Q1 2025 Donnelley Financial Solutions Inc Earnings Call
Thank you for standing by my name is Eric and it'll be a conference operator today.
At this time I would like to welcome everyone to the Donnelley financial solutions first quarter earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
I'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
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Speaker Change: I would now like to turn the call over to Mike Brown head of Investor Relations. Please go ahead.
Mike Brown: Thank you good morning, everyone and thank you for joining Donnelley financial solutions first quarter 2025 results conference call.
Mike Brown: This morning, we released our earnings report, including a set of supplemental trending schedules of historical results copies of which can be found in the investors section of our website at defense solutions Dot com.
Mike Brown: During this call we'll refer to forward looking statements that are subject to risks and uncertainties.
Mike Brown: 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 quarterly report on Form 10-Q, and other filings with the SEC.
Mike Brown: Further we will discuss certain non-GAAP financial information such as adjusted EBITDA, adjusted EBITDA margin and organic net sales.
Mike Brown: 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.
Mike Brown: 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.
Speaker Change: I am joined this morning by Dan Leap day, part della <unk> and other members of management.
Dan: I'll now turn the call over to Dan.
Dan: Thank you, Mike and good morning, everyone.
Dan: We delivered strong consolidated first quarter results with net sales of $201 $1 million adjusted EBITDA of $68 $2 million and adjusted EBITDA margin of 33, 9%.
Dan: Given our stock trading levels strong balance sheet and perspective on long term value during the first quarter and into the second quarter. Thus far we have repurchased approximately 5% of the company's outstanding shares while we recognize the uncertainty in the near term global operating environment recent trading prices.
Dan: We have provided an opportunity to be more aggressive in this area.
Dan: I am encouraged by the continued growth in our software offerings, where we delivered year over year net sales growth of approximately 6% on an organic basis, driven by approximately 16% growth in our recurring compliance and regulatory driven products active disclosure and <unk> suite that more than offset a.
Dan: Klein in the venue data room product.
Dan: Software solutions net sales represented 42, 1% of total net sales in the first quarter, an increase of approximately 260 basis points from last year software solutions net sales mix.
Dan: On a trailing four quarter basis software solutions net sales made up 42, 8% of total net sales an increase of approximately 500 basis points from the first quarter 2024 trailing four quarter period.
Dan: On both a quarterly and trailing four quarter basis software solutions represented the largest component of our overall sales mix a positive proof point of our progress in becoming a software centric company.
Dan: This positions us well to achieve our long term target of driving approximately 60% of total net sales from software solutions by 2028.
Dan: During the quarter active disclosure in our suite each posted double digit sales growth for the second consecutive quarter for active disclosure. This improvement was primarily driven by the continued adoption of our service package offerings combined with growth in subscription revenue as a result of higher net customer count from recent wins.
Dan: As well as higher value per client.
Dan: In the case of arc suite, the improved growth rate was primarily driven by the tailwind from the tailored shareholder reports regulation, which became effective mid last year.
Dan: As it relates to venue following robust growth over the last several quarters venue sales declined moderately in the first quarter as we overlap several large deal rooms, we remain encouraged by venues performance, which benefits from stable demand from both announced and unannounced deals across public and private companies alike. Despite some.
Dan: Volatility inherent in the broader M&A market in terms of completed deals.
Dan: While venue serves both public and private company deals whether announced they are still in the diligence process.
Dan: Our capital markets transactional offering primarily serves public company M&A IPO and debt transactions.
Dan: Our capital markets transactional revenue, while improving on a sequential basis from the fourth quarter of 2024 continued to be depressed by the combination of market volatility.
Dan: Macroeconomic headwinds and heightened uncertainty.
Dan: Despite the ongoing downturn in global capital markets transactional activity, our business has proven to be fundamentally and substantially more profitable than historically.
Dan: Our adjusted EBITDA margin of 33, 9% in the quarter reached 29, 5% on a trailing four quarter basis. Despite the ongoing headwinds of a weak transactional market.
Dan: Our performance reflects our evolving sales mix permanent changes to our cost structure and continued cost discipline and further demonstrates our ability to sustainably operate at a higher level of profitability across a range of market conditions.
Dan: We continue and invest to shift towards a more favorable recurring sales mix, while continuing to aggressively manage our cost structure and being disciplined stewards of capital.
Dan: A key factor behind our margin performance has been the progress we have made towards creating a cost structure and operating model that better aligns with our business mix part of which is driven by cyclical market factors.
Dan: Over the last several years to establish an optimized and variable cost structure in areas of the business that are both seasonal and cyclical fluctuations. We took aggressive actions that targeted many aspects of our fixed cost base, including downsizing, our print production platform driving internal efficiencies and reducing our physical foot.
Dan: Print.
Dan: During the quarter, we maintain the same disciplined approach and we'll continue to manage our cost structure prudently, especially in light of the current economic landscape and uncertainty.
Dan: As we continue to gain efficiency across our operations. We also remain focused on reinvesting in areas of our business to accelerate our transformation.
Dan: In the first quarter, we continued to invest in our software offerings and the associated technologies to support continued innovation and growth. The investments. We are making also enable us to modernize our business operations by applying automation and AI driven tools, including commercial AI solutions and our own agenda.
Dan: Development to streamline workflows improve productivity and support profitable growth.
Dan: These investments will help to profitably scale existing products increase our speed to market for future offerings and enhanced client experience.
Dan: Before turning the call over to Dave I'd like to provide some perspective on defence operating characteristics as we operate in a new and evolving global economic environment, while much uncertainty exists. We presently do not anticipate any significant impact on our operations based on the recently announced tariffs in large part due to the name.
Dan: <unk> and structure of our business our business is primarily software and services and predominantly U S base.
Dan: A relatively simple supply chain that has continued to operate without disruption with approximately 90% of our revenue derived from the U S. Our software products and services are largely insulated from current trade pressures.
Dan: In the cases, where we do see input costs rising we expect to be able to increase our prices.
Dan: In addition, approximately 75% of our revenue is based on a recurring and reoccurring sources. The vast majority of which is related to ongoing SEC compliance for which core regulations have thus far not been impacted.
Dan: Our strong mix of recurring compliance offerings provides stability during times of market volatility of course, our clients that operate across different industries will have varying impacts to their operations.
Dan: As it relates to our event driven capital markets transactional offering while the global deal environment has yet to emerge for more than three years of historically low activity. The underlying latent demand for transactions remains intact from a market demand perspective, recent comments from the SEC or encouraging the commission's.
Dan: Here for regulations to be more tailored avoiding unnecessary burdens on public companies.
Dan: Will support future IPO activity and ongoing compliance needs and while we do not expect to return to normalized levels of transactions until market uncertainty subsides defend remains very well positioned to support our clients when that occurs.
Dan: Finally, our strong balance sheet and ample liquidity enable us to confidently execute our strategy and drive long term shareholder value with our non-GAAP net leverage ratio of under one times and robust annual free cash flow generation, our strong financial flexibility enhances our ability to execute our transformation we will.
Dan: Continue to allocate capital in a disciplined and thoughtful manner that best advances our strategy and maximizing shareholder value.
Dan: 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 results and our outlook for the second quarter Dave.
Dave: Thanks, Sam and good morning, everyone.
Dave: Before I discuss our first quarter financial performance I'd like to recap one housekeeping item in the quarter.
Dave: During the first quarter, we amended and extended our credit agreement to provide for a $115 million term loan a and to extend the maturity of the $300 million revolving credit facility.
Dave: Both instruments have maturity date of March 13, 2030.
Dave: The proceeds from the term loan a and the revolving credit facility were used to retire in full the $125 million outstanding on the prior term loan a.
Dave: This transaction.
Dave: Combined with our strong free cash flow generation continues to provide decent with abundant financial flexibility to execute our strategy.
Dave: Now turning to our first quarter results.
Dave: As Dan noted, we delivered solid first quarter results in a challenging environment.
Dave: Highlighted by a strong year over year increase in adjusted EBITDA.
Dave: And adjusted EBITDA margin expansion.
Dave: We posted approximately 6% organic growth in our software solutions net sales.
Dave: Including approximately 16% sales growth in our recurring compliance software products.
Dave: All while continuing to drive operating efficiencies and expanding adjusted EBITDA margin to 33, 9%.
Dave: As Stan noted earlier, we've made tremendous progress in aligning our cost structure and operating model to our evolving business mix over the last several years, including downsizing our print production platform.
Dave: Driving internal efficiencies and reducing our physical footprint.
We maintain the same disciplined approach in the quarter and we will continue to take a similar approach going forward.
Dave: On a consolidated basis total net sales for the first quarter of 2025 or $201 $1 million, a decrease of $2 $3 million or one 1% from the first quarter of 2024.
Dave: First quarter revenue was above the high end of our guidance range and was aided by better than expected event, driven transactional revenue within capital markets and favorable timing in investment companies compliance volume.
Dave: A component of which was realized through higher print and distribution revenue within this segment.
Dave: In addition software solutions net sales, which increased $4 3 million or five 8% on an organic basis compared to the first quarter of last year helped.
Dave: Helped to partially offset the decline in capital markets compliance revenue of $7 $8 million versus the first quarter of 2024.
Dave: Part of which was related to lower print and distribution volume consistent with recent trends.
Dave: First quarter adjusted non-GAAP gross margin was 63, 7%.
Dave: <unk> 310 basis points higher than the first quarter of 2024.
Dave: Primarily driven by a favorable sales mix the impact of cost control initiatives and price uplifts, partially offset by lower capital markets compliance volume.
Dave: Adjusted non-GAAP SG&A expense in the quarter was $59 $9 million and $8 2 million decrease from the first quarter of 2024.
Dave: As a percentage of net sales adjusted non-GAAP SG&A was 29, 8%.
Dave: Decrease of approximately 370 basis points from the first quarter of 2024.
Dave: The decrease in adjusted non-GAAP SG&A was primarily driven by a reduction in selling expense related to lower sales in certain areas.
Dave: The impact of cost control initiatives and lower bad debt expense.
Dave: Specific to our bad debt expense as a result of our strategy to deep prioritize low quality transactional deals, including certain dis back transactions, which have higher collections risk.
Dave: We realized the reduction in bad debt expense during the first quarter compared to our recent experience as.
Dave: As we continue to prioritize higher quality deals, we expect our bad debt expense profile to continue to normalize going forward.
Dave: Our first quarter adjusted EBITDA was $68 $2 million, an increase of $13 million or 23, 6% from.
Dave: From the first quarter of 2024.
Dave: First quarter adjusted EBITDA margin was 33, 9% an increase of approximately 680 basis points from the first quarter of 2024.
Dave: Primarily driven by a favorable sales mix the impact of cost control initiatives and lower bad debt expense, partially offset by lower capital markets compliance volume.
Dave: Turning now to our first quarter segment results net sales in our capital markets software solutions segment were $51 $9 million.
Dave: A decrease of $1 $1 million or one 7% on organic basis from the first quarter of last year.
Dave: Given by venue, which was down $3 $1 million or approximately 9% year over year, partially offset by the growth in active disclosure.
Dave: During the first quarter.
Dave: Active disclosure sales grew approximately 11%.
Dave: Continuation of the stronger growth rate, we experienced during the fourth quarter of last year.
Dave: We continue to make progress to expand the adoption of active disclosure services packages.
Dave: Providing a strong base of contracted recurring revenue.
Dave: Also benefiting the growth was the migration of certain traditional activities to active disclosure.
Dave: As we increasingly serve our clients via software solutions, we experienced a shift of certain activities, which were historically performed on our traditional services platform.
Dave: Two active disclosure.
Dave: <unk> compliance work such as annual proxy documents, while the shift from traditional compliance to active disclosure during the first quarter was modest we expect this trend to continue in the future driven by the improved capabilities of our software platform and evolving client preference to work in a hybrid environment.
Dave: Bridging both our software and unmatched service and domain expertise.
Dave: We remain encouraged by active disclosures continued growth in client count and higher average price per client, which combined to create a solid foundation for future revenue growth.
Dave: As expected during the first quarter venue faced tough comparisons as we overlap several large projects, which benefited last year's first quarter sales.
Dave: In aggregate.
Dave: Those large projects accounted for approximately $4 million of net year over year impact, which more than offset the underlying growth in venue sales.
Dave: We expect the year over year impact from large projects to continue in the second quarter.
Dave: Albeit at less of a headwind than in the first quarter approximately $2 million.
Dave: Adjusted EBITDA margin for the segment was 26, 8% a decrease of approximately 300 basis points from the first quarter of 2024, primarily due to lower sales volume and an unfavorable sales mix, partially offset by the impact.
Dave: <unk> of cost control initiatives.
Dave: Net sales in our capital markets compliance and communications management segment.
Dave: 83, $9 million, a decrease of $7 2 million or seven 6% on an organic basis from the first quarter of 2024 driven.
Dave: Driven by lower compliance volume, partially offset by higher transactional revenue.
Dave: In the first quarter, we recorded $48 $6 million of capital markets transactional revenue.
Dave: A modest increase from the $48 million, we delivered in last year's first quarter.
Dave: Following a very weak fourth quarter of 2024, where we recorded a lowest level of transactional revenue in our history. The global equity deal market rebounded modestly to start the first quarter with January and February deal volume, especially IPO transactions that raised.
Dave: Over $100 million exceeding last year's levels.
Dave: However, escalating macroeconomic headwinds and tariff uncertainty.
Dave: <unk> and an increased market volatility and limited deal activity in March.
Dave: In short the global deal environment in the first quarter was very soft compared to historical averages and this weakness will persist with market uncertainty.
Dave: Four transactions that we completed in the first quarter, we maintain our historical high market share reflective of deep and strong market position.
Dave: Capital markets compliance revenue was down $7 $8 million, primarily due to our continued exit of certain low margin proxy statement activity and the related print and distribution consistent with our approach during last year's proxy season.
Dave: In addition, we continued to experience lower market demand for certain event driven filings such as 8-K and special proxies associated with corporate transactions given the softness in that market.
Dave: Finally, as I commented earlier.
Dave: Activities, which were historically performed on our traditional services platform shifted to active disclosure.
Dave: Adjusted EBITDA margin for the segment was 43, 7% an increase of approximately 920 basis points from the first quarter of 2024 the.
Dave: The increase in adjusted EBITDA margin was primarily due to lower selling expense cost control initiatives and lower bad debt expense, partially offset by lower sales volume.
Dave: Net sales on our investment company software solutions segment were $32 $7 million, an increase of $5 4 million or 22% on an organic basis versus the first quarter of 2024.
Dave: Primarily driven by incremental revenue from our tailored shareholder report solution.
Dave: On a trailing four quarter basis total arc suite reached approximately $122 million in revenue and grew approximately 13% compared to the first quarter 2024, trailing four quarters driven by growth in subscription revenue, including the impact.
Dave: Of the tailored shareholder report solution.
Dave: Based on the mid year 2024 effective date.
Dave: We will continue to realize incremental revenue from tailored shareholder reports in the second quarter of 2025.
Dave: Adjusted EBITDA margin for the segment was 39, 1% an increase of approximately 980 basis points from the first quarter of 2024.
Dave: The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in net sales and price uplifts, partially offset by higher service related costs associated with a tailored shareholder reports offering.
Dave: Net sales in our investment companies compliance <unk> Communications management segment.
Dave: With $32 6 million, an increase of zero point $6 million or two 2% on an organic basis from the first quarter of 2024, primarily.
Dave: Driven by the timing shift of certain print and distribution volume related to the tailored shareholder reports for the regulated insurance market from the second quarter into the first quarter.
Dave: And higher event driven transactional revenue.
Dave: The timing shifts related to tailored shareholder reports in addition to the broader secular decline in the demand for printed products will result in lower print and distribution revenue in the second quarter compared to the second quarter of last year.
Dave: Adjusted EBITDA margin for the segment was 37, 4%.
Dave: Approximately 1180 basis points higher than the first quarter of 2020 for the.
Dave: The increase in adjusted EBITDA margin was primarily due to higher sales a favorable sales mix and cost control initiatives.
Dave: non-GAAP unallocated corporate expenses were $7 $4 million in the quarter, a decrease of zero point $8 million from the first quarter of 2024.
Dave: Primarily due to cost control initiatives and lower health care expense.
Dave: Free cash flow in the quarter was negative 51 million $10 $8 million unfavorable compared to the first quarter of 2024.
Dave: The year over year decline in free cash flow was primarily driven by unfavorable working capital timing and elevated performance based payments in the quarter related to full year 2024 performance, partially offset by higher adjusted EBITDA.
Dave: We ended the quarter with 189 $5 million of total debt and $173 $3 million of non-GAAP net debt.
Dave: Including $75 million drawn on our revolver.
Dave: As of March 31, 2025, our non-GAAP net leverage ratio was 0.8 times.
Dave: As a reminder, our cash flow is historically seasonal.
Dave: 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.
Dave: Regarding capital deployment, we repurchased approximately 861000 shares of our common stock during the first quarter were $41 $8 million at an average price of $48 57 per share.
As of March 31, 2025, we had $49 $5 million remaining on our $150 million stock repurchase authorization.
Dave: Based on our confidence in this strategy and our strong belief in the value of deferred.
Dave: We view share repurchases as a very attractive use of cash, especially at the prices we experienced during the last six weeks of the quarter and throughout April.
Dave: As such in a continuation of our historical approach of being much more aggressive with share repurchases at lower prices.
Dave: So far in April in accordance with our pre established trading parameters, we have repurchased an additional 657000 shares for 27 $6 million at an average price of just over $42 per share through April 29.
On a year to date basis, we have repurchased approximately one 5 million shares.
Dave: <unk> hundred 69 $4 million at an average price of $45 75 per share.
Dave: We continue to view organic investments to drive our transformation.
Dave: Share repurchases and net debt reduction each as key components of our capital deployment strategy and we will remain disciplined in this area.
Dave: As it relates to our outlook for the second quarter of 2025, we expect the challenging operating environment driven by market volatility and ongoing uncertainty.
Dave: Further we expect a reduction in print and distribution revenue in the second quarter based on both the timing shift of certain print and distribution volume from the second quarter into the first quarter that I discussed earlier as well as the reduction in volume of printed pages associated with the tailored shirt.
Dave: Holder reports rule.
Dave: Of which impact the investment companies compliance <unk> Communications management segment.
Dave: With those factors is the backdrop.
Dave: We expect consolidated second quarter net sales in the range of $215 million to $235 million and adjusted EBITDA margin in the mid 30% range.
Dave: Compared to the second quarter of last year, the midpoint of our consolidated revenue guidance of $225 million implies a reduction of approximately $18 million or 7% year over year as lower print and distribution sales, including the timing.
Dave: <unk> reflected in our first quarter results is expected to more than offset growth in arc suite and active disclosure.
Dave: We expect venue to decline at a rate similar to what we experienced in the first quarter in part due to the revenue associated with outsized rooms in last year's second quarter.
Dave: Further our estimates assume capital markets transactional revenue in the range of $35 million to $45 million, which at the midpoint is down approximately $5 million from last year's second quarter.
Dave: In addition, and related to my earlier comments regarding the impact of the transactional environment on certain compliance filings, most notably special proxies and 8-K's, our second quarter estimate assumes a modest year over year decline in our compliance based sales within this segment.
Dave: Part of which is related to print and distribution.
Dan: With that I'll now pass it back to Dan.
Dan: Thanks, Dave or.
Speaker Change: Our strong performance in the first quarter was the result of the historical and current disciplined execution of our strategy, which again demonstrated <unk> ability to perform across varying market conditions. Our focus remains on accelerating our business mix shifts by continuing to grow our SaaS revenue base, while maintaining share in our core traditional businesses.
Speaker Change: We will continue to invest in our compliance software platform to capitalize on regulatory tailwind. In addition, we will continue to aggressively manage our cost and drive operational efficiencies, while maintaining our historical discipline in the allocation of capital as I noted earlier, the latent demand for transactions in a more.
Speaker Change: Favorable regulatory landscape combined with our market leadership as a significant opportunity for <unk> going forward market volatility and uncertainty however must subside for this opportunity to materialize.
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 now with that operator, we're ready for questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press star followed by the one on your telephone keypad.
Speaker Change: Your first question comes from the line of Charlie <unk> with CJS Securities incorporated.
Speaker Change: Please go ahead.
Charlie <unk>: Hi, good morning.
Speaker Change: Just a couple of quick quick questions here.
Speaker Change: Margins were significantly higher than expected, especially versus guidance.
Speaker Change: Coming in at the high end of your guidance range for revenue just if you could perhaps.
Speaker Change: Provide us a little bit more color on kind of what drove that.
Speaker Change: Perhaps some acceleration.
Speaker Change: Florida the expense reduction efforts.
Speaker Change: Yes, Charlie Thanks for the question.
Speaker Change: A few factors there and a couple of things you noted are actually tied together, but.
Speaker Change: I would say first and we highlighted this on the fourth quarter call.
Speaker Change: The soft transactional market that we saw.
Speaker Change: Existing the year and we had.
Speaker Change: Taken some incremental cost reduction actions.
Speaker Change: Permanent cost reduction actions and I would say in the first quarter.
Speaker Change: Those came in better than what we had anticipated.
Speaker Change: The second factor is.
Speaker Change: Is.
Speaker Change: The higher revenue and the operating leverage associated with that revenue outperformance.
Speaker Change: And when you look at that outperformance. It was I'd say predominantly a combination of two things. The first was higher capital markets transactional sales.
Speaker Change: We posted revenue of about $49 million, which was about $4 million higher than our guidance.
Speaker Change: And then also as I mentioned in the prepared remarks, we had some favorable timing in investment companies.
Speaker Change: And that was probably.
Speaker Change: $3 million or so of sales that we had assumed would.
Speaker Change: Would be recognized in Q2 and that moved up in Q1 and again when you look at the.
Speaker Change: The incremental margins on this.
Speaker Change: Our higher revenue very strong.
Speaker Change: And then I would say the third thing and again mentioned this in the prepared remarks, and we also commented on it.
Speaker Change: The fourth quarter call.
Speaker Change: We've really been taking a much more discerning approach on the quality.
Speaker Change: City of transactions that we're accepting due to the collections risk.
Speaker Change: <unk>.
Speaker Change: On some of the lower quality deals so related to this bad debt expense came down in the quarter or about $2 $7 million versus the first quarter of last year.
Speaker Change: While we expected a decrease I would say this decrease was more than we had contemplated.
Speaker Change: And our guidance and.
Speaker Change: We will expect this trend to continue.
Speaker Change: In a positive direction, though it's really tough to predict exactly.
Speaker Change: How that how that declines over time, but we're starting from a pretty high watermark.
Speaker Change: Coming off of last year's bad debt expense number.
Speaker Change: And looking to drive that down more toward the historical averages.
Speaker Change: Got it that makes sense.
Speaker Change: Lee just.
Speaker Change: Your guidance for Q2.
Speaker Change: Maybe some more color on the segment level basis.
Speaker Change: The assumptions behind that.
Speaker Change: Yes, I think when you look at.
Speaker Change: Overall.
Speaker Change: You have the numbers, obviously, we talked about it in the prepared remarks, I think when you dive into the segments.
Speaker Change: Yeah.
Speaker Change: If I start with capital markets right, we expect.
Speaker Change: From a product perspective active disclosure to continue to perform well.
Speaker Change: From a year over year growth perspective venue as we talked about has a a.
Speaker Change: Tough comp really all year long, but certainly.
Speaker Change: We saw it in Q1, and we'll see that again in Q2, and then I think.
Speaker Change: When you look at the capital markets compliance Communications management segments.
Speaker Change: I'll start with the compliance work we talked about.
Speaker Change: Some some print being down and expect.
Speaker Change: The compliance revenue to continue to decline modestly on a year over year basis and again.
Speaker Change: Thats related.
Speaker Change: The biggest wildcard there would be transactions and obviously, we gave a pretty wide range for this quarter.
Speaker Change: And as we said in the prepared remarks that until.
Speaker Change: The markets have some certainty and less volatility we would expect the transactional side to be to be relatively soft.
Speaker Change: As I move over to investment companies on the software side, we'll continue to see.
Speaker Change: The benefit in our suite.
Speaker Change: Predominantly related to.
Speaker Change: The tailored shareholder reports regulation will start to overlap that benefit in the second half of the year, but certainly in Q2, we would expect to see.
Speaker Change: Yet the benefit again similar to what we what we saw in Q1.
Speaker Change: And then on the.
Speaker Change: The investment companies compliance and communications management.
Speaker Change: The biggest item there is the <unk>.
Speaker Change: He said I just mentioned on the timing shift.
Speaker Change: About $3 million of revenue shifted out of what we expected for Q2 and really on a year over year basis, right would have been comparable to last year's Q2.
Speaker Change: And so.
Speaker Change: We would expect some.
Speaker Change: The trend in that segment to be softer in Q2 than certainly what we experienced in Q1.
Speaker Change: Great. Thanks, Dave.
Speaker Change: Sure.
Speaker Change: The next question comes from the line of Pete Heckman with D. A Davidson.
Speaker Change: Please go ahead.
Speaker Change: Good morning, everyone. Thanks for taking the question. Good morning, just wanted to good morning, I wanted to see if you can comment a little bit on.
Speaker Change: Our share on the on the active disclosure side.
Speaker Change: How have the trends been there over the past four quarters.
Speaker Change: Or are you seeing.
Speaker Change: <unk>.
Speaker Change: Kind of.
Speaker Change: Maybe a lead.
Speaker Change: A bit of pulling away from the pack in terms of it seems like maybe there's one or two competitors that actually have the ability to invest.
Speaker Change: In the future functionality of software.
Speaker Change: And then some of the smaller players may.
Speaker Change: You may not have that ability would you agree and.
Speaker Change: Do you see that becoming a bigger differentiating factor over the next five years.
Speaker Change: Yes, Pete it's Dave again, I'll start and then correctly comment with some more details I think certainly.
Speaker Change: From a trend perspective, and new client logos and as we mentioned price per client.
Speaker Change: We continue to make good progress there.
Speaker Change: From an overall market perspective, and then the.
Speaker Change: Other aspect that we're seeing in active disclosure and then.
Speaker Change: We also expect that to continue to be a trend that is.
Speaker Change: As clients.
Speaker Change: You don't want to work more and more in a hybrid model.
Speaker Change: Thats certainly going to benefit us, we're having the best of both worlds in terms of being able to leverage the software as well as the traditional service domain expertise.
Speaker Change: Et cetera, but I'll, let I'll, let Craig comment on some more of the details.
Speaker Change: Yeah, Thanks, David stand before Craig goes just.
Speaker Change: On the second question that Peter had an ability to invest and we are seeing the benefits we saw even in the in the tsi our tailored shareholder reports regulation of the investments that we've made historically in the platform and the ability to get into market faster than it does build on itself.
Speaker Change: That with.
Speaker Change: Our prioritization of capital allocation towards organic investment.
Speaker Change: First in the end.
Speaker Change: Going forward with our transformation.
We do see that as a big differentiator and so ill pass it off to Greg.
Greg: Yes to build on those comments after having completed our platform transformation last year and modest growth. We're certainly really pleased with where we are Q4 Q1 performance in perspective metrics.
Greg: The progress, we're making is reflected and youll continue to see that Q1 was our seventh.
Greg: Consecutive quarter of net client growth our subscription revenue continues to grow our ACB growth shows we're selling at a higher value per client as mentioned.
Greg: We are increasing our percentage of three year contracts. So our clients are locking in which makes future revenue.
Greg: More predictable.
Greg: Then we've had sequential improvements in revenue retention rates as.
Greg: As well as our service revenue is up 36% in the quarter.
Driven by significant increases in our service package sales again.
Greg: Predictable revenue our clients Love 80 service it leads the market they like predictable packages.
Greg: And it creates this predictable mix of recurring revenue for these and if you look at the market. Our solution is the most advanced specifically designed disclosure tool.
Speaker Change: We have decades of serving FCC clients and we have a price opportunity we have product improvement that Dan spoke out with our investment our clients for proxy. This season are using the newest editor on the market the creative work for proxy and other documents and EDI is incredible.
Speaker Change: We've added presentations to that which is a full connection of the single source to their truth too.
Speaker Change: All created teams, whether they're creating something for the board investor and all of that imports and exports for maybe two powerpoint.
Speaker Change: Lastly, the hybrid solution that Dave mentioned.
Speaker Change: It's a great opportunity for us to marry our traditional platform with software. We're the only ones that can do that and over time. This will create an even stronger foundation for sustained growth. So thanks for the question.
Speaker Change: Okay, that's all really helpful.
Mike Brown: Good to hear Dave just one quick follow up.
Speaker Change: In terms of the new credit facility.
Speaker Change: How will that change if at all your weighted average cost of debt.
Speaker Change: Yes, Pete so it's no.
Speaker Change: The actual changes in terms of the.
Speaker Change: Overall terms in the transaction.
Speaker Change: There were a handful that all.
Speaker Change: Work to the Companys benefit which was great to see.
Speaker Change: I would say.
Speaker Change: Secondly that it's that at all.
Speaker Change: Variable variable rate debt so it's.
Speaker Change: So for plus a spread and that that spread is based on.
Speaker Change: Different tiers of our basically our net leverage range and so we're currently sit at the lowest tier.
Speaker Change: Of that spread so it'll all be tied to sulfur I think when you look at the all in right now is in the eye.
Speaker Change: Probably 7% range or so.
Speaker Change: Okay. Okay.
Speaker Change: Helpful. I appreciate it I'll get back in the queue.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line.
Speaker Change: Kyle Peterson.
Speaker Change:
Speaker Change: Please go ahead.
Speaker Change: Great.
Speaker Change: Thanks, guys good morning.
Speaker Change: To start off on on arcs, we and growth has been really impressive here kind of second quarter in a row, we've seen a nice pop in the year on year growth rates.
Speaker Change: I just wanted to see like is this kind of a sustainable central paradigm shift here for for growth within that product or.
Speaker Change: Is there anything like lumpy or one time that we need to be mindful of when when modeling out our fleet moving forward.
Speaker Change: Yeah, Kyle it's Dave Thanks for the question.
Kyle: So probably the one factor.
Kyle: That is a bit lumpy would be the piece that we're seeing as it relates to the tailored shareholder report regulation.
Kyle: So we started recognizing revenue on that last year in Q3 and so.
Kyle: We saw the back the benefit in the back half last year, we're getting the incremental.
Kyle: Kind of annualized <unk> of that that revenue in the first half of this year.
Kyle: And then.
Kyle: We will start to overlap that in in the third quarter.
Kyle: I would say the other factor that we will see all.
Kyle: All year long has some benefits of increased pricing.
Kyle: That that effect.
Kyle: Perfect and then Eric can provide some more details on what we're seeing in the business.
Eric: Hey, Thanks, Dave Thanks for the question Kyle.
Eric: In addition to the TSA or lift I think it's important to kind of structure out what we mean from a TSA perspective, we're talking reporting tagging filing web hosting E delivery complex mailing as well as digital output. So it's a very.
Eric: Broad spectrum of services that CSR drives and deacons very well positioned to handle the full spectrum of services, but specific to your software question. We've had key contract renewals, which are very important for the year.
Eric: We are seeing growth with existing clients across our suite offering.
Eric: And we're also seeing strong price performance so Ts.
Eric: <unk> as Dave mentioned, certainly an aspect.
Of the growth, but in the core fundamentals of the arc suite platform, we're seeing positive results.
Eric: Not to mention I believe is our 20 <unk> consecutive quarter growth.
Eric: In the segment so we're encouraged by.
Eric: The performance we've seen in Q1.
Eric: Obviously, we'll take advantage of the <unk> opportunities that we will see but very pleased with the overall fundamentals of the software business with them and Mark suite.
Eric: Okay, Yeah, the last thing I'd add.
Eric: I'll just just on that piece is.
Eric: We.
Eric: Our suite is the software product and then the.
Eric: The related service expertise and domain expertise that goes around it and even more so than on the corporate side.
Eric: The funds and regulated insurance folks.
Speaker Change: Value of that service and Dave spoke to how much it is valued on a corporate side, so its not to diminish that but they value it even more and I think it's based more on the fund's outsourced model and so we're seeing we see a lot of benefit from and very high customer satisfaction scores with the server.
Eric: They receive and.
Eric: And so that's another differentiator.
Eric: Supports eric's comments about the holistic system.
Eric: Okay.
Eric: That's that's really helpful. Appreciate it and then.
Eric: Guess as a follow up.
Eric: Great to see you guys really.
Eric: Stepped up the buyback pace here both in in the first quarter.
Eric: I guess.
Eric: As long as the share price remains below.
Eric: Historical or recent valuations is that something you guys could continue to to buyback at.
Eric: At a faster clip like you you have bad.
Eric: Recently or do you think this will kind of normalize back down.
Eric: Given you guys have bought back so good.
Eric: The amount of the shares in the last few months here.
Eric: Yes, yes, yes.
Eric: Got it.
Speaker Change: I was going to say, we've been very consistent on this.
Eric: In terms of.
Eric: Being more aggressive at lower prices and.
Eric: Less aggressive, but still in the market at higher prices and as we commented on the prepared remarks still view share repurchases.
Eric: Yeah.
Eric: As one.
Eric: One of the priorities in terms of.
Eric: Capital deployment, and Dan I think I cut you off. So go ahead, yes, no you hit it the only thing I'd add is.
Eric: We have used a grid to Dave's point much more aggressive at lower prices.
Feel really good about the.
Eric: Future performance of the business notwithstanding some market Choppiness currently.
Eric: And uncertainty.
Eric: But the opportunity to create a lot of value for shareholders and so it is one of the.
Eric: Second to executing the transformation in the strategy.
Eric: Really important that we continue to.
Eric: To buy back and then certainly within the confines of overall leverage et cetera.
Eric: That's how we think about it.
Eric: Okay.
Eric: Great color. Thank you.
Eric: Yeah.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: There are no further questions at this time.
Speaker Change: Like to turn the call over to Dan Leib for closing remarks. Please go ahead, great. Thank you Eric and thank you everyone for joining us and we'll look forward to speaking with you in a few months in.
Speaker Change: Seeing at some conferences in the interim.
Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
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