Q1 2022 Donnelley Financial Solutions Inc Earnings Call
Includes our updated long term projections.
All of which can be found in the investors section of our website at defense solutions Dot com.
During this call we will refer to forward looking statements that are subject to risks and uncertainties.
A complete discussion please refer to the cautionary statements included in our earnings release and further detailed in our most recent 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 an appropriate way for you to evaluate the company's performance they.
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 Leib, Dave Gardella, Craig play, Eric Johnson floor extremely and can be Turner.
I will now turn the call over to Dan.
Thank you Mike Good morning, everyone and from all of US defend we hope that you and your families are doing well.
As noted in this morning's press release, our first quarter results were consistent with our expectations with net sales of $211 million and non-GAAP adjusted EBITDA margin of 24, 2%.
We delivered solid financial results, despite a challenging capital markets transactions environment.
Our first quarter performance demonstrates that our strategy and focus has resulted in deferred becoming more durable and structurally resilient than in the past as we continue to invest to shift toward a more favorable recurring sales mix, while continuing to aggressively manage our cost structure and being disciplined.
Upland stewards of capital.
Today, we also provided an update to our long term projections, which are included in our investor presentation that can be found on our investor Relations website.
Specific to our first quarter performance I am pleased with the continued strong demand for our software offerings, where we delivered year over year sales growth of 15, 8% the fifth consecutive quarter of double digit software sales growth.
Software sales represented 33% of total net sales in the quarter.
Highest level of defense history.
On a trailing four quarter basis software sales made up 29% of total sales an increase of approximately 600 basis points from the prior trailing four quarter period.
This continued positive mix shift is a reflection of our progress in transforming <unk> into a software centric company.
A major driver of the first quarter software growth was the performance of our recurring compliance and regulatory driven software products. These compliance software offerings grew 19% in aggregate versus the first quarter of last year and accounted for approximately 63% of total first quarter software sales.
Continued growth in recurring compliance software is an important step in the transformation of our business mix and financial profile to become more predictable and resilient regardless of market conditions.
Leading the way for our compliance offerings was active disclosure our cloud native solutions purpose built for SEC reporting which grew 29% in the first quarter.
Re imagined from the ground up new active disclosure delivers fast simple and secure SEC filing functions and represents a significant step forward for the marketplace and SEC compliance.
As we approach the first year anniversary of new active disclosures introduction, we continue to make excellent progress in transitioning clients from our prior platform to new active disclosure, while also realizing higher price levels and longer term subscriptions, resulting in strong annual recurring revenue.
Yeah.
Our suite the other major component of our recurring compliant software offering delivered solid year over year sales growth of 15, 1%. Despite last year's strong first quarter driven by regulatory change we continue to see increased adoption of our total compliance management offering.
A component of our digital, albeit at a more modest pace than in 2021. When the solution was first introduced in response to regulatory change in.
In addition to the growth coming from total compliance management I am encouraged by the solid subscription revenue growth across the arc suite modules.
Our transactional software venue experienced tremendous growth in 2021, driven by a robust capital markets transactions environment. Despite the decline in capital markets transactions in the first quarter of 2022 venue performed very well as the level of underlying activity taking place on.
Our virtual data room platform remained resilient.
Venue sales grew 12% significantly outpacing the market trend of its primary use case, which is M&A.
I am proud that venue has been named USA M&A virtual data room of the year by global M&A network. A recognition venue has earned for the sixth consecutive year.
Overall I am encouraged by the performance of our software solutions portfolio and believe both our recurring and transactional software products are well positioned for the future.
As it relates to capital markets transaction sales in the quarter transactional activity was impacted negatively by the capital markets volatility, creating a very soft IPO market and a weaker M&A environment with many companies opting to delay transactions.
Specifically global IPO activity was down 85% and very few large M&A deals were completed in the quarter.
Additionally, the spec market, which produced a record number of stack registrations in 2021 took a significant pause in 2022 as recent market volatility and proposed new regulations dampened enthusiasm across both new spec issuances and announced Deepak.
Transactions well.
Well it has been a challenging environment to start the year history has demonstrated that change in the transactions markets can be swift let.
Let me point to two areas that illustrate the potential for a swift change first.
Despite the drastic decline in completed Ipos during the first quarter, our pipeline of in process Ipos remains robust.
<unk> currently has several hundred IPO clients continuing to work such as updating their filing with current financial statements in order to be ready to take advantage of the market when the window opens.
Our current level of in process Ipos is comparable to the level we experienced in 2021.
The steps our clients are taking the remained ready to go public we expect them to respond quickly when market volatility subsides.
Regarding M&A, despite increased macroeconomic headwinds, including a sustained high level of inflation and the likelihood of additional interest rate increases the demand for high quality assets remains robust combined with the record level of available capital and a large existing spec universe seeking a target.
M&A is likely to remain more resilient I am confident with our strong market position and client relationships deepen is very well positioned to support the capital markets transactional needs as activity levels return.
From an overall sales perspective, the decline in capital markets transactions, along with the planned print and distribution sales reduction more than offset the growth in software solution sales, resulting in a consolidated net sales decline of 14% from last year's first quarter.
Excluding print and distribution year over year net sales decreased 10% in the quarter.
First quarter non-GAAP , adjusted EBITDA was $51 $1 million, a decrease of 28% from last year's first quarter and non-GAAP . Adjusted EBITDA margin was 24, 2% a year over year decline of approximately 480 basis points.
While our margin contracted versus last year's first quarter, which had nearly twice the amount of transactional revenue from a multiyear perspective, the first quarter 2022, non-GAAP adjusted EBITDA margin is much stronger than historical quarters with similar levels of total sales and transactions.
Revenue.
Against those quarters of comparable total and transactional sales first quarter 2022, non-GAAP adjusted EBITDA margin is higher by more than 1000 basis points reflective of our improved sales mix our ability to operate at a higher level of profitability across varying points in the market.
Michael is a further proof point of our strategy and execution, resulting in defense being fundamentally more profitable and resilient than in the past.
At quarter end, our non-GAAP net debt was lower than last year's first quarter by $35 million, resulting in a non-GAAP net leverage of <unk> seven times.
Three times lower than the first quarter of 2021.
We repurchased one 2 million shares during the first quarter of 2022, continuing the trend of opportunistic share repurchases given our current valuation at quarter end, we had $123 million remaining on our share authorization.
As we have demonstrated over the past several years our performance has been well ahead of our original five year plan. We provided during our May 2018, Investor day as well as ahead of the updates we have shared periodically.
With a solid foundation created by the results of our transformation to date, we are well positioned to deliver increasing value to our three stakeholders our customers our employees and our shareholders. We will continue to be guided by our aspiration to become the leading provider of compliance and regulatory solutions and remain.
Focused on executing against each of our plan objectives to drive long term sustainable profitable growth and value creation.
Let me highlight one aspect of our long term plan that we are very excited about at the time of our spin five years ago software sales comprised approximately 14% of our total sales through our transformation and growth initiatives. We have doubled software sales in five years, which also nearly doubled the proportion of our sale.
<unk> is being generated by software sales from 14% in 2016% to 27% in 2021.
As we look forward, we see further opportunities in our organic capabilities to more than double software sales mix from our 2021 level.
And we expect software will make up nearly 60% of our total sales by 2026. Additionally, our updated projections have us exceeding our 44 in 'twenty four goal of targeting 44% of our sales from software solutions by the year 2024, perhaps.
More importantly, we expect more than 70% of software sales in 2026 to be recurring revenue.
Driven by the growth of our compliance software, providing a strong foundation of annual recurring revenue.
While we cannot predict the future regulatory landscape.
<unk> is well positioned to leverage our software offerings, and our sales and deep domain service expertise to address the market needs related to future regulatory changes we are enthusiastic about the opportunities over the next five years to continue on the path of sustained value creation.
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 financial results and outlook for the second quarter of 2022, and our updated long term projections Dave.
Thank you Dan and good morning, everyone.
First let me provide some additional details around our first quarter financial performance as Dan noted, we continued to experience strong demand for our software solutions during the quarter. All three major software products active disclosure venue and <unk> suite again delivered double digit sales growth, which drove total soy.
For sales growth of nearly 16%.
From a capital markets perspective, we expected the slowdown in transaction activity at the beginning of the quarter as a result of recent market volatility.
<unk> activity, especially in IPO was further dampened by the uncertainty caused by geopolitical conflicts that unfolded in the second half of the quarter. Additionally, first quarter 2022 faced tough comparisons as we will see throughout the year, given 2020 one's record performance and market conditions.
Alright, most unexpected external conditions facing our largest and most profitable segment, we delivered sales and non-GAAP adjusted EBITDA margin in line with our expectations.
On a consolidated basis net sales for the first quarter of 2022 were $211 million, a decrease of $34 3 million or 14% from the first quarter of 2021.
Software solutions net sales in the first quarter were $69 $8 million, an increase of $9 5 million or 15, 8%.
Our recurring compliance offering which includes active disclosure and arc suite.
Livered, 19% sales growth in aggregate.
Disclosure continued to demonstrate strong sales momentum posting growth of approximately 29% in the first quarter.
Our suite grew 15% in the first quarter driven by the strong demand for our total compliance management solution.
Tech enabled services net sales were $91 7 million a decrease of $26 8 million or 22, 6% due to the decreased capital markets transactional activity, partially offset by higher compliance volume within capital markets.
Clinton distribution net sales were $49 5 million.
A decrease of $17 million or 25, 6%, primarily due to lower print volumes associated with the decline in capital markets transactional activity and regulatory driven reductions in demand for printed materials within investment companies.
First quarter non-GAAP gross margin was 53, 1% approximately 160 basis points lower than the first quarter of 2021, driven by lower sales volume and an unfavorable business mix both related to lower capital markets transactional activity.
Partially offset by lower incentive compensation expense and the impact of ongoing cost control initiatives.
non-GAAP SG&A expense in the quarter was $61 million or $2 million decrease from the first quarter of 2021. The decrease in non-GAAP SG&A is primarily due to lower incentive compensation expense and the impact of ongoing cost control initiatives, partially offset by investments in product development.
And technology.
As a percentage of net sales non-GAAP SG&A was 28, 9% an increase of approximately 320 basis points from the first quarter of 2021.
Our first quarter non-GAAP adjusted EBITDA was $51 1 million, a decrease of $20 million or 28, 1% from the first quarter of 2021.
First quarter non-GAAP adjusted EBITDA margin was 24, 2% a decrease of approximately 480 basis points from the first quarter of 2021, driven by less transactional sales, partially offset by lower incentive compensation expenses as well as the impact of ongoing cost control initiatives.
As Dan mentioned earlier, our first quarter non-GAAP adjusted EBITDA margin is much stronger than our historical margins in quarters with similar overall and transactional sales.
To illustrate this in more detail in the first quarter. This year on a similar level of transactional sales and slightly lower level of overall sales compared to the first quarter of 2019 and 2020. This year's first quarter non-GAAP adjusted EBITDA of $51 $1 million is <unk>.
$27 4 million.
And $21 million higher than the first quarters of 2019 and 2020, respectively.
From a margin perspective first quarter 2022, non-GAAP adjusted EBITDA margin was 24, 2% compared to 10, 3% and 13, 6% in the first quarters of 2019 and 2020, respectively.
Our focused efforts to reduce fixed costs across the business and the variable is our cost structure in specific areas.
<unk> to be more sustainable and resilient throughout market cycles, while driving increased software sales.
Turning now to our first quarter segment results net sales in our capital markets software solutions segment were $44 $7 million, an increase of 16, 1% from the first quarter of 2021, primarily due to the performance of our recurring compliance product active disclosure, which had another excellent.
Quarter, posting 29% growth and our virtual data room, offering venue, which delivered 12% growth.
Despite the slowdown in larger scale corporate M&A activity during the first quarter of 2022, the remainder relatively strong demand for virtual data room offerings in support of mid market and private equity transactions.
We are pleased with the resiliency of venue sales momentum, allowing us to overcome a softening M&A environment relative to the first quarter of last year.
non-GAAP adjusted EBITDA margin for the segment was 22, 4% a decrease of approximately 440 basis points from the first quarter of 2021.
The decrease in non-GAAP adjusted EBITDA margin was primarily due to higher product development and technology investments as well as increased allocations of overhead partially offset by higher sales and the impact of cost controls.
In the near term, we will continue to incur costs associated with supporting both the 83 and new <unk> platforms, we expect to materially complete the transition from 83 to new AED by early 2023, which will eliminate the duplicative costs, helping to further strengthen the margin profile of <unk>.
This disclosure.
Net sales in our capital markets compliance <unk> Communications management segment were $103 6 million.
A decrease of 25, 2% from the first quarter of 2021 due to lower capital markets transactional activity, partially offset by higher compliance volumes.
As we expected recent market volatility has limited new issuances led to additional deal abandonments and delayed certain capital markets transactions as the quarter progressed, increasing macroeconomic uncertainty and major geopolitical events further escalated market volatility.
Combined the adverse impact of these factors caused capital markets transactional sales to be below expectations for the quarter in particular, the global IPO market experienced a significant year over year decline in deal volume and the stock market was muted following a record 2021.
Activity levels.
The decline in capital markets transactional revenue is partially offset by our capital markets compliance offering which achieved year over year sales growth of 8% as a reminder, unlike the volatility inherent in the transactional activity or capital markets compliance offering which supports our corporate clients with their ongoing compliance.
Needs is mostly recurring in nature.
We remain well positioned in this space to capture business as a result of newly formed public companies as it continued to expand our share.
non-GAAP adjusted EBITDA margin for the segment was 29, 6% a decrease of approximately 4500 basis points from the first quarter of 2021.
The decrease in non-GAAP adjusted EBITDA margin was due to lower transactional sales volume, partially offset by lower selling and incentive compensation expenses and cost savings initiatives.
As both Dan and I pointed out earlier <unk> has now fundamentally more profitable compared to historical quarters with similar level of overall sales and transactional activity. This is particularly noticeable in the capital markets compliance and communications management segment, where first quarter 2022 non-GAAP .
<unk> EBITDA margin exceeded margins from both the first quarters of 2019, and 2020, which had similar total and transactional sales relative to the first quarter of 2022.
As an example in the first quarter of 2019. This segment had overall sales of $102 million in transactional sales of $48 million non-GAAP adjusted EBITDA margin was 18, 7%.
Similarly in the first quarter of 2020 total sales were $99 $1 million.
$46 $4 million coming from transactions.
In that quarter, the segment's non-GAAP adjusted EBITDA margin was 26, 4%.
On similar levels of both transactional and total revenue. This year's first quarter margin exceeded the first quarters of 2019, and 2020 by nearly 1100 basis points and 320 basis points respectively.
While the capital markets transaction environment remains uncertain. We are encouraged by the strong IPO backlog as well as a pipeline of over 600 specs looking for acquisitions.
Our industry, leading portfolio of solutions dedicated to our clients private to public journey positions <unk> well to capture a significant portion of future IPO transactions further our strong market position and the transactional filing business.
<unk> as well to also capture a significant portion of future destock activity, which on average represents 10 times the value of an initial stack registration transaction.
Additionally, these transactions provide a pipeline for recurring software subscriptions to support our clients' ongoing compliance requirements we.
We are closely monitoring the recent regulatory changes proposed by the SEC that could impact the future market for stack formations and east back activity.
The proposed legislation is aimed at increasing disclosure and investor protections potentially changing how specs function going forward.
Our list of potential impacts these regulatory changes will have on the stock market.
Underlying need for private to public transactions will still exist and we are well positioned across our capital markets transactions offerings to capitalize on future activity.
Net sales in our investment company software solutions segment were $25 1 million an increase of 15, 1% from the first quarter of 2021, which was also a very strong quarter year over year growth was driven in part by continued strong demand for our digital our total compliance management.
During his investment company clients turn to digital alternatives to adopt new regulations and transition away from print.
In addition, solid subscription revenue growth in our reporting and our pro also fueled the net sales increase in this segment.
non-GAAP adjusted EBITDA margin for the segment was 36, 7% an increase of approximately 1100 basis points from the first quarter of 2021.
The increase in non-GAAP adjusted EBITDA margin was primarily due to the operating leverage on the increase in sales and.
And lower incentive compensation expense, partially offset by higher product development and technology investments and increased allocation of overhead expense.
Net sales in our investment companies compliance <unk> Communications management segment were.
<unk> $37 6 million.
A decrease of $8 9 million or 19, 1% from the first quarter of 2021 due to the impact of regulatory changes and a reduction of print sales related to contracts, we proactively exited.
non-GAAP adjusted EBITDA margin for the segment was 25, 5% approximately 980 basis points higher than the first quarter of 2021, the increase in non-GAAP. Adjusted EBITDA margin was primarily due to price increases on print works.
Mix, featuring more services and less print.
A reduction in overall expense within the segment as a result of consolidation of our print platform lower incentive compensation expense and reduced overhead costs based on the lower activity level in this segment.
As we mentioned last quarter, we have successfully shifted 100% of our offset print production to a third party vendor networks, creating a fully variable is cost structure.
Going forward, we will continue to operate a digital only print platform to meet the demand for higher value quick turn requirements.
Regarding the regulatory changes that will continue to reduce this year's demand for print in this segment. We expect a decline in net sales of approximately $40 million $10 million of which was realized in the first quarter and only at the minimus impact on non-GAAP adjusted EBITDA in 2022.
non-GAAP unallocated corporate expenses were $8 $4 million in the quarter, a decrease of $4 $1 million from the first quarter of last year. The decrease in unallocated corporate costs was primarily due to lower incentive compensation expense and the impact of ongoing cost control initiatives.
Free cash flow in the quarter was negative $62 1 million.
$15 8 million unfavorable compared to the first quarter of 2021 relative.
Relative to last year's first quarter substantially more than all of the higher use of cash was driven by elevated performance based payments in the quarter. A result of our exceptional 2021 results.
These impacts were partially offset by improved working capital and lower cash restructuring payments, enabling us to deliver a better than expected first quarter free cash flow.
From a liquidity perspective, we had access to the remaining $228 million of our revolver as well as $10 $4 million of cash on hand as.
As of March 31, 2022, our non-GAAP net leverage ratio was 0.7 times down 0.3 times from the first quarter last year.
As a reminder, our cash flow is historically seasonal.
We are a user of cash in the first quarter closer to breakeven in the second quarter 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 sales, we expect the seasonality to continue to become less significant.
We repurchased approximately one 2 million shares of our common stock during the first quarter for $42 1 million at an average price of $34 26 per share.
As of March 31, 2022, we had $123 million remaining on our $150 million stock repurchase authorization.
Amount of shares repurchased in the first quarter of 2022 was the highest amount of repurchase in any given quarter and is consistent with our stated objective of being more aggressive with repurchasing shares in 2022 as part of our broader capital allocation strategy that will also feature additional.
<unk> in technology development and net debt reduction.
As always we will maintain our disciplined approach on all capital deployment.
As it relates to our outlook for the second quarter of 2022, we expect continued market volatility driven by aggressive fed action to combat inflation supply chain issues and ongoing geopolitical uncertainties, which will continue to weigh on the capital markets transactional environment.
So far in the second quarter.
April priced ipos and spec remain well below this point last year.
Large M&A deal completions are also below last year's level.
Taking all these factors into account and while Youll makers might be cautious the fundamental drivers of dealmaking remain.
We are encouraged not only by what we hear from the investment banking community regarding ongoing transactional activity, but also by the continued work our clients are undertaking to remain prepared for a transaction when market stability returns.
In addition, we expect sales from print and distribution to continue to decline, but with a minimal impact to non-GAAP adjusted EBITDA.
Given the historical seasonality of print and distribution sales. The second quarter will include this year's largest quarterly reduction in print sales due to the impact of SEC rules 33, and 498 days.
Paired with the other quarters this year.
We remain bullish on the near term outlook for our software solutions sales and expect continued strength in the growth trajectory of our recurring compliance software offerings.
With that as the backdrop, we expect consolidated second quarter net sales to be in the range of $220 million to $240 million and non-GAAP adjusted EBITDA margin in the mid 20% range similar to first quarter margin and once again much stronger than historical quarters.
Of Lifesize total and transactional sales.
As Dan noted earlier, while the outlook for capital markets transaction environment remains uncertain the pace of activity can change very quickly.
Based on our market leadership defended very well position to capture a significant share of future demand for transactions related products and services more importantly, our growing software offerings, when combined with our expertise and scale and tech enabled services enable us to offer clients an unmatched portfolio.
Of regulatory and compliance solutions.
Finally, let me share some additional details on our updated long term guidance.
Our first quarter results and second quarter guidance are proof points that our strategy and transformation are delivering positive results.
We have achieved several significant milestones in our transformation journey, we have even greater opportunities ahead to create increased value for our customers employees and stockholders.
We will accomplish this through focusing on three value creation levers.
Accelerating our mix shifts to become a software centric company.
Driving long term non-GAAP , adjusted EBITDA margin expansion and free cash flow conversion.
And continuing to prudently deploy capital.
Our updated projections reflect our confidence in our ability to execute against all three value creation levers.
We believe we have the opportunity to create value by continuing to transform our topline to a software centric sales mix.
With focused efforts and targeted investments we project software sales will represent 55% to 60% of our total sales by 2026.
From full year 2022 through 2026, we expect total software sales will grow annually in the mid teens with a recurring compliance software offerings growing at high teens rate.
<unk>, which is more challenging to project given its relationship to the corporate transactions offering is expected to grow in the mid to high single digit range annually over the period.
By 2026, we expect total software revenue to exceed $500 million.
We expect tech enabled services sales to normalize this year and then declined modestly moving forward in part due to the ongoing shift to our software solutions.
System with the long term trends Britain distribution sales will continue to be impacted by secular decline and by 2026 will represent approximately 10% of our total sales.
In aggregate, we expect the growth in software to more than offset the declines in tech enabled services and print and distribution sales, resulting in a consolidated sales growth in the low single digits between 2022 and 2026.
Regarding margins the combination of an evolving revenue mix impact of permanent cost reductions and variable realization of our cost structure creates the basis for long term non-GAAP adjusted EBITDA margin expansion.
Looking at how our margins will develop over time in the short term, we anticipate the normalization of transactions revenue combined with increased investments in software growth initiatives will result in a near term margin headwinds coming down from historical peak margin level driven by the robust <unk>.
<unk> environment in 2021.
We expect this headwind to be temporary as software sales growth and improvements in software margins driven by maturing product capabilities normalizing investment levels and improvements in service efficiency will more than offset the margin impact of lower capital markets transaction revenue by.
By 2026, we expect non-GAAP adjusted EBITDA margin to approach 30%.
Next I will touch on our cash flow projections.
Historically, our free cash flow has benefited from an improving business mix featuring higher margins declining debt levels and working capital efficiency.
Going forward the growth in non-GAAP adjusted EBITDA.
Modest level of Capex and a declining interest expense are expected to further improve our free cash flow profile, we expect the cumulative non-GAAP adjusted EBITDA to free cash flow conversion of approximately 50% between 2022 and 2026 and expect to.
Generation more than $500 million in free cash flow over this period as a reference our historical non-GAAP adjusted EBITDA to free cash flow conversion rate.
It has been approximately 45% between 2016 and 2021.
The financial flexibility and strong cash flow embedded in our updated long term projections provide us with a range of capital deployment options. Our approach to the use of capital we will remain disciplined and thoughtful allocating dollars to areas that best advance our strategy and increase shareholder value.
The fluctuations in capital markets transactional environment over the last several quarters has demonstrated the importance of a de levered balance sheet, which is aligned with our historical capital allocation decisions. We recognize the priority that debt reduction should occupy given our evolving business mix, including exposure to the cyclicality.
<unk> of the capital markets transactions.
With our net leverage down to a very manageable level of 0.7 times, we have the flexibility to be more aggressive with organic investments and share repurchases.
We are targeting capex as a percentage of sales in the range of 5% to 6% on accumulative basis from 2022 to 2026.
We will continue to be disciplined in our capex decisions at any stage.
Stage investment approach to ensure projects are generating returns at or above expected levels.
As a reminder, nearly all of our Capex goes towards software development and related technology investments. In addition, since the beginning of 2020, we've repurchased more than three 3 million shares for nearly $85 million and we intend to accelerate our share repurchase activity.
As we noted in February our board approved a $150 million share repurchase authorization that expires December 31, 2023, and we had $123 million remaining on that authorization as of March 31 for.
For modeling purposes, we assume the full utilization of this authorization by year end 2023.
Regarding M&A, we do not have any transactions assumed in our plans, while we continue to evaluate opportunities that could accelerate our strategy. We will maintain the same discipline that we have exhibited historically.
And lastly, we view dividends as the last priority for use of cash at this time.
Also for modeling purposes, we assume our cash position continues to build affording us even greater financial flexibility, we expect to reach a net cash position by the end of 2024.
We are committed to executing against our long term plan and to continue to find opportunities to create value for all of our stakeholders. We look forward to sharing our progress against our updated projections going forward.
And with that I'll now pass it back to Dan.
Dan.
Thanks, Dave our performance in the first quarter of 2022 demonstrates that we have the right plans the right products and the right people to successfully execute deepened strategic transformation.
Our updated projections further demonstrate our confidence in our strategic aspiration.
I am enthusiastic about the opportunities ahead.
To deliver increasing value to our customers employees and shareholders before we open it up for Q&A I'd like to thank the <unk> employees around the world.
Been working tirelessly to ensure our clients continue to receive the highest quality solutions.
Stay safe and healthy now with that operator, we're ready for questions.
Okay.
Thank you. Your first question as a reminder, I would like to sorry, everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question today comes from the line of Charlie <unk> with CJS Securities. Your line is now open.
Hey, good morning, this is stefanos crist.
Chris calling in for Charlie.
Hi, Stefan.
Can you give us a little more color on just your efforts to try to improve or maintain margins despite lower volumes.
Yes. This is Dave I'll take that one and then Dan if you want to jump in.
I appreciate the question we hit on this a few times in the prepared remarks.
But certainly spending worth spending a little more time on.
When you look at our first quarter margin that was 24, 2%.
Certainly we recognize the decline from last year's first quarter.
This year's first quarter had only half the amount of capital markets transactions revenue and as we've talked about in the past. This revenue typically carries a very high incremental.
Or in this quarter's case decremental margin.
When you look back at the Lifesize quarters in terms of both transactional revenue and total revenue.
As we pointed out Q1 of 19% and 20 are great examples of this.
Our EBITDA margin now is substantially higher.
<unk> to those quarters that I, just mentioned over 1000 basis points higher than the first quarter of 2000 20500 basis points higher than the first quarter of 2019.
I think more specific to your question.
Permanent changes to the cost structure and Thats everything from.
Head count reductions to shrinking our real estate footprint to outsourcing, 100% of our offset print shedding that fixed cost in our operations team has really done an outstanding job managing that transition.
At the same time also continuing to run the digital production very efficiently.
I think the important part here is that these changes that I'm talking about the head count the real estate footprint.
Shrinking these are permanent changes and we certainly saw the margin improvement trending up over the last several quarters and I think first quarters.
Another proof point of that.
And then lastly, I would say in addition to the cost benefits.
We've also shed more than $100 million of revenue over the last five quarters as we've said in the past this print.
The print.
Revenue carries lower margins in many cases much lower than our average and so when you look at these factors combined will do.
Really set up to deliver ongoing margin improvement and when we.
Updated guidance this morning.
We commented on it earlier, we believe that we'll be approaching 30% EBITDA margin by 2026.
Yeah.
That's great color. Thank you.
If I could just squeeze one more in just can you give us an update on the competitive environment in the software business.
Yes sure. So this is Dan I'll start and then others can jump in as well so.
We have a varied product offerings. So we have.
Very strong compliance offering which is both.
Within the corporate space predominantly active disclosure and then in the fund space.
Our suite.
And so we have different competitors there.
<unk>.
There is quite a few that we run into in any space.
What we've been able and where we've been able to be extremely successful is our product line is able to bridge clients through different stages of their existing.
<unk> be that pre IPO through IPO through compliance on the court side and similarly on the fund space.
Purpose built tools to serve the unique needs of.
The fund the alternative investment insurance companies.
<unk>.
We look at all the competitors there we feel really good about our product portfolio and.
What we have currently in development and the progress we're making.
We go to the.
The venue data room.
<unk> different competitors, but a lot of different competitors.
We are more leveraged.
To the M&A market, so as we saw last year.
Had a near 50% growth.
Through the year. This year, we performed much better than the primary use case of M&A.
We see the other participants we don't have great visibility there was only.
One of size other one that's public, but but again feel really good about.
That product's performing given its use case and then given what we see in the broader environment. So let me see if anyone else wants to add to that.
Sure Dan This is Craig.
As Dave said, we remain bullish on software so I'll start with <unk>.
Dan left off which is venue.
It showed good performance in Q1 significantly better than its use case of 12%.
Our venue pipeline is good driven by sales execution, but we're also executing the plan to take share given our differentiated product.
So our virtual data room isn't just winning awards as you heard in the prepared remarks, it's winning deals through leading securities of protection of our client's personal identifiable information.
Contract review, it's all delivering winning results in this competitive market.
As you heard M&A is likely to be more resilient, we have a strong position client relationships.
And we will be there to fight and to win.
Enacted disclosure.
9% growth competitively what we're seeing is that we're still at the center of this regulatory corporate and compliance governance place and we have the trust of our clients. When you look at our new active disclosure.
As in the market it is winning.
Our clients are choosing is built from the ground up purpose built the newest technology in these client takeaways demonstrate the market wants what we have built.
Key to that is some of our partnerships. So one of the key differentiators.
Enacted disclosure is the financial reporting connecting the ERP systems. So our press release yesterday about ACA.
Active disclosure achieving built for net suite status is incredibly important where the only disclosure tool available on their network and.
So, we're giving all Oracle netsuite clients, the power and the confidence of active disclosure. So I feel really good about our place competitively.
No.
If anyone has not yet.
Go ahead, Eric Yeah, Thanks, Craig Yes, Dan.
Related to the question on the ORC suite fronts for GIC.
We offer an end to end regulatory compliance software solution.
The middle and back office related to financial and regulatory reporting.
We see competition generally in the regulatory side of things with traditional.
Competitors and then as we expand the <unk> suite has four key pillars and those products have different subsets.
Solutions that that line is up differently on a competitive basis.
See generally tech oriented firms as well as traditional filing firms in this space.
Yes, Thanks, Eric the last thing I'll say, just the book end my comments.
Is that if you look over the last five years, we've doubled our software revenue so.
Last year $270 million or so.
Look forward five years, we're planning to do that again from our updated guidance, so you're over $500 million of software revenue predominantly.
It's recurring in nature. So it offers that base of predictable recurring revenue from which to grow that further so feel.
Feel good about what we have in the market today, we feel good about what we have in the pipeline.
Alright, thank you.
Thank you.
Your next question comes from the line of Pete Heckman with D. A Davidson your line is now open.
Good morning, everyone. Thanks for taking the questions.
Morning.
I really appreciate you, giving all of that.
Context in guidance and is that really thoughtful outlook to 2026, I think thats helpful and I think thats the story that investors should be thinking about here.
As this mix shift changes so thanks for that just a few little questions.
I missed when did you say the transition to active disclosure three should be complete.
Substantially by the beginning of 2023.
Okay, and then I apologize I got it.
The distraction right. When you were talking about the competitive environment for virtual data rooms 12.
12% growth on top of a very tough comparison that was great. I mean do you think that is indicated that youre gaining share or.
Is it maybe.
Some of the published.
Statistics around M&A announced deals closed deals maybe aren't the best given that sometimes these projects can be hosted for.
Multiple months, if not a year.
Do you think that's getting share do you think it maybe the data doesn't totally correlate with your revenue in that business.
Yes, we do we do think we're gaining continue to gain share we think we gained share.
Last year as well.
Particularly given our product being more leverage to M&A to your point those statistics, probably the best we have there's certainly more activity and rooms, working then what gets ultimately announced.
But we feel really good about the progress we've made there over the past 18 months or so.
Okay.
Great Great and then last one I think I saw.
Somewhere in the release.
And the cash flow statement, just a little bit of a higher provision for bad debt I assume that that relates to some of the.
Im going.
Spec ipos in the pipeline can you talk about your exposure there in terms of work you've done that.
Built for that.
I know sometimes backs can can.
They don't get done.
You may not be as is.
Is it.
Good of debts as some other.
Customers.
Okay.
Nothing specific to comment on.
We generally follow pretty formulaic method for making these reserves and as things get extended out.
As you would imagine.
The bad debt reserve picks up a little bit.
In addition, we will also evaluate kind of specific for bankruptcies et cetera.
Given market conditions.
Some of the.
Receipt of receivables and timing things like that.
Pushed it up a little bit.
Okay.
I think thats, all I had I appreciate it.
Thanks Pete.
Okay.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Yeah.
Your next question comes from the line of Raj <unk> with B Riley.
Your line is now open.
Hi, Thank you.
Taking my question.
I wanted to clarify just following up on software growth.
The software segment and the growth in and so youre, saying youre going to double again in five years.
Can you can you.
Talk a little bit about where is this.
It's coming from in terms of penetration.
Amongst clients.
Are you gaining share.
Yes.
We are typically any of this software growth happening is it cannibalizing any of you.
Tech enabled services.
These corporates.
Yeah sure Ross, It's Dave I'll go ahead, Dave go ahead.
Yes, so I'll start so looking at it.
Splitting compliance from transactions.
As Dave mentioned in the prepared comments the.
Transactional.
He is a little harder to project, a little more volatility, but the growth there is projected to be slower than what we see on the compliance side.
The compliance side would have a little bit of cannibalization, but not that's not the main driver.
The main driver is we rolled out.
New active disclosure just about.
A year ago, or so we rolled out new offerings within our GIC platform and then we've been adding our investment companies platform, we've been adding new capabilities as well and we see.
Existing share of wallet opportunities.
<unk> commented on it.
Seeing price lift we commented on seeing additional term lift as well.
And with the new products that we have in market. The reception that we're getting from our clients and from new potential clients.
What really underpins that.
I would say when we look at the individual markets that we play in.
There is some share take there, but nothing inconsistent with what we've experienced since we've had those products in market and sorry, Dave I don't know if you wanted to add.
Dan you've covered the same points I was going to make things.
Okay. Thanks, Tom Thank you so in.
Next question on the print to just look clarification.
I think Dave you said.
30 million will.
It will be taken in the next three quarters and most of it or a large portion of it in Q2.
The print decline that's correct Raj is about $10 million in the first quarter the balance over the last three quarters of the year. As you said the biggest the biggest chunk of that remaining $30 million will come in Q2 and that just based on the normal seasonality of <unk>.
Some of the historical.
Print volume.
That type of work.
Got it.
Q2 decline is going to be similar to Q1 or greater.
To get probably a little bit a little bit yeah.
Yeah, a little bit little bit greater.
Okay and then.
On the capital markets.
I understand.
Obviously episodic business it depends upon the capital market transactions.
Good to talk.
Two.
Guy too.
The transactions first half or this year are going to be down.
Yes.
The volume is going to be down 30% or in this year or is it just too tough to call. It.
Yes. So the short answer is yes that its too tough to call. It I think the the.
The longer answer is.
And I would point back to some of the things we said in our prepared remarks I think.
When we look at the activity that our clients continue to prefer.
Perform with us to stay ready.
To complete the transaction and what we hear from the investment banking community.
On the activity kind of under the water that we don't.
The public may not have a great view toward.
We're encouraged by that I think.
Typically.
In a down market you may not have all the underlying activity. So I think I think the down market. The current down market that we're in is a little bit different just given.
Some of the latent demand that we see based on this activity and again kind of.
Supported by what we're hearing from from third parties as well.
So I guess.
But.
So Dave to build on that and I'm sorry to interrupt.
Within any market, we continue to perform in this one included.
So we have strong market share across the board our performance in Q1 outpaces the market due to strong share and really mix of high profile.
High profile high pump in Ipos and lease backs in M&A.
Our clients are continuing to work on the deals that are in process. Unlike other downturns, the dot com or financial crisis, where everything and our clients are still here and they're still working.
We have a quality large deals, which is where <unk> outperforms.
In Q1.
In April .
Deals ipos with greater than $100 million, we didnt buy in of seven.
We have all five of the top <unk>, we have the largest lease backs we have strong share in M&A.
We're continuing to perform in this market and will perform in whatever market were given.
Again, the real story here is the link back of all of that to our software. So our clients are using venue when they're doing these deals are continuing to use active disclosure as they report so it's the ecosystem.
Complete process that we're delivering <unk> to our clients.
Well I guess it was.
Q2 guidance.
Given the fact that you're going to get a bigger decline in print.
And that software should continue on the savings sort of growth trajectory. It would seem like the transactional part is perhaps a little a little bit better.
In the March quarter.
Would that be a fair assumption.
I think it's generally pretty similar.
Okay.
Got it okay.
Thanks, Brett for taking the questions I'll take this offline. Thank you. Thank you Ross.
At this time there are no further questions I turn the call back to Mr. Dan Leib.
Thank you Amit and thank you everyone for joining us we look forward to.
Talking in August and with many of your prior to that so thank you again for joining.
This concludes today's conference call you may now disconnect.
[music].