Q2 2024 Donnelley Financial Solutions Inc Earnings Call
Unknown Executive: Transcripts provided by Transcription Outsourcing, LLC. During this call, we'll refer to four looking states that are subject to risks and. For a complete discussion, please refer to the cautionary statements included in our earnings release and further details in our most recent annual report on Form 10-K, quarterly report, form, thank you, and other filings with the SEC. In addition, we will discuss our non-GAAP financial measures, such as Adjusted EBITDA, adjusted EBITDA margin, and organic net sales.
At Defense solutions Dot com.
Speaker Change: 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 detailed in our most recent annual report on Form 10-K.
<unk> report on Form 10-Q, and other filings with the SEC.
Speaker Change: Further we will discuss certain non-GAAP financial information such as adjusted EBITDA adjusted.
Adjusted EBITDA margin and organic net sales.
Unknown Executive: We believe the presentation of non-cash financial information provides you with useful supplementary information concerning the company's ongoing operation and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only.
Speaker Change: 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.
Speaker Change: However provided for informational purposes only.
Unknown Executive: Please refer to the earnings release and related tables for GAAP financial information and Reconciliations of GAAP to Non-GAAP Financial. I am joined this morning by Dan Leib, Dave Gardella, and other members. I will now turn the call over to them. Thank you, Mike. And good morning, everyone.
Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information.
Speaker Change: I am joined this morning by Dan Leib, Dave Gardella, and other members of management I will now turn the call over to Dan.
Dan: Thank you, Mike and good morning, everyone.
Daniel N. Leib: I am pleased with our second quarter operating performance; we delivered strong results, including Improved Revenue Performance, record quarterly adjusted EBITDA and adjusted EBITDA margin, as well as increases in both operating cash flow and free cash. Our second quarter performance highlights the continued progress we are making in our transformation and positions us well to achieve our long-term financial targets. We continue to make progress against a number of the objectives that underpin our long-term plan that we communicated earlier this year. First, we continue to transform DFIN into a solution-centric company, often delivered by software.
Dan: I am pleased with our second quarter operating performance, we delivered strong results, including improved revenue performance record quarterly adjusted EBITDA and adjusted EBITDA margin as well as increases in both operating cash flow and free cash flow.
Dan: Our second quarter performance highlights the continued progress we are making in our transformation and positions us well to achieve our long term financial targets.
Dan: We continue to make progress against the number of the objectives that underpin our long term plan that we communicated earlier this year.
Dan: First we continue to transform <unk> into a solution centric company often delivered by software total software solutions net sales grew 14, 4% on an organic basis year over year, a continuation of the strong growth rate, we achieved in the first quarter of this year comprising 35.
Unknown Executive: Total software solutions net sales grew 14.4% on an organic basis year over year, a continuation of the strong growth rate we achieved in the first quarter, comprising 35.3% of total second quarter net sales, an increase of approximately 400 basis points from last year's second quarter. As a reminder, the second quarter, largely due to the proxy season, historically represents a seasonal low for software as a percentage of revenue. On a trailing four quarter basis, software solutions net sales reached nearly $313 million, growing 10.1%, or 11.3% on an organic basis, from the second quarter 2023 trailing four quarters, representing 39% of trailing four quarter sales, an increase of approximately 340 basis. Our second quarter software solutions net sales growth continues to be led by the performance of venue, our virtual data room product, which posted approximately 38% sales.
Dan: 3% of total second quarter net sales an increase of approximately 400 basis points from last year's second quarter.
Speaker Change: As a reminder, the second quarter largely due to the proxy season, historically represents a seasonal low for software as a percentage of revenue.
Speaker Change: On a trailing four quarter basis software solutions net sales reached nearly $313 million growing 10, 1% or 11, 3% on an organic basis from the second quarter 2023 trailing four quarters.
Speaker Change: Representing 39% of trailing four quarter sales, an increase of approximately 340 basis points.
Speaker Change: Our second quarter software solutions net sales growth continues to be led by the performance of venue, our virtual data room product, which posted approximately 38% sales growth.
Unknown Executive: We remain encouraged by Venue's strong performance, which reflects strong sales execution across Venue's broad application within the M&A ecosystem that serves both public and private companies. In addition, the growth rates of our recurring compliance software products, Active Disclosure and ARC, both remain positive in the second quarter, albeit at low single-digit growth. Looking ahead, we expect the growth rates for Active Disclosure and ArcSuite to each improve in the second half of this year.
Speaker Change: We remain encouraged by venue strong performance, which reflects strong sales execution across venue has broad application within the M&A ecosystem that serves both public and private companies.
Speaker Change: In addition, the growth rates of our recurring compliance software products active disclosure in Arps suite. Both remained positive in the second quarter, albeit at low single digit growth rate.
Speaker Change: Going ahead, we expect the growth rates for active disclosure in our suite each to improve in the second half of this year for active disclosure. This improvement is driven by recent wins combined with overlapping last year's platform transition.
Unknown Executive: For Active Disclosure, this improvement is driven by recent wins, combined with overlapping last year's platform transition. In the case of ArcSuite, the improved growth rate is primarily driven by the tailwind from the tailored shareholder reports regulator. As we continue to evolve toward a higher mix of software solutions net sales during the second quarter, that mix shift was accelerated by a reduction in print and distribution revenue, which declined by $7 million or 11.3% compared to the second quarter of 2023. This reduction was realized both in the printing and distribution of proxy statements, as well as lower print associated with capital markets transactions. Excluding print and distribution, second quarter net sales increased by approximately 4%.
Speaker Change: In the case of arc suite, the improved growth rate is primarily driven by the tailwind from the tailored shareholder reports regulation.
Speaker Change: As we continue to evolve toward a higher mix of software solutions net sales during the second quarter that mix shift was accelerated by a reduction in print and distribution revenue, which declined by $7 million or 11, 3% compared to the second quarter of 2023.
Speaker Change: This reduction was realized both in the printing and distribution of proxy statements as well as lower print associated with capital markets transactions, excluding print and distribution second quarter net sales increased by approximately 4%.
Daniel N. Leib: As software solutions and tech-enabled services make up an increasingly larger percentage of our overall net sales, This positive shift is resulting in our sales mix becoming more stable and predictable. On a trailing four-quarter basis, sales of our recurring and recurring options, which include solutions that serve the ongoing compliance needs of corporations and investment companies, plus the Venue Data Room, totaled over $590 million and accounted for approximately 74% of total sales, with the remainder, or approximately $210 million, being event-driven transactional revenue.
Speaker Change: As software solutions and Tech enabled services net sales make up an increasingly larger percentage of our overall net sales. This positive shift is resulting in our sales mix, becoming more stable and predictable.
Speaker Change: On a trailing four quarter basis sales of our recurring and reoccurring offerings, which include solutions that serve the ongoing compliance needs of corporations and investment companies plus the venue data room totaled over $590 million and accounted for approximately 74% of total sales with the remain.
Speaker Change: <unk> or approximately $210 million being event driven transactional revenue.
Daniel N. Leib: With nearly three-quarters of our revenue being either recurring or reoccurring in nature, our business benefits from the stability and predictability inherent in such revenue, especially during times of market volatility. As we invest to accelerate our recurring growth while protecting market share in our transactional traditional offerings, we will continue to shift defense toward a higher mix of recurring and reoccurring revenue. The shift to a more favorable sales mix, in conjunction with disciplined cost management and pricing improvements, results in adjusted EBITDA margin expansion as we continue to balance our revenue profile to drive improved profitability.
Speaker Change: With nearly three quarters of our revenue being either recurring or reoccurring in nature, our business benefits from the stability and predictability inherent in such a revenue model.
Speaker Change: Especially during times of market volatility.
Speaker Change: As we invest to accelerate our recurring growth, while protecting market share and our transactional traditional offerings, we will continue to shift decent towards a higher mix of recurring and reoccurring revenue.
Speaker Change: The shift to a more favorable sales mix in conjunction with disciplined cost management and pricing improvements resulted in adjusted EBITDA margin expansion as we continue to balance our revenue profile to drive improved profitability are.
Daniel N. Leib: Our second quarter adjusted EBITDA margin of 35.9% raised the trailing four quarter adjusted EBITDA margin to 29%, further providing confidence in our ability to achieve our long-term targets. Dave will cover our results in more detail, but first, I'd like to provide an update on the tailored shareholder reports regulation, which had a compliance date of July 24th. As I have noted previously, as the leader in both financial reporting and regulatory filings for investment companies, Stephen has been at the forefront in helping mutual fund and exchange traded fund clients operationalize the reporting to comply with this regulation.
Speaker Change: Our second quarter adjusted EBITDA margin of 35, 9% raised the trailing four quarter adjusted EBITDA margin to 29%.
Speaker Change: They're providing confidence in our ability to achieve our long term targets.
Speaker Change: Dave will cover our results in more detail, but first I'd like to provide an update on the tailored shareholder reports regulation, which had a compliance date of July 24.
David A. Gardella: As I have noted previously as the leader in both financial reporting and regulatory filings for investment company <unk> has been at the forefront in helping mutual funds and exchange traded funds clients operationalize the reporting to comply with this regulation, we demonstrated our readiness for tsi by completing critical test.
Daniel N. Leib: We demonstrated our readiness for TSR by completing critical test filings via both our ArcReporting SaaS solution as well as our services-based offering prior to July 24th deadline. In the short time since TSR's compliance date, we have successfully filed multiple live TSR documents on behalf of our clients thus far in July, which reflects Deepin's proven ability to handle the complexities of the entire TSR ruling by serving clients the way they wish to work, via either SaaS-based solutions or traditional services, all in a one-stop shop that eliminates handoffs in the compliance process. Given we are in the early days of PSR compliance, DFIN remains focused on assisting our client to comply with the requirements under this regulation.
David A. Gardella: Filings via both our arc reporting SaaS solution as well as our premises based offering prior to the July 24 compliance date.
David A. Gardella: In the short time since <unk> compliance date, we have successfully filed multiple lives CSR documents on behalf of our clients. Thus far in July which reflects deepens proven ability to handle the complexities of the entire tsi ruling by serving clients the way they wish to work via either a SaaS based solutions or traditional search.
Speaker Change: <unk>.
Speaker Change: All in a one stop shop that eliminates handoffs and the compliance process.
Speaker Change: Given we are in the early days of CSR compliance defend remains focused on assisting our clients to comply with the requirements under this regulation.
David A. Gardella: As we look beyond TSR to an increasingly complex regulatory and compliance environment, EFIN stands ready to serve future regulatory change. Amongst the changes, the Financial Data Transparency Act, which passed in December of 2022, expansion of statutory reporting to local government agencies, and financial reporting for alternative investments are a few examples of regulatory changes which have the potential to create future opportunities for defunding. As the regulatory landscape continues to evolve, our advanced technology platform and industry-leading service capabilities put DFIN in an excellent position to capture recurring revenue opportunities. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our second quarter results and our outlook for the third quarter. Dave
Speaker Change: As we look beyond CSR to an increasingly complex regulatory and compliance environment.
Speaker Change: <unk> stands ready to serve future regulatory changes.
Speaker Change: Among the changes the financial data Transparency Act, which passed in December of 2022 expansion of statutory reporting to local government agencies.
Speaker Change: And financial reporting for alternative investments are a few examples of regulatory changes, which have the potential to create future opportunities for decent.
Speaker Change: As the regulatory landscape continues to evolve our advanced technology platform and industry, leading service capabilities deepen in an excellent position to capture recurring revenue opportunities.
Speaker Change: Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our second quarter results and our outlook for the third quarter.
Speaker Change: Dave.
David A. Gardella: Thank you, Dan. And good morning, everyone. Before I discuss our second quarter financial performance, I'd like to recap one housekeeping item. Concurrent with the release of our second quarter results, we published a set of software operating metrics for active disclosure and arc suite, which can be found within our supplemental trending schedule of our historical results posted on our investor relations website. The publication of these software metrics reflects our efforts to provide investors additional detail into the performance and trends of our recurring compliance software products. We will continue to evaluate additional software metrics for disclosure in the future.
David A. Gardella: Thank you Dan and good morning, everyone before I discuss our second quarter financial performance I'd like to recap one housekeeping item.
David A. Gardella: Concurrent with the release of our second quarter results, we published a set of software operating metrics for active disclosure and <unk> suite.
Speaker Change: Which can be found within our supplemental trending schedule of our historical results posted on our Investor Relations website.
Speaker Change: The publication of the software metrics reflects our efforts to provide investors additional detail into the performance and trends of our recurring compliance software products.
Speaker Change: We will continue to evaluate additional software metrics for disclosure in the future.
David A. Gardella: Now turning to our second quarter results. As Dan noted, we continue to make solid progress in our transformation during the second quarter by delivering modest consolidated net sales growth, record quarterly adjusted EBITDA, and strong improvements in both operating cash flow and free cash flow compared to the second quarter of 2023. By continuing our shift toward a more profitable sales mix, while also driving operating efficiencies, we expanded our second quarter adjusted EBITDA margin by 520 basis points to 35.9 percent, also a quarterly record for DC. On a consolidated basis, total net sales for the second quarter of 2024 were $242.7 million, an increase of $0.6 million, or 0.2% on a reported basis, and 0.7% on an organic basis from the second quarter of 20
Speaker Change: Now turning to our second quarter results.
David A. Gardella: The increase in net sales is primarily driven by the growth in software solutions, which increased $9.9 million, or 14.4% on an organic basis, and more than offset a decline in capital markets and investment companies compliance revenue. We continue to deprioritize certain low-margin traditional compliance work, a component of which is related to print and distribution. Excluding print and distribution, net sales grew approximately 4%, as Dan noted earlier. Second quarter adjusted non-GAAP gross margin was 64.4%, approximately 490 basis points higher than the second quarter of 2023, primarily driven by a favorable business mix, featuring growth in higher-margin software solution sales, combined with lower overall print volume, and the impact of ongoing cost control. Adjusted non-GAAP SG&A expense in the quarter was $69 million, a $0.7 million decrease from the second quarter of 2020.
Daniel N. Leib: As Dan noted, we continue to make solid progress in our transformation during the second quarter by delivering modest consolidated net sales growth record quarterly adjusted EBITDA and strong improvements in both operating cash flow and free cash flow compared to the second quarter of 2023.
Speaker Change: By continuing our shift toward a more profitable sales mix, while also driving operating efficiencies, we expanded our second quarter adjusted EBITDA margin by 520 basis points to 35, 9% also a quarterly record for defense.
Speaker Change: A consolidated basis total net sales for the second quarter of 2024 were $242 $7 million, an increase of zero point $6 million or 0.2% on a reported basis and 0.7% on an organic basis from the second.
Speaker Change: <unk> of 2023.
Speaker Change: The increase in net sales is primarily driven by the growth in software solutions, which increased $9 $9 million or 14, 4% on an organic basis and more than offset a decline in capital markets and investment companies compliance revenue.
Speaker Change: We continue to de prioritize certain low margin traditional compliance work.
Speaker Change: Ponant of which is related to print and distribution value.
Speaker Change: Excluding print and distribution net sales grew approximately 4% as Dan noted earlier.
Daniel N. Leib: Second quarter adjusted non-GAAP gross margin was 64, 4%.
Speaker Change: Approximately 490 basis points higher than the second quarter of 2023, primarily.
Speaker Change: Driven by a favorable business mix featuring growth in higher margin software solutions sales combined with lower overall print volume and the impact of ongoing cost control initiatives.
Speaker Change: Adjusted non-GAAP SG&A expense in the quarter was $69 million of zero point $7 million decrease from the second quarter of 2023.
David A. Gardella: As a percentage of net sales, adjusted non-GAAP SG&A was 28.4%, a decrease of approximately 40 basis points from the second quarter of 2023. The decrease in adjusted non-GAAP SG&A was primarily driven by cost control initiatives, a portion of which was related to lower investment spending, partially offset by an increase in selling expenses as a result of the changes in the business mix and higher bad debt.
Speaker Change: As a percentage of net sales adjusted non-GAAP SG&A was 28, 4%.
Speaker Change: Decrease of approximately 40 basis points from the second quarter of 2023 <unk>.
Speaker Change: Decrease in adjusted non-GAAP, SG&A was primarily driven by cost control initiatives, a portion of which was related to lower investment spending partially offset by an increase in selling expenses as a result of the changes in the business mix and higher bad debt expense.
David A. Gardella: Moving forward, we will continue to balance cost reductions with investing in initiatives to accelerate our transformation. Our second quarter adjusted EBITDA was $87.2 million, an increase of $12.9 million or 17.4% from the second quarter of 2020. Second quarter adjusted EBITDA margin was 35.9%, an increase of approximately 520 basis points from the second quarter of 2023, primarily driven by a favorable sales mix and cost control and, Turning now to our second quarter results by segment, net sales in our capital markets software solutions segment were 57.3 million dollars, an increase of 22.2 percent on an organic basis from the second quarter of last year, driven once again by the strong performance in venue, which was up 10.3 million dollars or approximately 38 percent year over year.
Speaker Change: Moving forward, we will continue to balance cost reductions with investing in initiatives to accelerate our transformation.
Speaker Change: Our second quarter adjusted EBITDA was $87 2 million, an increase of $12 9 million or 17, 4% from the second quarter of 2023.
Speaker Change: Second quarter adjusted EBITDA margin was 35, 9% an increase of approximately 520 basis points from the second quarter of 2023, primarily driven by a favorable sales mix and cost control initiatives.
Speaker Change: Turning now to our second quarter results by segment net sales in our capital markets software solutions segment were $57 $3 million, an increase of 22, 2% on an organic basis from the second quarter of last year, driven once again by the strong performance.
Speaker Change: <unk> and venue, which was up $10 $3 million or approximately 38% year over year.
David A. Gardella: On a trailing four-quarter basis, Venue reached nearly $130 million in sales and grew approximately 29% compared to the second quarter 2023 trailing four-quarter period. Then, consistent with the recent trend, then you continue to benefit from an increase in page volume on the platform and higher pricing during the second quarter. In addition, our strong sales execution once again resulted in several large client wins in the quarter, with those projects combining to account for approximately one third of the venue's second quarter net sales growth.
Speaker Change: On a trailing four quarter basis venue has reached nearly $130 million in sales and grew approximately 29% compared to the second quarter 2023 trailing four quarter period.
Speaker Change: Consistent with the recent trend venue continued to benefit from an increase in page volume on the platform and higher pricing during the second quarter.
Speaker Change: In addition, our strong sales execution once again resulted in several large client wins in the quarter with those projects combining to account for approximately one third of venues second quarter net sales growth.
David A. Gardella: While still significant, large projects in the second quarter represented a smaller component of venues' overall growth compared to the first quarter of this year, with the bulk of venues' growth in the second quarter attributable to the resilient underlying activity level and our strong sales execution.
Speaker Change: While still significant large projects in the second quarter represented a smaller component of venues overall growth compared to the first quarter of this year with the bulk of venues growth in the second quarter attributable to the resilient underlying activity level and our strong sales execution.
David A. Gardella: Going forward, we expect venues to continue to deliver solid year-over-year growth, but at a more moderate pace compared to the robust growth rates we achieved in the first two quarters of this year, given the impact of the large projects, in addition to overlapping venues, and stronger performance in the second half of 2020. Net sales of our recurring compliance product, Active Disclosure, including File 16, increased approximately 1% in the second quarter, driven primarily by growth and subscription revenue, which increased 2% versus the second quarter of last year, partially offset by lower Section 16 beneficial ownership filing activity.
Speaker Change: Going forward, we expect venue to continued to deliver solid year over year growth, albeit at a more moderate pace compared to the robust growth rates. We achieved in the first two quarters of this year given the impact of the large projects. In addition to overlapping venue stronger.
Speaker Change: Performance in the second half of 2023.
Speaker Change: Net sales of our recurring compliance product active disclosure, including $5 16 increased approximately 1% in the second quarter, driven primarily by growth in subscription revenue, which increased 2% versus the second quarter of last year, partially offset by lower section <unk>.
Speaker Change: <unk> beneficial ownership filing activity.
David A. Gardella: The demand for beneficial ownership filings continues to be impacted by a weak IPO market, as well as elevated client churn as we transition to a subscription-based model, a trend which we expect to continue in the near future. During the second quarter, we made continued progress to expand the adoption of active disclosure, resulting in the fourth consecutive quarter of net client count growth, in addition to the positive trend in net client growth. We are encouraged by the improvement in the operating metrics of active disclosure, including an 11% year-over-year growth in annualized recurring revenue, inclusive of contracted service packages driven by an increasing client count, as well as higher average value per client.
Speaker Change: The demand for beneficial ownership filings continues to be impacted by a weak IPO market as well as elevated client churn as we transition to a subscription based model.
Speaker Change: <unk>, which we expect to continue in the near term.
Speaker Change: During the second quarter, we made continued progress to expand the adoption of active disclosure, resulting in a fourth consecutive quarter of net client count growth.
Speaker Change: In addition to the positive trend in net client growth.
Speaker Change: We are encouraged by the improvement in the operating metrics of active disclosure, including an 11% year over year growth in annualized recurring revenue inclusive of contracted service packages driven by an increasing client count as well as higher average value per client.
David A. Gardella: The momentum and client count growth, coupled with our recent product enhancements, create a strong foundation for future sales growth. As we have stated previously, we expect active disclosure growth in the second half of 2024 to be stronger than in the first half, as we overlap some of the headwinds we experienced in 2023, including elevated customer churn as a result of the transition to new active disclosure and the impact of SPAC liquidation.
Speaker Change: The momentum in client count growth, coupled with our recent product enhancements.
Speaker Change: A strong foundation for future sales growth as.
Speaker Change: As we have stated previously we expect active disclosures growth in the second half of 2024 to be stronger than in the first half as we overlap some of the headwinds we experienced in 2023, including elevated customer churn as a result of the transition to new active disclosure.
Speaker Change: And the impact of spec liquidations.
David A. Gardella: Adjusted EBITDA margin for the segment was 37%, an increase of approximately 930 basis points from the second quarter of 2023, primarily due to higher net sales and a favorable sales mix from the growth in our high-margin venue data room offering and cost control initiatives partially offset by higher selling. Net sales in our capital markets compliance and communications management segment were $113.8 million, a decrease of $9.1 million, or 7.4%, from the second quarter of 2023, driven primarily by lower capital markets compliance revenue. The decline in compliance revenue was primarily due to the exit of certain proxy statement activities, including the related printing and distribution, as Dan commented earlier.
Speaker Change: Adjusted EBITDA margin for the segment was 37% an increase of approximately 930 basis points from the second quarter of 2023, primarily due to higher net sales and a favorable sales mix from the growth in our high margin venue data room offering.
Speaker Change: And cost control initiatives, partially offset by higher selling expenses.
Speaker Change: Net sales in our capital markets compliance and Communications management segment were $113 8 million.
Speaker Change: A decrease of $9 1 million or seven 4% from the second quarter of 2023, driven primarily by lower capital markets compliance revenue.
Daniel N. Leib: The decline in compliance revenue was primarily due to the exit of certain proxy statement activity, including the related printing and distribution as Dan commented earlier.
David A. Gardella: Given the first half of the year is the peak for proxy-related activity, we expect the impact from the reductions to become less significant in the second half of the year. In the second quarter, we recorded $45.2 million of capital markets transactional revenue, approximately flat compared to last year's second quarter. While we continue to experience a year-over-year improvement in IPO activity during the second quarter, which resulted in an increased number of priced IPOs, which raised over $100 million compared to the second quarter of 2023, the market for completed M&A deals in the U.S. remained down year-over-year. Overall, the deal environment remains soft compared to the historical average.
Daniel N. Leib: Given the first half of the year is the peak for proxy related activity, we expect the impact from the reductions to become less significant in the second half of the year.
Daniel N. Leib: In the second quarter, we recorded $45 $2 million of capital markets transactional revenue approximately flat compared to last year's second quarter.
Speaker Change: While we continue to experience a year over year improvement in IPO activity during the second quarter, which resulted in an increased number of priced ipos, which raised over $100 million compared to the second quarter of 2023, the market for completed M&A deals in the U S remain down.
Speaker Change: On a year over year basis.
Speaker Change: Overall, the deal environment remains soft compared to historical averages.
David A. Gardella: For IPO and M&A transactions that were completed in the second quarter, we maintained our historical high market share, reflective of DeFin's strong market position within capital markets transactions. While the outlook for the capital markets transactional environment is uncertain, DeFin remains very well positioned to capture a significant share of future demand for transaction-related products and services when market activity picks up. The adjusted EBITDA margin for the segment was 40.2%, an increase of approximately 370 basis points from the second quarter of 2023.
Speaker Change: Our IPO and M&A transactions that were completed in the second quarter, we maintained our historical high market share reflective of defend strong market position within capital markets transactions.
Speaker Change: While the outlook for capital markets transactional environment is uncertain.
Speaker Change: <unk> remains very well positioned to capture a significant share of future demand for transaction related products and services when market activity picks up.
Speaker Change: Adjusted EBITDA margin for the segment was 42% and.
Speaker Change: An increase of approximately 370 basis points from the second quarter of 2023.
David A. Gardella: The increase in adjusted EBITDA margin was primarily due to a favorable sales mix, as print and distribution revenue became a smaller component of overall revenue within this segment, as well as the impact of cost control and, This was partially offset by lower sales volumes and higher bad debt. Net sales in our investment company software solution segment were $28.3 million, an increase of 1.1% versus the second quarter of 2023, primarily driven by growth in the ARC reporting and Total ARC-C subscription revenue declined 1% compared to the second quarter of 2023, but this was more than offset by higher services and support revenue, which increased approximately 12% year over year.
Speaker Change: The increase in adjusted EBITDA margin was primarily due to a favorable sales mix as print and distribution revenue becomes a smaller component of overall revenue within this segment as well as the impact of cost control initiatives.
Speaker Change: This was partially offset by lower sales volumes and higher bad debt expense.
Speaker Change: Net sales in our investment company software solutions segment were $28 $3 million, an increase of one 1% versus the second quarter of 2023, primarily driven by growth in the arc reporting and our digital modules within our <unk> suite.
Speaker Change: Total RC subscription revenue declined 1% compared to the second quarter of 2023, which was more than offset by higher services and support revenue, which increased approximately 12% year over year.
David A. Gardella: As Dan commented earlier, based on the incremental software revenue from tailored shareholder reports, we expect stronger revenue growth in the second half of 2024 and into 2025. Additionally, we remain well positioned to capture opportunities from regulatory changes to drive future recurring revenue. Adjusted EBITDA margin for the segment was 39.2%, an increase of approximately 100 basis points from the second quarter of 2023. The increase in adjusted EBITDA margin was primarily due to higher sales and cost control.
Speaker Change: As Dan commented earlier based on the incremental software revenue from tailored shareholder reports, we expect stronger revenue growth in the second half of 2024 and into 2025.
Speaker Change: We remain well positioned to capture opportunities from regulatory changes to drive future recurring revenue growth.
Speaker Change: Adjusted EBITDA margin for the segment was 39, 2% an increase of approximately 100 basis points from the second quarter of 2023.
Speaker Change: The increase in adjusted EBITDA margin was primarily due to higher sales and cost control initiatives.
David A. Gardella: Net sales in our investment company's compliance and communications management segment were $43.3 million, a decrease of $0.2 million or 0.5% from the second quarter of 2023, driven primarily by a reduction in print and distribution revenue related to the long-term secular decline in the demand for printed materials, partially offset by higher event-driven revenue from a large mutual fund special proxy. The adjusted EBITDA margin for the segment was 42.3%, approximately 300 basis points higher than the second quarter of 2020.
Speaker Change: Net sales in our investment companies compliance <unk> Communications management segment were $43 3 million, a decrease of zero point $2 million or zero or <unk>, 5% from the second quarter of 2023, driven primarily by a reduction in print and distribution revenue.
Speaker Change: Related to the long term secular decline in the demand for printed materials, partially offset by higher event driven revenue from a large mutual fund special proxy project.
Speaker Change: Adjusted EBITDA margin for the segment was 42, 3% approximately 300 basis points higher than the second quarter of 2023.
David A. Gardella: The increase in adjusted even without margin was primarily due to a favorable sales mix and the impact of cost reduction initiatives, including continued synergies from our print platform consolidation. Non-GAAP unallocated corporate expenses were $9.2 million in the quarter, a decrease of $2.4 million from the second quarter of 2023, primarily driven by the impact of cost control initiatives, a portion of which was related to lower investment. Free cash flow in the quarter was positive $36.8 million, an improvement of $29.8 million compared to the second quarter of 2022.
Speaker Change: The increase in adjusted EBITDA margin was primarily due to a favorable sales mix and the impact of cost reduction initiatives, including continued synergies from our print platform consolidation.
Speaker Change: non-GAAP unallocated corporate expenses were $9 2 million in the quarter, a decrease of $2 $4 million from the second quarter of 2023, primarily driven by the impact of cost control initiatives, a portion of which was related to lower investment spending.
Speaker Change: Free cash flow in the quarter was positive $36 $8 million, an improvement of $29 $8 million compared to the second quarter of 2023.
David A. Gardella: The strong year over year improvement in free cash flow is primarily driven by an increase in adjusted EBITDA and improved working capital performance, part of which is a result of our changing sales mix featuring more software solution sales and less print and distribution sales. These improvements were partially offset by higher capital expenditures related to investments in our software products and the underlying technology to support them. We ended the quarter with $179.6 million of total debt, or $144.6 million on a non-gap net debt basis, including $55 million drawn on our revolver, down from $80 million drawn at the end of the first quarter.
Speaker Change: The strong year over year improvement in free cash flow is primarily driven by an increase in adjusted EBITDA and improved working capital performance part of which is a result of our changing sales mix featuring more software solution sales and less print and distribution sales.
Speaker Change: These improvements were partially offset by higher capital expenditures related to investments in our software products and the underlying technology to support them.
Speaker Change: We ended the quarter with $179 $6 million of total debt or $144 $6 million on a non-GAAP net debt basis, including $55 million drawn on our revolver down from $80 million drawn at the end of the first quarter.
David A. Gardella: From a liquidity perspective, we had access to the remaining $244 million of our revolver, as well as $35 million of cash on hand. As a reminder, our cash flow is historically seasonal. We are a user of cash in the first half and generate more than 100 percent of our free cash flow in the second half of the year. However, as our sales mix continues to evolve to proportionally more subscription-based software solutions, we expect the seasonality to be less significant as we have experienced so far in 2020.
Speaker Change: From a liquidity perspective, we had access to the remaining $244 million of our revolver as well as $35 million of cash on hand.
Speaker Change: As of June 32024, our non-GAAP net leverage ratio was 0.6 times.
Speaker Change: As a reminder, 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.
Speaker Change: As our sales mix continues to evolve to proportionately more subscription based software solutions, we expect the seasonality to be less significant as we have experienced so far in 2024.
David A. Gardella: Regarding capital deployment, we repurchased approximately 317,000 shares of our common stock during the second quarter for $19.2 million at an average price of $60.65 per share. As of June 30, 2024, we had $122 million remaining on our $150 million stock repurchase authorization.
Speaker Change: Regarding capital deployment, we repurchased approximately 317000 shares of our common stock during the second quarter were $19 $2 million at an average price of $60 65 per share.
Speaker Change: As of June 32024, we had $122 million remaining on our $150 million stock repurchase authorization.
David A. Gardella: Going forward, we will continue to take a balanced approach to capital deployment. We continue to view organic investments to drive our transformation, share repurchases, and net debt reduction as each a key component of our capital deployment strategy, and we will remain disciplined in this area. As it relates to our outlook for the third quarter of 2024, we expect consolidated third quarter net sales in the range of $175 million to $185 million and adjusted EBITDA margin in the mid to high 20s. Compared to the third quarter of last year, the midpoint of our consolidated revenue guidance, $180 million, implies consolidated net sales approximately flat to last year's third quarter as the reduction in print and distribution and lower capital markets transactional sales Further, this guidance assumes capital markets transactional sales of approximately $45 million, down approximately $4 million from last year's third quarter. With that, I'll now pass it back to Dan. Thanks Dave.
Speaker Change: Going forward, we will continue to take a balanced approach toward capital deployment.
Speaker Change: We continue to view organic investments to drive our transformation.
Speaker Change: Share repurchases and net debt reduction each as key components of our capital deployment strategy and we'll remain disciplined in this area.
Speaker Change: As it relates to our outlook for the third quarter of 2024, we expect consolidated third quarter net sales in the range of $175 million to $185 million and adjusted EBITDA margin in the mid to high <unk> range compared to the third.
Speaker Change: Third quarter of last year, the midpoint of our consolidated revenue guidance $180 million implies consolidated net sales approximately flat to last year's third quarter as the reduction in print and distribution and lower capital markets transactional sales are expected to offset grow.
Speaker Change: In software solution sales part of which is driven by incremental revenue from tailored shareholder reports.
Speaker Change: Further this guidance assumes capital markets transactional sales of approximately $45 million down approximately $4 million from last year's third quarter.
Speaker Change: With that I'll now pass it back to Dan.
Daniel N. Leib: Our performance in the second quarter provides us with strong momentum as we continue to execute deep and strategic transformation. While the macroeconomic outlook remains uncertain, the combination of our market position, cost structure, and strong balance sheet positions us well heading into the back half of the year. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world who have been working tirelessly to ensure our clients continue to receive the highest quality solutions.
Daniel N. Leib: Thanks, Dave.
Daniel N. Leib: Performance in the second quarter provides us with strong momentum as we continue to execute deep and strategic transformation.
Daniel N. Leib: While the macroeconomic outlook remains uncertain the combination of our market position cost structure and strong balance sheet position us well heading into the back half of the year.
Speaker Change: 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 ensure our clients continue to receive the highest quality solutions.
Daniel N. Leib: Now, with that, operator, we're ready for questions. Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand to join the queue. If you would like to withdraw your questions, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your headset and ensure that your phone is not on mute when asking the question.
Speaker Change: Now with that operator, we're ready for questions.
Speaker Change: Thank you the floor is now opened for questions.
Speaker Change: If you have got it and then we'd like to ask a question. Please press star one on your telephone keypad to raise your hand to join the queue.
Speaker Change: I would like to withdraw your questions.
Speaker Change: Simply press Star one again.
Speaker Change: If you have called upon if you are called upon to ask your question and our listening via loudspeaker.
Speaker Change: On your device. Please pick up your headset and ensure that your phone is not on mute when asking a question.
Operator: At this time, I would like to go ahead and open the line for Charles Strauzer with CJS Securities. Your line is now open. Thank you. Good morning. Morning. Looking at guys.
Speaker Change: At this time.
Speaker Change: I would like to go ahead and open the line.
Speaker Change: For Charles Strausser with CJS Securities.
Speaker Change: Your line is now open.
Charles Strausser: Hi, Thank you good morning.
David A. Gardella: Dave and Dan, just a quick guidance for Q3, maybe expand a little bit more on your thoughts on expected margins, you said mid to high 20s range, maybe some more colors, very strong quarter. Yeah, Charlie, this is Dave. Thanks for the question. You know, look, as we look ahead, and I would say whether that's for the third quarter or even beyond, right, I would start by saying, you know, certainly no change in the strategic direction or operating plans.
Charles Strausser: Good morning looking at.
Charles Strausser: Then just the guidance for Q3, maybe you can expand a little bit more near thoughts on as expected margins.
Speaker Change: Mid to high <unk> range, maybe some more color on what's driving that obviously had a very strong quarter.
Speaker Change: Given the mix.
Speaker Change: In the quarter.
Speaker Change: Q2, but maybe talk a little bit more about stuff.
David A. Gardella: We continue to do a very good job managing costs and, as you noted, shifting our revenue mix to drive profitability, so no change there. Specific to Q3 guidance, probably the simplest way to look at it, you know, when you compare to last year's EBITDA margin, it was about 27, 27 and a half percent or so. That was up 300 basis points from the third quarter of 22, and that was on about a 5% decline in the top line. So, last year's third quarter also included a few million dollars of benefits related to a true-up of variable compensation. So, I think when you exclude that benefit.
Speaker Change: Yes, Sir.
Speaker Change: Yes, Charlie this is Dave thanks for the question.
Speaker Change: Look as we look ahead and I would say whether that that's for the third quarter or even beyond right I would start by saying certainly no change in the strategic direction of our operating plans.
Speaker Change: We continue to do a very good job managing cost and as you noted shifting our revenue mix to to drive profitability. So no change there.
Speaker Change: Specific to Q3 guidance.
Speaker Change: The simplest way to look at it when you compare to last year's EBITDA margin. It was about 27 27, 5% or so.
Speaker Change: It was up 300 basis points from the third quarter of 22% and that was on about a 5% decline in top line.
Speaker Change: So last year's third quarter also included a film.
Speaker Change: A few million dollars of benefit related to.
Speaker Change: A true up of variable compensation, so I think when you exclude that benefit.
David A. Gardella: Last year's third quarter would have been right around 26% and, you know, again, still up a couple hundred basis points from Q3 of 22. And so, when you look at this year's third quarter guidance of mid to high 20s, it kind of puts us somewhere in that same neighborhood. I think, you know, the other thing I would say is that, you know, when you look this year, we've delivered over 400 basis points of margin expansion year to date. Trailing for the quarter margin, as we commented, is now at 29%.
Speaker Change: Last year's third quarter would have been right around 26% and again, it's still up a couple of hundred basis points from Q3 of 'twenty two and so when you look at this year's third quarter guidance of mid to high <unk>.
Speaker Change: Kind of puts us somewhere in that same neighborhood.
Speaker Change: The other thing I would say is that when.
Speaker Change: When you look this year, we've delivered over 400 basis points of margin expansion year to date.
Speaker Change: Trailing four quarter margin as we commented is now at 29%.
David A. Gardella: And, you know, as we noted in the prepared remarks, starting to overlap some of the margin expansion that we delivered in the back half of 23, you know, so the comps start to get tougher. Like I said, we'll continue to be disciplined in managing costs and shifting the revenue mix really to deliver against the long-term projections that we provided earlier. And I would say Q3 is certainly in line with that.
Speaker Change: And also we noted in the prepared remarks.
Speaker Change: Starting to overlap some of the margin expansion that we delivered in the back half of 'twenty three.
Speaker Change: So the comps start to get tougher like I said, we will continue to be disciplined on managing cost and shifting the revenue mix.
Speaker Change: Really to deliver against the long term projections that we provided earlier and I would say Q3 is certainly in line with that.
David A. Gardella: And can we talk a bit about venue and the strong growth you're seeing there? You know, what's been driving higher volumes? Number of deals, bigger deals, and what gives you confidence that this trend might continue? Yeah, yeah, two things.
Speaker Change: And can we talk a bit about venue is the strong growth you're seeing there what's been driving higher volumes.
Speaker Change: Is it number of deals is just bigger deals.
Speaker Change: What gives you confidence that this trend might continue.
David A. Gardella: Well, three things there. One, and we commented that roughly a third of the growth that we saw this quarter was really driven by the kind of outsized data rooms. And that's down proportionately. You recall in the first quarter, we said roughly half the growth was attributable to that. I think when you look at, you know, the second quarter, the other two-thirds of the growth, there's a little bit of room count, but it's primarily the size of the rooms in terms of the number of pages that are being uploaded, as well as, you know, the price increases that we put into place starting the middle of last year and are now coming to overlap that. But we've seen that benefit in pricing, you know, Yeah, this is Craig Clay.
Speaker Change: Yes, yes, it's two things well three things there one we commented roughly a third.
Speaker Change: The growth that we saw this quarter was really driven by the the kind of outsized.
Speaker Change: Data rooms.
Speaker Change: And Thats.
Speaker Change: Down proportionately, you'll recall in the first quarter, we said roughly half the growth was attributed both to that I think when you look at second quarter. The other two thirds of the growth.
Speaker Change: There was a little bit of.
Speaker Change: The room count, but its primarily.
Speaker Change: The size of the rooms in terms of the number of pages that are being uploaded.
Speaker Change: As well as.
Speaker Change: The price increases that we put into place starting the middle of last year.
Speaker Change: Now coming to overlap that but we've seen that benefit and pricing.
Speaker Change: Call it over the last four quarters or so.
Craig D. Clay: To add to that, Dave, thank you. You know, the increased page activity, higher pricing, and these rooms are also staying open longer, which is again reinforcing the stability of the venue; underlying demand is less volatile versus the M&A market. So we're seeing this more stable revenue stream, which has been an event-driven transactional product. And then just on those large deals, as Dave mentioned, driving a third, it's really about sales execution of taking share of taking share at large tier one banks. So we're super encouraged by the resilience of the activity taking place on the platform. We think the broad application within the M&A ecosystem is serving both announced and unannounced deals across public and private companies.
Tim: Yes. This is Tim.
Speaker Change: Add to that.
David A. Gardella: Dave Thank you know.
David A. Gardella: The increase page activity higher.
Speaker Change:
Speaker Change: Pricing. These rooms are also staying open longer which is again reinforcing the stability of venue underlying demand is less volatile.
Speaker Change: Is the M&A market.
Speaker Change: So we're seeing that's more stable revenue stream, which has been an event driven transactional product.
Speaker Change: And then just on those large deals as Dave mentioned driving a third.
David A. Gardella: It's really about sales execution is taking share, let's taking share at large tier one banks.
Speaker Change: So we're super encouraged by the resilience of the activity taking place on the platform.
Speaker Change: Thank the broad application within the M&A ecosystem, serving both announced and unannounced deals.
Speaker Change: Cross public and private companies.
Craig D. Clay: And so as we look at the M&A market, we're certainly hopeful and excited for it to return to some medium level of activity. But there's a large amount of activity looking to be put to work. And we're pleased with the venue pipeline.
Speaker Change: So as we look at the M&A market, where certainly.
Speaker Change: Hopeful and excited for it to return to some medium level of activity.
Speaker Change: But there is a large amount of activity, we're going to be put to work. We're pleased with the venue pipeline.
Speaker Change: Also in the process of growing outside of M&A.
Speaker Change: Into recurring subscriptions.
Speaker Change: And then also reoccurring growth. So we're just going to continue to focus on what got US here, great product sales execution and share expansion.
Peter James Heckmann: We're also in the process of growing it outside of M&A into recurring subscriptions and then also recurring growth. So we're just going to continue to focus on what got us here, a great product, sales execution, and share expansion. Thank you. Your next question comes from the line of Peter Heckmann with D.A. Davidson. Your line is open. Hey, good morning, everyone.
Speaker Change: Thank you. Your next question comes from the line of Peter Heckmann with D. A Davidson your line is open.
Peter James Heckmann: Thanks for taking my question. So in terms of the completed M&A deals, I guess, how do you see it? I know it's hard to totally handicap that.
Peter James Heckmann: Hey, good morning, everyone. Thanks for taking my question. So in terms of the completed M&A deals I guess, how do you feel I.
Speaker Change: I know, it's hard to totally handicap that but.
Daniel N. Leib: But with venue growth, it certainly feels like there's a lot of potential deals in the pipeline, either dual process IPO M&A or just straight M&A. Is there any way to think about, what's your embedding in your third quarter guidance in terms of completed M&A from a filings perspective? Yeah, I'll touch on the market and turn it to today for guidance. I think you can look at, you know, what our clients are telling us. So certainly, Federal Reserve Chair Powell said, sticky inflation was the reason they didn't change rates in May.
Speaker Change: With the venue growth it certainly feels like there is a lot of.
Speaker Change: Potential deals in the pipeline either dual process IPO M&A or just straight M&A.
Speaker Change: Is there any way to think about.
Speaker Change: So what youre embedding in your third quarter guidance in terms of.
Speaker Change: Completed M&A from a filings perspective.
David A. Gardella: And he will address this again today at 2pm. What's he going to say? I think the bet is that there'll be a September cut. And these rising interest rates have been a drag, a super drag, for the last two years. With soaring transaction financing costs, you know, depressing stock valuations. So what we're hearing our clients talk to us about is a belief that this clearer path to the monetary policy of the future is going to create certainty and will help support deal activity.
Speaker Change: Yes, I'll touch on the market and turn it.
Speaker Change: Today for the guidance.
Speaker Change: I think you can look at.
Speaker Change: What our clients are telling us to certainly federal reserve Chair Powell.
Speaker Change: Inflation was the reason they didn't change rates and may any addresses. This again today at two PM Whats youre going to say I think the bet is.
Speaker Change: There'll be a September cut.
Speaker Change: These rising interest rates had been a drag of super drag for the last two years with soaring transaction financing costs.
Speaker Change: Depressing stock valuation so what we are hearing our clients talk to us about is a belief that this.
Speaker Change: <unk> path to the monetary policy of the future is going to create certainty.
David A. Gardella: It's going to bridge the gap between big bids and target price expectations. And the indication we're getting, as you stated, is that private equity players are coming back into the market, and deals will get done. So that is exciting for the venue, given our results, and it's certainly exciting for the CNCM platform. Dave, I'll turn it to you. Yeah, and Pete, can you clarify the second part of that question? I was just trying to think about what's embedded in your third quarter guidance as regards capital markets, transaction revenue, I think you said down 4 billion year over year. Yeah, I just think from an M&A perspective, like, I don't know if you know, I'm sure that's rage, but just how you're thinking about that. Yeah, I would say it is a wide range.
Speaker Change: And we will help support deal activity, it's going to bridge the gap between bid and target price expectations in.
Speaker Change: And the indication we're getting as you stated is private equity players are coming back into the market.
Speaker Change: And deals will get done.
Speaker Change: So that is exciting for venue.
Speaker Change: Given our results and it is certainly exciting for the CMC on platform and data alternative here.
Speaker Change: Yeah, and Pete can you clarify the second part of that question.
Pete: I was just trying to think about what's embedded in your third quarter guidance as regards.
Pete: Capital markets transaction revenue I think you said down 4 million year over year.
Speaker Change: Yes.
Speaker Change: From an M&A perspective, like I don't know.
Speaker Change: I'm sure that's a range, but just how youre thinking about that.
David A. Gardella: And, you know, we kind of, we have, you know, some visibility, obviously, in the near term better than in the longer term, you know, and kind of handicap each of the projects that we're looking at. I would say, you know, the 45 million overall is pretty similar, obviously, to each of the first two quarters. And so, you know, on an aggregate basis, probably not much different in Q3 than what we saw in Q2.
Speaker Change: Yes, I would say it is a range and we kind of we have some visibility obviously to then the near term better than the longer term.
Speaker Change #101: And kind of handicap.
Speaker Change: Each of the projects that we're looking at I would say.
Speaker Change: The $45 million overall.
Speaker Change: Is pretty similar obviously to each of the first two quarters.
Speaker Change: So on an aggregate basis, probably not much different in Q3 than what we saw in Q2.
David A. Gardella: Okay, and then just in terms of tailored shareholder reports, any additional findings as you're getting into the go live? Or any thoughts about your relative share on either the software services or print side? Yeah, it's Dan.
Speaker Change: Okay, and then just in terms of.
Speaker Change: Tailored shareholder reports.
Speaker Change: Additional findings as youre getting into the go live or any thoughts about that.
Speaker Change: Our relative share all legal software services or print side.
Daniel N. Leib: We're really happy with, you know, that we've talked about this before, our full set of offerings from software through to our traditional platform, which really helps with chain of custody. And so we've seen strong uptake on our software platform. We did mention we thought print would be a lower number, and in fact, that's playing out that way. So, you know, on the software side, we expect about 11 to 12 million annual impact. That'll be in 2025.
Daniel N. Leib: Yes, it's Dan.
Daniel N. Leib: We're really happy with that.
Daniel N. Leib: We've talked about this before our full.
Daniel N. Leib: Set of offerings from software through our traditional platform.
Speaker Change: Which really helps with chain of custody and so.
Speaker Change: We've seen strong uptake on on our.
Speaker Change: Software platform, we did mentioned we thought.
Speaker Change: Would would be a lower number and in fact, that's playing out that way. So on the software side, we expect about 11% to $12 million of annual.
Speaker Change: The impact that will be in 2025, we will get half of that in 2024.
Daniel N. Leib: We'll get half of that in 2024. But really happy with, you know, it's early days. There's a lot of onboarding and a lot of work going on in the organization, and in the early season, things are going very well. But, you know, I'll let Eric add, if you have anything.
Speaker Change: But really happy with its early days, there's a lot of Onboarding and a lot of work going on in the organization, but thus far.
Speaker Change: In a relatively light.
Speaker Change: Early season things are going very well.
Speaker Change: But I'll, let Eric add if you have anything.
Eric J. Johnson: Yeah, hey, thanks, Dan. Yeah, so, you know, I think what we're seeing is defense from a TSR solution perspective. We cover the full spectrum. So we're seeing clients that are engaging us on the SaaS side of things. We have seen clients come to us looking for traditional composition, tagging, and filing.
Eric: Yes, hey, thanks, Dan.
Eric: Yes, so I think what we're seeing is defense offering.
Eric: From a <unk> solution perspective.
Eric: We cover the full spectrum. So we're seeing clients that are engaging us on SaaS.
Eric: Side of things, we have seen clients come to us looking for traditional composition tagging and finally.
Eric J. Johnson: And since the rule, it's just launched here in July, you know, we're seeing a lot of variability and how prepared our clients are to get through some of this from a filing perspective. So we've seen the full spectrum of services. And as Dan mentioned about print, you know, from a traditional printing perspective, it is highly competitive.
Speaker Change: And since the rule its just launched here in July we're seeing a lot of variability in it.
Speaker Change: Client, how prepared are clients or to get through some of this.
Speaker Change: From a from a filing perspective, so we've seen the full spectrum of services.
Peter James Heckmann: And in many cases, we're, you know, we're staying very close to our margin profile for that work. But where we are seeing success is in our optimized digital print platform, where we're driving single package delivery for our clients, leveraging defense our digital software, as well as our digital output platform. So, you know, that's been a nice, nice change for us from an output perspective, and it fits our platform extremely well and certainly hits our margin profile.
Speaker Change: As Dan mentioned on the print.
Daniel N. Leib: From a traditional printing perspective, it is highly competitive.
Daniel N. Leib: And in many cases, where we're staying very close to our margin profile for that work, where we are seeing success is in our optimized digital print.
Peter James Heckmann: So, so I see an early, early stage here, you know, next, next cycle, I'm sure we'll get more volume with the 630 close, but as we see it, it's shaping up as we expected. But again, I think the big takeaway is our ability to provide a full spectrum of services for, Okay. All right. That's really helpful. I'll get back in the queue.
Eric: Platform.
Speaker Change: We're driving single package delivery for our clients leveraging deepens, our digital software as well as our digital output platform. So.
Speaker Change: That's been a nice a nice change for us from a from an output perspective, and it fits our platform extremely well.
Speaker Change: Certainly hits our margin profile so.
Speaker Change: So I see early early stage here.
Speaker Change: Next next cycle.
Speaker Change: I'm sure we will get.
Speaker Change: More volume with the 630 close but.
Speaker Change: As we see it.
Speaker Change: Shaping up as we expected.
Speaker Change: But again I think the big takeaway is our ability to provide a full spectrum of services for our clients.
Speaker Change: Okay, Alright, Thats really helpful I'll get back in the queue. Thank you. Thank.
Speaker Change: Thank you.
Kyle David Peterson: Thank you. Thank you. Your next question comes from the line of Kyle Peterson with Needham. Your line is now open.
Speaker Change: Your next question comes from the line of Kyle Peterson with meter Needham sorry.
Kyle David Peterson: Great. Thanks, guys. Good morning.
Speaker Change: Your line is now open.
Kyle David Peterson: Great. Thanks, guys. Good morning appreciate you taking my question.
Kyle David Peterson: Appreciate you taking the question. You know, I wanted to touch a little bit on, you know, software growth. For the second consecutive quarter, you guys have kind of had mid to low teams.
Kyle David Peterson: Wanted to touch a little bit on <unk>.
Speaker Change: Software growth.
Speaker Change: Second consecutive quarter and you guys have.
Kyle David Peterson: You're doing great with your growth in that segment. Just wanted to see if you guys could give any more color on the breakdown between whether it's new logos or, you know, pricing. Just any breakdown of that since it's really accelerated here with the first half of the year would be really helpful. Yeah, Kyle, it's big. Sorry, go ahead, Greg. No. This is Craig Clay.
Speaker Change: Had kind of a mid to low teens.
Speaker Change: Year on year growth in that segment just wanted to see if you guys could give any more color on the breakdown between whether it's.
Speaker Change: New logos or.
Speaker Change: Pricing just any breakdown of that since it's really accelerated here with first half of the year would be really helpful.
Speaker Change: Okay.
Kyle: Yes Kyle.
Speaker Change: Yes.
Doug: Sorry go ahead Doug.
Craig D. Clay: Thanks for the question. We touched on venue. I'll build on active disclosure. I think in the quarter, you saw software subscription sales up 2%. We had that partially offset by File 16.
Speaker Change: Sure.
Speaker Change: This is correct clay. Thanks for question, we touched on venue.
Speaker Change: Build on an act of disclosure.
Speaker Change: I think in the quarter.
Speaker Change: You saw software subscription sales up 2%.
Speaker Change: We have that partially offset.
Speaker Change: By far 2016.
Speaker Change: To touch on that and we're excited to have built the market leading section 16 filing platform with an act of disclosure. So those prefer beneficial owners to publicly disclose their relationship with the company.
Craig D. Clay: I think just to touch on that, we're excited to have built the market-leading Section 16 filing platform within active disclosure. That is for beneficial owners to publicly disclose their relationship with a company. Within the quarter, we had some negative drag, but like with AD, to just contextualize it, it was a conversion process. We were managing from an old system to a new one. We managed out low-paying clients.
Speaker Change: Within the quarter.
Speaker Change: We had some negative drag, but like with a D to just contextualize it.
Craig D. Clay: It's going to result in a more durable, high-priced solution. We're excited about what the future will hold for that. What to expect in the second half?
Speaker Change: The conversion process. So we were managing from an old system to a new we managed out low paying clients. Its going to result in a more durable high priced solutions. We're excited by what the future will hold for that.
Speaker Change: What's the expected second half.
Speaker Change: Excited by what we see we have made progress to expand the adoption of ABB, which is slowly being reflected in the quarter results.
Craig D. Clay: We're excited by what we see. We have made progress to expand the adoption of AD, which is slowly being reflected in the quarter results, as you heard Dave talk about. As the prospective metrics continue to trend favorably, our fourth quarter met new client growth. Our total client count surpasses Q3 of 22 and eclipses 83 churn with new logos and client wins. We saw an 11% year-over-year growth in annualized recurring revenue, which is inclusive of our service packages.
Speaker Change: As you heard Dave talk about.
David A. Gardella: But as the prospective metrics continue to trend favorably.
Speaker Change: Fourth quarter net new client growth.
Speaker Change: So our total client.
Speaker Change: <unk> Q3 of 'twenty, two and eclipses 83 churn with new logos and client wins, we saw an 11% year over year growth in annualized recurring revenue, which is inclusive of our service packages really excited by what we're offering our clients.
Speaker Change: Our average price is up in the.
Speaker Change: Mid teens.
Speaker Change: Due to it versus our active disclosure III product.
Speaker Change: Expect our growth in the second half to be stronger than the first.
Speaker Change: You heard we're going to overlap on our platform transformation.
Speaker Change: A lot more to come we have a price that is continuing to be an opportunity.
Speaker Change: Clients want a choice or sign up for multiyear contracts or contract length is 30 months.
Speaker Change: And we've been able to achieve these higher prices with built in price increases on renewals and longer term contracts.
Speaker Change: Our clients are paying less than our competitor. So our clients one of choice, which is an exciting place to be the couple that with product.
Craig D. Clay: You couple that with the product, exciting things that we're putting into the market, including design elements, including presentations, which is the full connection of the SEC documents to a presentation that reporting teams need for boards and investors. It's an exciting place to be. Our clients are choosing active disclosure for their most important reporting needs.
Speaker Change: Exciting things that we're putting into market, including design elements, including presentations, which has the full connection of the SEC documents to a presentation that reporting teams need for boards and investors.
Speaker Change: An exciting place to be so our clients are choosing active disclosure for their most important reporting needs and pipeline is.
Speaker Change: It is strong and we're looking forward to the rest of this year in 2025.
Craig D. Clay: Our pipeline is strong, and we're looking forward to the rest of this year and 2025. That's really helpful. And I guess just to follow up, I know in the third quarter guide, you guys mentioned that the expectation is for some of the capital markets revenue to be down a bit year-on-year. But you know, it seems like a lot of the filing activity has been up quite a bit year-to-date, and the market's been pretty healthy. So I just wanted to see, like, is that a couple of comps?
Speaker Change: Yeah.
Speaker Change: That's very helpful and I guess, just a follow up.
Speaker Change #100: The third quarter Guide you guys. That's been the expectation is for the capital markets revenue.
Speaker Change: Down a bit year on year it.
Speaker Change: It seems like a lot of the filing activity.
Speaker Change: It has been up quite a bit year to date.
David A. Gardella: I know we had a little bit of a boost last year in the third quarter, but how much of that was it because of tougher compares or a slowing pipeline or just conservatism on your part? Yeah, Kyle, I guess I would describe it as, you know, like I said earlier, we have some visibility into the deals that we're working on. It's certainly not a pipeline or a market share question, really more just kind of handicapping the timing of when we think these deals will ultimately close out and go to market.
Speaker Change: Obviously, the market's been pretty healthy so just wanted to see because that type of comps I know, we had a little bit of a boost last year in the third quarter, but how much of that whether it's <unk>.
Speaker Change: Tougher compares or.
Speaker Change #103: Slowing pipeline or just conservatism on your part.
David A. Gardella: Yeah, Kyle I guess I would describe it as.
Speaker Change #109: As said earlier, we have some visibility.
Speaker Change #105: Into the deals that we're working.
Speaker Change: It's certainly not a pipeline or a market share question.
Kyle David Peterson: Really more just kind of handicapping.
Speaker Change: The timing of when we think these these deals ultimately close out.
David A. Gardella: And so, you know, kind of basing a lot of that on what we've seen so far this year and just the overall trends. Sure, if things accelerate, you know, quicker than we're assuming, that would be great. But, you know, it's our best guess at this point.
Speaker Change: <unk>.
Speaker Change: Come to market.
Speaker Change: So kind of basing a lot of that and what we've seen so far this year and just the overall trends.
Speaker Change: Certainly if things accelerate.
Speaker Change: Quicker than what we're assuming.
Speaker Change: That would be great but.
Speaker Change: It's our best Best guess at this point.
David A. Gardella: I am hopeful. Thanks, guys. Thank you. And as a reminder to ask a question, if you'd press star and the number one on your telephone keypad to enter the queue. Our next question comes from the line of. [inaudible] Raj Sharma with B. Reilly and Company.
Speaker Change: Yeah.
Speaker Change: Helpful. Thanks, guys.
Speaker Change: Thank you and as a reminder to ask a question if Youll press star and the number one on your telephone keypad to enter the queue.
Speaker Change #102: Our next question comes from the line of.
Speaker Change: It looks like.
Speaker Change: Raj Sharma with B Riley <unk> company your.
Rajiv Sharma: Your line is open. Yeah, thank you for taking my questions. I wanted to understand, you know, the sales inflection, the top line inflection relies really on software growth in the second half and ongoing. You know, that should happen, I guess, due to software growth, but also any proactive reductions, they're still to be expected going forward and, and related to the top line inflection in software. What, you know, you've talked about software having double digit growth in the next few years, doubling from, you know, doubling again over a three, four year period. And you just said the TSR contribution for next year is 11 to 12 million. What takes software, you know, to that double-digit growth rate over the next few years? Yeah, Raj, I'll start.
Speaker Change: Your line is open.
Rajiv Sharma: Yes, Thank you for taking my questions.
Speaker Change: Yeah.
Speaker Change #108: I just wanted to understand the sales.
Speaker Change: Inflection the topline inflection relies really on software growth.
Speaker Change: <unk> have an ongoing.
Speaker Change #104: That should happen I guess due to software growth, but also.
Speaker Change #104: Any proactive reduction there still to be expected going forward.
Speaker Change: And related to the top line inflection and software.
Speaker Change: What you've talked about software, having double digit growth for the next few years doubling from but.
Speaker Change: Doubling again.
Speaker Change: A three four year period.
Speaker Change #111: And you just said the TSA contribution for <unk>.
Speaker Change: Next year is $11 million to $12 million what takes software.
Speaker Change: To that double digit growth.
Raj: Over the next few years.
David A. Gardella: So you had a handful of questions there. I think, as it relates to the back half of the year, you're right. I think our expectation is, you know, certainly to continue the software growth. Part of that comes through the TSR regulation, right, which we commented on. And of that 11 to 12 million, roughly half of it, we expect to come in Q3 and Q4. As it relates to the print reductions, as we commented on, not only last quarter but also this quarter, you look at Q1 and Q2, that tend to be the higher, higher quarters in terms of the concentration of print as it relates to, you know, 10ks and proxies specifically.
David A. Gardella: Yes, Raj I'll start so you had a handful of questions. There I think as it relates to the back half of the year.
Rajiv Sharma: You are right I think our expectation certainly to continue the software growth.
Speaker Change #106: That comes through the <unk> regulation, right, which which we commented on.
David A. Gardella: And of that 11 to 12 million roughly half of it we expect to come in Q3 and Q4.
Speaker Change: As it relates to the reductions as we commented on.
Speaker Change: Not only last quarter, but also this quarter.
Speaker Change: You look at Q1, and Q2 that tends to be the.
Speaker Change: The higher.
Speaker Change: Higher quarters in terms of the concentration of print as it relates to.
David A. Gardella: And so while there is some impact in the back half of the year, it's not nearly as significant as what we've experienced in the first half of the year. And then with your comment or question regarding the ability to double the software, really a combination of a couple things. One is growing the existing offerings as they currently sit today.
Speaker Change: 10, Ks and proxy specifically and so while there is some impact in the back half of the year.
Speaker Change: It's not nearly as significant as what we've experienced.
Speaker Change: In the first half of the year.
Speaker Change: And then with your comment.
Speaker Change #107: A question regarding.
Speaker Change #107: The ability to double the software really a combination of a couple of things one is growing the existing offerings as they as they currently sit today.
David A. Gardella: And you'll also recall, then we talked about how, over time, we believe that a lot of what we're doing, you know, in the compliance and communications management segment ends up shifting to a hybrid model or, you know, maybe over a longer period of time, to a full software model. And so there's a little bit of mix shift as we look ahead in those five year projections. Great Thank you. Then just lastly, I know on your guidance, your 3Q guidance, you're assuming, you know, slightly lower transaction volume. Now, X value, do you think that we should kind of expect, or are you seeing, are you assuming a flat second half on the transaction? From where you stand now,
Speaker Change #107: And you'll also recall than we've talked about over time, we believe that a lot of what we're doing.
Speaker Change: In the compliance <unk> Communications management segment.
David A. Gardella: Ends up shifting to a hybrid model or maybe over a longer period of time, a full software model.
Speaker Change: So there is a little bit of.
Speaker Change: Mix shift as we look look ahead in that in those five year projections.
Speaker Change: Great. Thank you and then just.
Speaker Change: Lastly, I know in your guidance.
Speaker Change: <unk> guidance, you're assuming.
Speaker Change: Slightly down transactional volume now ex venue do you think that we should kind of expect or are you seeing are you assuming a flat second half.
Speaker Change: Transactions.
David A. Gardella: Yeah, so we haven't really given guidance looking beyond Q3. And I should clarify that when we talk about transactional, that's excluding venue. We do expect, as we said, the venue to continue to grow, probably not at the same pace that we've seen year to date, just given what we've seen in some of the kind of large, outsized rooms, as well as starting to overlap some of the price increases that went into play mid-year last year.
Speaker Change: From where you stand now.
Speaker Change #112: Yes, so we haven't.
Speaker Change #110: Really given guidance looking beyond Q3.
Speaker Change #110: And I should clarify that when we talk about transactional that's.
Speaker Change: Excluding venue, we do expect as we said venue.
Speaker Change: To continue to grow.
Speaker Change: Probably not at the same pace that we've seen year to date just given.
David A. Gardella: What we've seen in some of the.
Speaker Change: The out.
Speaker Change: Outsized large.
Speaker Change: Rooms, as well as starting to overlap some of the price increases that went into play mid year last year.
David A. Gardella: But from a transactional perspective, and again, when we say transactional excluding venue, you know, like I said, we expect that to be in Q3 pretty similar to what we experienced in each of the first two quarters this year. And then for Q4, we'll provide an outlook on the Q3 earnings call in early November. Great, thank you for answering my questions. I'll take it offline.
David A. Gardella: Great. Thank you. Congratulations on the results. Thanks. Thank you. Thank you. At this time, there are no further questions. Mr. Leib, I'd like to turn the call back over to you for closing remarks. Great. Thank you. And thanks to everyone for attending the call. We look forward to speaking with you soon. This concludes today's conference call. You may now disconnect.
Speaker Change: But from a transactional perspective, and again, when we say transactional excluding venue.
Speaker Change: Like I said, we expect that to be in Q3 pretty similar.
Speaker Change: To what we experienced in each of the first two quarters this year.
Speaker Change: And then for Q4, we.
Speaker Change: We will provide an outlook on the Q3 earnings call in early November.
Speaker Change: Great. Thank you for answering my questions I was taken offline great. Thank you congratulations. Thanks Ross. Thanks. Thank you great. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change #113: At this time there are no further questions.
David A. Gardella: Mr. Lee I'd like to turn the call back over to you for closing remarks, great. Thank you and thanks to everyone for attending the call. We look forward to speaking with you soon.
Speaker Change #114: This concludes today's conference call you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
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