your telephone keypad.
Okay. Thanks.
There are no further questions I will now hand, the call back to management for closing remarks.
Thank you Ashley. Thank you all for joining us and we'll look forward to speaking to you in November Thank you.
That concludes today's conference. Thank you for your participation you may now disconnect.