Donnelley Financial Solutions (DFIN) Tops Q3 EPS by 39c, Revenues Beat

Donnelley Financial Solutions (NYSE: DFIN) reported Q3 EPS of $0.63, $0.39 better than the analyst estimate of $0.24. Revenue for the quarter came in at $209.5 million versus the consensus estimate of $193.4 million.

Third-quarter 2020 highlights:

• Net sales of $209.5 million, up $13.6 million, or 6.9%, from the third quarter of 2019, driven by growth in software solutions and a strong IPO market, partially offset by declining print-based net sales
• Record quarterly software solutions net sales of $51.1 million, up $4.5 million, or 9.7%, from the third quarter of 2019; software solutions net sales accounted for 24.4% of total third-quarter 2020 net sales, up 60 basis points from 23.8% in the third quarter of 2019
• Net earnings per diluted share of $0.21, down $0.22 from the third quarter of 2019; non-GAAP net earnings per diluted share of $0.63, up $0.50 from the third quarter of 2019, primarily due to continued focus on cost control initiatives and an improved business mix
• Adjusted EBITDA of $47.6 million, up $16.5 million, or 53.1%, from last year; adjusted EBITDA margin of 22.7%, up 680 basis points from the third quarter of 2019
• Operating cash flow of $76.4 million, an increase of $15.3 million, or 25.0%, from the third quarter of 2019; free cash flow of $67.6 million, an increase of $15.4 million, or 29.5%, from the third quarter of 2019
• Gross leverage and non-GAAP net leverage of 1.8x and 1.5x, respectively, each down 1.0x from September 30, 2019; total debt and non-GAAP net debt down by $72.2 million and $81.0 million, respectively, from September 30, 2019
• Company repurchased approximately 444,000 shares of its common stock during the quarter for $5.1 million at an average price of $11.54 per share; Year to date, the Company has repurchased over 1 million shares of its common stock for $8.9 million at an average price of $8.43 per share, and has approximately $16.1 million remaining on its $25 million stock repurchase program

“We are pleased with the very strong performance in the quarter, which included both a return to more normalized levels of software solutions sales growth and a significant increase in transactional activity, driven by strong performance in a robust IPO market. The influx of higher-margin tech-enabled services and software solutions net sales, along with the significant impact of our ongoing cost control efforts, led to a 680 basis point year-over-year improvement in our third-quarter adjusted EBITDA margin, marking the fifth consecutive quarter of year-over-year margin expansion,” said Daniel N. Leib, DFIN’s president and chief executive officer.

Leib continued, “The year over year increase in IPO activity that we saw starting in June accelerated throughout the third quarter. The robust third-quarter IPO activity, combined with an increase in M&A activity starting in September, led to a rebound in Venue net sales, while also driving strong growth in our client count and associated net sales in ActiveDisclosure. We also continued to strengthen our balance sheet, ending the quarter with non-GAAP net leverage of 1.5x, down from 2.5x in the third quarter of 2019. Our financial flexibility allows us to continue to invest in growth opportunities and repurchase shares, while also preserving ample liquidity.”

“We are excited about the pace of development of, and demand for, our software solutions. We signed the largest ever software contract in the company’s history in the third quarter. This multi-year contract further deepens a key Investment Companies’ customer relationship and represents an expansion of their end-investor financial reporting capabilities on a global basis leveraging our ArcReporting solution. We also saw significant demand for ArcDigital from our Investment Companies clients’ as they look to DFIN to help in their transition to a post SEC Rule 30e-3 environment. These successes, along with many others throughout the business, support our “44 in ‘24” strategy and the associated financial projections,” Leib concluded.

For earnings history and earnings-related data on Donnelley Financial Solutions (DFIN) click here.

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