Donnelley Financial Solutions, Inc. (NYSE: DFIN), (the
“Company”) today reported financial results for the second
quarter 2020.
Highlights:
Second-quarter 2020
Second-quarter 2019
Net Sales
$254.0 million
$258.9 million
GAAP Net Earnings (Loss)
($1.3) million
$17.3 million
Non-GAAP Adjusted EBITDA(1)
$60.8 million
$56.1 million
Operating Cash Flow(2)
$13.2 million
$3.0 million
Free Cash Flow(1) (3)
$4.4 million
($8.1 million)
(1)
Non-GAAP Adjusted EBITDA (“Adjusted
EBITDA”) and Free Cash Flow are non-GAAP measures that exclude the
impact of items noted in the reconciliation tables below. The
tables below provide reconciliations to the most comparable GAAP
measures.
(2)
Due to the seasonality of the Company’s
business, historically it is a user of cash in the first half of
the year, with more than all of its operating cash flow being
generated in the second half of the year.
(3)
Defined as operating cash flow less
capital expenditures.
- Second-quarter 2020 net sales of $254.0 million, a significant
increase from the outlook ($220 million to $230 million) provided
on the first-quarter earnings call, primarily driven by stronger
than anticipated capital markets transactional activity
- Second-quarter software solutions net sales of $47.6 million
accounted for 18.7% of total second-quarter 2020 net sales, up 20
basis points from 18.5% as a percentage of total net sales in the
second quarter 2019
- Second-quarter 2020 GAAP fully diluted net loss per share of
$0.04; non-GAAP fully diluted earnings per share of $0.87, up $0.13
from the second quarter of 2019, primarily due to continued focus
on cost control initiatives and an improved business mix
- Second-quarter 2020 Adjusted EBITDA of $60.8 million, up $4.7
million, or 8.4%, from the second quarter of 2019; Adjusted EBITDA
margin of 23.9%, up 220 basis points from the second quarter
2019
- Second-quarter 2020 operating cash flow improved $10.2 million
from the second quarter of 2019; second-quarter free cash flow
improved $12.5 million from the second quarter of 2019;
year-to-date operating cash flow up $41.4 million compared to the
first half of 2019 and free cash flow up $51.9 million compared to
the first half of 2019
- Second-quarter total leverage of 2.4x, down 0.8x from the
second quarter of 2019; non-GAAP net leverage of 2.1x, down 1.0x
from the second quarter of 2019; total debt down $68.4 million from
the second quarter of 2019
- Company sold its remaining equity stake in AuditBoard for $12.8
million; established strategic partnership with Galvanize to extend
audit and compliance offerings globally
“We are pleased with the strong performance in the quarter, in
light of the challenges presented by the COVID-19 pandemic and
related market volatility. Our long-standing prioritization of
employee health and safety allowed us to operate safely while
providing exceptional service to our clients through the peak
filing and proxy season. Our employees responded swiftly,
innovatively transforming our production platform and service
delivery model to adapt to our clients’ need for a fully-virtual
experience,” said Daniel N. Leib, DFIN’s president and chief
executive officer.
Leib continued, “After a very slow start to the quarter,
activity levels improved significantly in June, with transactional
revenues, including Venue, picking up sharply. The influx of
higher-margin tech-enabled services & software solutions
revenues, combined with the continued impact of our ongoing cost
control efforts, led to a 220 basis point year-over-year
improvement in our second-quarter adjusted EBITDA margin, marking
the fourth consecutive quarter of year-over-year margin expansion.
Strong margin and improved working capital management allowed us to
further strengthen our balance sheet, resulting in second-quarter
ending non-GAAP net leverage of 2.1x, down 1.0x from the second
quarter of 2019. While the macroeconomic outlook remains unclear,
the combination of our market position, cost structure and strong
balance sheet positions us well heading into the back half of the
year and into 2021.”
“We also continued to make significant progress in the
development of our software solutions, enhancing capabilities,
improving performance and introducing new products. These product
introductions, plus several key second-quarter wins across our
software portfolio, showcase DFIN’s market leadership, and are
expected to lead to continued growth in our software solutions
businesses going forward,” Leib concluded.
Net Sales
Net sales in the second quarter of 2020 were $254.0 million, a
decrease of $4.9 million, or 1.9%, from the second quarter of 2019.
After adjusting for changes in foreign exchange rates, organic net
sales decreased 1.7% from the second quarter of 2019. Net sales
decreased primarily due to a decline in print as a result of lower
capital markets transactions and compliance and commercial print
volumes, partially offset by higher tech-enabled services for
capital markets transactions and higher mutual fund transactional
volume.
GAAP Net Earnings
Second-quarter 2020 net loss was $1.3 million, or $0.04 per
diluted share, compared to net earnings of $17.3 million, or $0.51
per diluted share, in the second quarter of 2019. The second
quarter 2020 net loss included after-tax charges of $30.9 million,
or $0.91 per diluted share, primarily related to restructuring,
impairment and other charges, estimated multiemployer pension plan
obligations arising from the bankruptcy of LSC Communications and
share-based compensation expense. The second-quarter 2019 net
earnings included various after-tax charges totaling $8.1 million,
or $0.23 per diluted share, all of which are excluded from the
presentation of non-GAAP net earnings. Additional details regarding
the amount and nature of these and other items are included in the
attached schedules.
Adjusted EBITDA and Net Earnings
Adjusted EBITDA in the second quarter of 2020 was $60.8 million,
compared to $56.1 million in the second quarter of 2019. Adjusted
EBITDA margin in the second quarter of 2020 was 23.9%, an
improvement of 220 basis points versus the second quarter of 2019.
The increase in Adjusted EBITDA was primarily driven by the impact
of cost control initiatives and improved business mix partially
offset by increase in variable compensation and employee
benefits.
Non-GAAP net earnings totaled $29.6 million, or $0.87 earnings
per diluted share, in the second quarter of 2020 compared to
non-GAAP net earnings of $25.4 million, or $0.74 earnings per
diluted share, in the second quarter of 2019. Reconciliations of
net earnings to Adjusted EBITDA, non-GAAP net earnings and Adjusted
EBITDA margin, are presented in the attached schedules.
Regulatory Impacts
During the second quarter of 2020, the Company introduced
ArcDigital, it’s digital content distribution solution. The
combination of ArcDigital and ArcPro provides Investment Companies
clients with software-based solutions to manage the complexities of
content management and digital distribution to address their needs
under Securities and Exchange Commissions (“SEC”) Rule 30e-3.
As previously disclosed on Form 8K on July 23, 2020, the
implementation of SEC Rule 30e-3 (elimination or reduction of print
annual & semi-annual Reports), rule 498A (elimination or
reduction of print summary prospectus) and the Company’s exiting of
certain printing and distribution relationships will reduce the
Company’s print volume by $130-$140 million in 2021. The associated
reduction in non-GAAP adjusted EBITDA is now estimated to be $5-$10
million.
The Company is executing a restructuring plan, under which it
recorded a pre-tax cash expense of approximately $3.9 million
during the second quarter of 2020 for severance & other expense
related to employee terminations, and expects approximately $2.9
million of additional charges through the second quarter of fiscal
year 2021, including approximately $1.4 million in restructuring
charges, approximately $1.0 million capital expenditures and
approximately $0.5 million operating expense.
Reconciliations of the net earnings to Non-GAAP Adjusted EBITDA
impact are presented in the attached tables.
Conference Call Details
DFIN will hold a conference call and webcast on August 5, 2020
at 9:00 a.m. Eastern time to discuss its second-quarter fiscal year
2020 financial results, provide a general business update and
respond to analyst questions.
A live webcast of the call will also be available on the
Company’s investor relations website. Please visit
investor.dfinsolutions.com at least fifteen minutes prior to the
start of the event to register, download and install any necessary
audio software.
If you are unable to participate live, a replay of the webcast
will be available following the conference call on the Company’s
investor relations website, along with the earnings press release,
and related financial tables.
About DFIN
DFIN is a leading global risk and compliance solutions company.
We provide domain expertise, enterprise software and data analytics
for every stage of our clients’ business and investment lifecycles.
Markets fluctuate, regulations evolve, technology advances, and
through it all, DFIN delivers confidence with the right solutions
in moments that matter. Learn about DFIN’s end-to-end risk and
compliance solutions online at DFINsolutions.com or you can also
follow us on Twitter @DFINSolutions or on LinkedIn.
Use of non-GAAP Information
This news release may contain certain non-GAAP measures,
including non-GAAP selling, general, and administrative expenses
(“SG&A”), non-GAAP income from operations, non-GAAP operating
margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective
tax rate, non-GAAP net earnings, non-GAAP diluted earnings per
share, free cash flow and organic net sales. The Company believes
that these non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide useful information about the
Company’s operating results and liquidity and enhance the overall
ability to assess the Company’s financial performance. The Company
uses these measures, together with other measures of performance
under GAAP, to compare the relative performance of operations in
planning, budgeting and reviewing the performance of its
business.
The Company’s non-GAAP statement of operations measures,
non-GAAP SG&A, non-GAAP SG&A as % of total net sales,
non-GAAP income from operations, non-GAAP operating margin,
Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax
rate, non-GAAP net earnings and non-GAAP diluted earnings per
share, are adjusted to exclude the impact of certain costs,
expenses, gains and losses and other specified items that
management believes are not indicative of our ongoing operations.
These adjusted measures exclude the impact of expenses associated
with the Company’s acquisition activities, COVID-19 related sales
surcharges and expenses, LSC multiemployer pension plan
obligations, accelerated rent expense, spin-off related expenses,
non-recurring investor-related fees, share-based compensation and
eliminate potential differences in results of operations between
periods caused by factors such as historic cost and age of assets,
financing and capital structures, taxation positions or regimes,
restructuring, impairment and other charges and gain or loss on
certain equity investments and asset sales.
Free cash flow is a non-GAAP financial measure and is defined by
the Company as net cash flow provided by operating activities less
capital expenditures. By adjusting for the level of capital
investment in operations, the Company believes that free cash flow
can provide useful additional basis for understanding the Company’s
ability to generate cash after capital investment and provides a
comparison to peers with differing capital intensity.
Organic net sales is a non-GAAP financial measure and is defined
by the Company as reported net sales adjusted for the changes in
foreign exchange rates.
These non-GAAP measures should be considered in addition to, not
a substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. In addition, these measures are
defined differently by different companies in our industry and,
accordingly, such measures may not be comparable to
similarly-titled measures of other companies.
Use of Forward-Looking Statements
This news release includes certain "forward-looking statements"
within the meaning of, and subject to the safe harbor created by,
Section 21E of the Securities Exchange Act of 1934, as amended,
with respect to the business, strategy and plans of DFIN and its
expectations relating to future financial condition and
performance. Statements that are not historical facts, including
statements about DFIN management’s beliefs and expectations, are
forward-looking statements. Words such as "believes,"
"anticipates," "estimates," "expects," "intends," "aims,"
"potential," "will," "would," "could," "considered," "likely,"
"estimate" and variations of these words and similar future or
conditional expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such
statements. While DFIN believes these expectations, assumptions,
estimates and projections are reasonable, such forward-looking
statements are only predictions and involve known and unknown risks
and uncertainties, many of which are beyond DFIN’s control. By
their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon future
circumstances that may or may not occur. Actual results may differ
materially from DFIN’s current expectations depending upon a number
of factors affecting the business and risks associated with the
performance of the business. These factors include such risks and
uncertainties detailed in DFIN periodic public filings with the
SEC, including but not limited to those discussed under "Risk
Factors" in DFIN's Form 10-K for the fiscal year ended December 31,
2019, those discussed under “Cautionary Statement” in DFIN’s
quarterly Form 10-Q filings, and in other investor communications
of DFIN’s from time to time. DFIN does not undertake to and
specifically declines any obligation to publicly release the
results of any revisions to these forward-looking statements that
may be made to reflect future events or circumstances after the
date of such statement or to reflect the occurrence of anticipated
or unanticipated events.
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Balance
Sheets
(UNAUDITED)
(in millions, except per share
data)
June 30, 2020
December 31, 2019
Assets
Cash and cash equivalents
$
37.4
$
17.2
Receivables, less allowances for expected
losses of $11.5 in 2020 (2019 - $7.7)
250.4
161.4
Inventories
11.0
11.1
Prepaid expenses and other current
assets
16.5
15.9
Assets held for sale
—
5.6
Total current assets
315.3
211.2
Property, plant and equipment, net
19.0
17.5
Right-of-use assets
68.0
80.7
Software, net
54.9
55.0
Goodwill
449.9
450.3
Other intangible assets, net
15.4
21.9
Deferred income taxes, net
13.3
9.0
Other noncurrent assets
28.0
41.3
Total assets
$
963.8
$
886.9
Liabilities
Accounts payable
$
54.3
$
58.5
Accrued liabilities
136.7
121.0
Short-term debt
0.5
—
Total current liabilities
191.5
179.5
Long-term debt
350.2
296.0
Deferred compensation liabilities
19.7
20.0
Pension and other postretirement benefits
plan liabilities
55.7
58.8
Noncurrent lease liabilities
59.8
57.9
Other noncurrent liabilities
16.5
6.1
Total liabilities
693.4
618.3
Equity
Preferred stock, $0.01 par value
Authorized: 1.0 shares; Issued: None
—
—
Common stock, $0.01 par value
Authorized: 65.0 shares;
Issued and outstanding: 34.9 shares and
33.8 shares in 2020 (2019 - 34.5 shares and 34.2 shares)
0.3
0.3
Treasury stock, at cost: 1.1 shares in
2020 (2019 - 0.3 shares)
(9.5
)
(4.2
)
Additional paid-in capital
230.6
225.2
Retained earnings
134.2
131.9
Accumulated other comprehensive loss
(85.2
)
(84.6
)
Total equity
270.4
268.6
Total liabilities and equity
$
963.8
$
886.9
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Statements
of Operations
(UNAUDITED)
(in millions, except per share
data)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net sales
Tech-enabled services
$
115.4
$
113.4
$
197.3
$
196.6
Software solutions
47.6
47.8
94.9
92.5
Print and distribution
91.0
97.7
182.5
199.4
Total net sales
254.0
258.9
474.7
488.5
Cost of sales (1)
Tech-enabled services
47.5
50.6
90.3
99.4
Software solutions
23.7
25.0
48.5
51.6
Print and distribution
66.3
73.4
135.0
151.9
Total cost of sales
137.5
149.0
273.8
302.9
Selling, general and administrative
expenses (1)
72.8
57.9
129.8
112.8
Depreciation and amortization
14.7
12.0
27.1
24.1
Restructuring, impairment and other
charges, net
25.1
3.8
28.2
5.9
Other operating loss
—
2.8
—
2.8
Income from operations
3.9
33.4
15.8
40.0
Interest expense, net
6.3
9.1
10.9
18.0
Investment and other income, net
(0.5
)
(0.5
)
(0.9
)
(1.1
)
(Loss) earnings before income
taxes
(1.9
)
24.8
5.8
23.1
Income tax (benefit) expense
(0.6
)
7.5
3.0
7.2
Net (loss) earnings
$
(1.3
)
$
17.3
$
2.8
$
15.9
Net (loss) earnings per share:
Basic
$
(0.04
)
$
0.51
$
0.08
$
0.47
Diluted
$
(0.04
)
$
0.51
$
0.08
$
0.47
Weighted average number of common
shares outstanding:
Basic
34.0
34.1
34.1
34.0
Diluted
34.0
34.2
34.1
34.1
Additional
information:
Gross margin (1)
45.9
%
42.4
%
42.3
%
38.0
%
SG&A as a % of total net sales (1)
28.7
%
22.4
%
27.3
%
23.1
%
Operating margin
1.5
%
12.9
%
3.3
%
8.2
%
Effective tax rate
31.6
%
30.2
%
51.7
%
31.2
%
__________
(1)
Exclusive of depreciation and
amortization
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Reconciliation of GAAP to
Non-GAAP Measures
For the Three and Six Months
Ended June 30, 2020 and 2019
(UNAUDITED)
(in millions, except per share
data)
For the Three Months Ended
June 30, 2020
For the Six Months Ended June
30, 2020
SG&A
Income from operations
Operating margin
Net (loss) earnings
Net (loss) earnings per
diluted share (1)
SG&A
Income from operations
Operating margin
Net earnings (loss)
Net earnings (loss) per
diluted share (1)
GAAP basis measures
$
72.8
$
3.9
1.5
%
(1.3
)
$
(0.04
)
$
129.8
$
15.8
3.3
%
$
2.8
$
0.08
Non-GAAP adjustments:
Restructuring, impairment and other
charges, net
—
25.1
9.9
%
18.3
0.54
—
28.2
5.9
%
20.5
0.60
Share-based compensation expense
(3.1
)
3.1
1.2
%
2.4
0.07
(5.4
)
5.4
1.1
%
4.8
0.14
LSC multiemployer pension plans
obligation
(12.3
)
12.3
4.8
%
9.0
0.26
(12.3
)
12.3
2.6
%
9.0
0.26
COVID-19 sales surcharges and related
expenses
—
1.1
0.4
%
0.8
0.02
—
1.9
0.4
%
1.4
0.04
Accelerated rent expense
(0.6
)
0.6
0.2
%
0.4
0.01
(0.6
)
0.6
0.1
%
0.4
0.01
Gain on debt extinguishment (2)
—
—
—
—
—
—
—
—
(1.7
)
(0.05
)
eBrevia contingent consideration
—
—
—
—
—
0.4
(0.4
)
(0.1
)%
(0.4
)
(0.01
)
Total Non-GAAP adjustments
(16.0
)
42.2
16.6
%
30.9
0.91
(17.9
)
48.0
10.0
%
34.0
0.99
Non-GAAP measures
$
56.8
$
46.1
18.1
%
$
29.6
$
0.87
$
111.9
$
63.8
13.3
%
$
36.8
$
1.08
For the Three Months Ended
June 30, 2019
For the Six Months Ended June
30, 2019
SG&A
Income from operations
Operating margin
Net earnings
Net earnings per diluted share
(1)
SG&A
Income from operations
Operating margin
Net earnings (loss)
Net earnings per diluted share
(1)
GAAP basis measures
$
57.9
$
33.4
12.9
%
$
17.3
$
0.51
$
112.8
$
40.0
8.2
%
$
15.9
$
0.47
Non-GAAP adjustments:
Restructuring, impairment and other
charges, net
—
3.8
1.4
%
2.9
0.08
—
5.9
1.2
%
4.5
0.13
Share-based compensation expense
(3.6
)
3.6
1.4
%
2.7
0.08
(5.1
)
5.1
1.0
%
3.8
0.11
Loss on sale of Language Solutions
business
—
2.8
1.1
%
2.1
0.06
—
2.8
0.6
%
2.1
0.06
Investor-related expenses
(0.5
)
0.5
0.2
%
0.4
0.01
(1.5
)
1.5
0.3
%
1.1
0.03
Spin-off related transaction expenses
—
—
—
—
—
(0.4
)
0.4
0.1
%
0.3
0.01
Income tax adjustments
—
—
—
—
—
—
—
—
(0.1
)
—
Total Non-GAAP adjustments
(4.1
)
10.7
4.1
%
8.1
0.23
(7.0
)
15.7
3.2
%
11.7
0.34
Non-GAAP measures
$
53.8
$
44.1
17.0
%
$
25.4
$
0.74
$
105.8
$
55.7
11.4
%
$
27.6
$
0.81
__________
(1)
Net earnings (loss) per diluted share
totals may not foot due to rounding.
(2)
Gain on debt extinguishment is recorded
within interest expense, net in the Company’s Unaudited Condensed
Consolidated Statements of Operations.
The Company believes that certain non-GAAP
measures, when presented in conjunction with comparable GAAP
measures, are useful because that information is an appropriate
measure for evaluating the Company’s operating performance.
Internally, the Company uses this non-GAAP information as an
indicator of business performance, and evaluates management’s
effectiveness with specific reference to this indicator. These
measures should be considered in addition to, not a substitute for,
or superior to, measures of financial performance prepared in
accordance with GAAP.
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Segment GAAP to Non-GAAP
Operating Income and Adjusted EBITDA and Margin Reconciliation
For the Three Months Ended June
30, 2020 and 2019
(UNAUDITED)
(in millions)
Capital Markets - Software
Solutions
Capital Markets - Compliance
and Communications Management
Investment Companies -
Software Solutions
Investment Companies -
Compliance and Communications Management
Corporate
Consolidated
For the Three
Months Ended June 30, 2020
Net sales
$
31.8
$
120.8
$
15.8
$
85.6
$
—
$
254.0
Income (loss) from operations
1.0
29.3
0.4
2.0
(28.8
)
3.9
Operating margin %
3.1
%
24.3
%
2.5
%
2.3
%
nm
1.5
%
Non-GAAP
Adjustments
Restructuring, impairment and other
charges, net
0.5
16.9
0.1
4.8
2.8
25.1
Share-based compensation expense
—
—
—
—
3.1
3.1
LSC multiemployer pension plans
obligation
—
—
—
—
12.3
12.3
COVID-19 related sales surcharges and
expenses, net
—
(1.1
)
—
2.1
0.1
1.1
Accelerated rent expense
0.1
0.2
—
0.3
—
0.6
Total Non-GAAP adjustments
0.6
16.0
0.1
7.2
18.3
42.2
Non-GAAP income (loss) from operations
$
1.6
$
45.3
$
0.5
$
9.2
$
(10.5
)
$
46.1
Non-GAAP operating margin %
5.0
%
37.5
%
3.2
%
10.7
%
nm
18.1
%
Depreciation and amortization
3.6
4.0
3.2
2.6
1.3
14.7
Adjusted EBITDA
$
5.2
$
49.3
$
3.7
$
11.8
$
(9.2
)
$
60.8
Adjusted EBITDA margin %
16.4
%
40.8
%
23.4
%
13.8
%
nm
23.9
%
For the Three
Months Ended June 30, 2019
Net sales
$
32.2
$
127.2
$
15.6
$
83.9
$
—
$
258.9
Income (loss) from operations
3.4
38.3
(2.5
)
5.8
(11.6
)
33.4
Operating margin %
10.6
%
30.1
%
(16.0
%)
6.9
%
nm
12.9
%
Non-GAAP
Adjustments
Restructuring, impairment and other
charges, net
0.7
2.5
—
0.5
0.1
3.8
Share-based compensation expense
—
—
—
—
3.6
3.6
Loss on sale of Language Solutions
business
—
—
—
—
2.8
2.8
Investor-related expenses
—
—
—
—
0.5
0.5
Total Non-GAAP adjustments
0.7
2.5
—
0.5
7.0
10.7
Non-GAAP income (loss) from operations
$
4.1
$
40.8
$
(2.5
)
$
6.3
$
(4.6
)
$
44.1
Non-GAAP operating margin %
12.7
%
32.1
%
(16.0
%)
7.5
%
nm
17.0
%
Depreciation and amortization
3.0
3.8
3.0
2.2
—
12.0
Adjusted EBITDA
$
7.1
$
44.6
$
0.5
$
8.5
$
(4.6
)
$
56.1
Adjusted EBITDA margin %
22.0
%
35.1
%
3.2
%
10.1
%
nm
21.7
%
__________
nm - Not meaningful
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Segment GAAP to Non-GAAP
Operating Income and Adjusted EBITDA and Margin Reconciliation
For the Six Months Ended June 30,
2020 and 2019
(UNAUDITED)
(in millions)
Capital Markets - Software
Solutions
Capital Markets - Compliance
and Communications Management
Investment Companies -
Software Solutions
Investment Companies -
Compliance and Communications Management
Corporate
Consolidated
For the Six
Months Ended June 30, 2020
Net sales
$
63.0
$
219.9
$
31.9
$
159.9
$
—
$
474.7
Income (loss) from operations
2.8
50.7
0.5
4.1
(42.3
)
15.8
Operating margin %
4.4
%
23.1
%
1.6
%
2.6
%
nm
3.3
%
Non-GAAP
Adjustments
Restructuring, impairment and other
charges, net
0.8
17.4
0.4
5.2
4.4
28.2
Share-based compensation expense
—
—
—
—
5.4
5.4
LSC multiemployer pension plans
obligation
—
—
—
—
12.3
12.3
COVID-19 related sales surcharges and
expenses, net
—
(0.8
)
—
2.6
0.1
1.9
eBrevia contingent consideration
—
—
—
—
(0.4
)
(0.4
)
Accelerated rent expense
0.1
0.2
—
0.3
—
0.6
Total Non-GAAP adjustments
0.9
16.8
0.4
8.1
21.8
48.0
Non-GAAP income (loss) from operations
$
3.7
$
67.5
$
0.9
$
12.2
$
(20.5
)
$
63.8
Non-GAAP operating margin %
5.9
%
30.7
%
2.8
%
7.6
%
nm
13.4
%
Depreciation and amortization
6.7
8.0
6.1
5.0
1.3
27.1
Adjusted EBITDA
$
10.4
$
75.5
$
7.0
$
17.2
$
(19.2
)
$
90.9
Adjusted EBITDA margin %
16.5
%
34.3
%
21.9
%
10.8
%
nm
19.1
%
For the Six
Months Ended June 30, 2019
Net sales
$
62.7
$
229.2
$
29.8
$
166.8
$
—
$
488.5
Income (loss) from operations
3.5
53.0
(6.2
)
12.5
(22.8
)
40.0
Operating margin %
5.6
%
23.1
%
(20.8
%)
7.5
%
nm
8.2
%
Non-GAAP
Adjustments
Restructuring, impairment and other
charges, net
1.0
3.4
0.1
0.9
0.5
5.9
Share-based compensation expense
—
—
—
—
5.1
5.1
Loss on sale of Language Solutions
business
—
—
—
—
2.8
2.8
Investor-related expenses
—
—
—
—
1.5
1.5
Spin-off related transaction expenses
—
—
—
—
0.4
0.4
Total Non-GAAP adjustments
1.0
3.4
0.1
0.9
10.3
15.7
Non-GAAP income (loss) from operations
$
4.5
$
56.4
$
(6.1
)
$
13.4
$
(12.5
)
$
55.7
Non-GAAP operating margin %
7.2
%
24.6
%
(20.5
%)
8.0
%
nm
11.4
%
Depreciation and amortization
6.1
7.3
6.4
4.3
—
24.1
Adjusted EBITDA
$
10.6
$
63.7
$
0.3
$
17.7
$
(12.5
)
$
79.8
Adjusted EBITDA margin %
16.9
%
27.8
%
1.0
%
10.6
%
nm
16.3
%
__________
nm - Not meaningful
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Segment GAAP to Non-GAAP
Operating Income and Adjusted EBITDA and Margin Reconciliation
For the Twelve Months Ended
December 31, 2018
(UNAUDITED)
(in millions)
Capital Markets - Software
Solutions
Capital Markets - Compliance
and Communications Management
Investment Companies -
Software Solutions
Investment Companies -
Compliance and Communications Management
Language Solutions
Corporate
Consolidated
For the Twelve
Months Ended December 31, 2018
Net sales
$
119.4
$
440.2
$
58.9
$
302.7
$
41.8
$
—
$
963.0
Income (loss) from operations
3.1
104.7
(5.1
)
14.9
50.1
(46.6
)
121.1
Operating margin %
2.6
%
23.8
%
(8.7
%)
4.9
%
119.9
%
nm
12.6
%
Non-GAAP
Adjustments
Gain on sale of Language Solutions
business
—
—
—
—
(53.8
)
—
(53.8
)
Restructuring, impairment and other
charges, net
0.5
3.2
0.1
0.5
(0.2
)
0.3
4.4
Spin-off related transaction expenses
2.1
7.4
1.0
5.7
0.5
3.4
20.1
Share-based compensation expense
—
—
—
—
—
9.2
9.2
Disposition-related expenses
—
—
—
—
1.4
5.4
6.8
Acquisition-related expenses
—
—
—
—
—
0.8
0.8
Investor-related expenses
—
—
—
—
—
0.5
0.5
Total Non-GAAP adjustments
2.6
10.6
1.1
6.2
(52.1
)
19.6
(12.0
)
Non-GAAP income (loss) from operations
$
5.7
$
115.3
$
(4.0
)
$
21.1
$
(2.0
)
$
(27.0
)
$
109.1
Non-GAAP operating margin %
4.8
%
26.2
%
(6.8
%)
7.0
%
(4.8
%)
nm
11.3
%
Depreciation and amortization
12.0
15.6
9.0
8.3
0.8
0.1
45.8
Adjusted EBITDA
$
17.7
$
130.9
$
5.0
$
29.4
$
(1.2
)
$
(26.9
)
$
154.9
Adjusted EBITDA margin %
14.8
%
29.7
%
8.5
%
9.7
%
(2.9
%)
nm
16.1
%
__________
nm - Not meaningful
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Statements
of Cash Flows
(UNAUDITED)
(in millions)
For the Six Months Ended June
30,
2020
2019
Operating Activities
Net earnings
$
2.8
$
15.9
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization
27.1
24.1
Provision for expected losses on accounts
receivable
4.0
3.2
Impairment charges
12.1
—
Share-based compensation
5.4
5.1
Gain on debt extinguishment
(2.3
)
—
Deferred income taxes
(4.9
)
(4.8
)
Net pension plan income
(1.0
)
(1.0
)
Amortization of right-of-use assets
12.1
11.0
Other
0.2
5.1
Changes in operating assets and
liabilities - net of acquisitions:
Accounts receivable, net
(93.6
)
(90.7
)
Inventories
0.1
(0.9
)
Prepaid expenses and other current
assets
(1.6
)
(0.9
)
Accounts payable
(4.6
)
6.1
Income taxes payable and receivable
6.6
(5.2
)
Accrued liabilities and other
25.3
(20.4
)
Lease liabilities
(11.1
)
(11.5
)
Pension and other postretirement benefits
plan contributions
(0.5
)
(0.4
)
Net cash used in operating activities
(23.9
)
(65.3
)
Investing Activities
Capital expenditures
(15.7
)
(26.2
)
Acquisition of business, net of cash
acquired
—
(2.6
)
Purchase of investment
(1.0
)
—
Proceeds from sale of investment
12.8
—
Other investing activities
(0.3
)
0.1
Net cash used in investing activities
(4.2
)
(28.7
)
Financing Activities
Revolving facility borrowings
240.5
337.0
Payments on revolving facility
borrowings
(120.5
)
(281.5
)
Payments on long-term debt
(63.3
)
—
Treasury share repurchases
(5.3
)
(1.3
)
Debt issuance costs
—
(0.2
)
Other financing activities
(1.9
)
—
Net cash provided by financing
activities
49.5
54.0
Effect of exchange rate on cash and cash
equivalents
(1.2
)
2.2
Net increase (decrease) in cash and
cash equivalents
20.2
(37.8
)
Cash and cash equivalents at beginning of
year
17.2
47.3
Cash and cash equivalents at end of
period
$
37.4
$
9.5
Supplemental cash flow
information
Income taxes paid (net of refunds)
$
1.2
$
17.6
Interest paid
$
13.7
$
16.5
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Statements
of Cash Flows
(UNAUDITED)
(in millions)
Additional
Information:
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2020
2019
2020
2019
Net cash provided by (used in) operating
activities
$
13.2
$
3.0
$
(23.9
)
$
(65.3
)
Less: capital expenditures
8.8
11.1
15.7
26.2
Free Cash Flow
$
4.4
$
(8.1
)
$
(39.6
)
$
(91.5
)
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Reconciliation of Reported to
Organic Net Sales
(UNAUDITED)
(in millions)
CapitalMarkets -SoftwareSolutions Capital Markets
-Compliance andCommunicationsManagement InvestmentCompanies
-SoftwareSolutions InvestmentCompanies -Compliance
andCommunicationsManagement Consolidated
Reported
Net Sales:
For the Three Months Ended June 30, 2020 $
31.8
$
120.8
$
15.8
$
85.6
$
254.0
For the Three Months Ended June 30, 2019
32.2
127.2
15.6
83.9
258.9
Net sales change
(1.2
%)
(5.0
%)
1.3
%
2.0
%
(1.9
%) Supplementary non-GAAP
information: Year-over-year impact of changes in
foreign exchange (FX) rates
(0.6
%)
(0.2
%)
(0.6
%)
—
(0.2
%) Net organic sales change
(0.6
%)
(4.8
%)
1.9
%
2.0
%
(1.7
%)
CapitalMarkets -SoftwareSolutions Capital
Markets -Compliance andCommunicationsManagement
InvestmentCompanies -SoftwareSolutions
Investment Companies -
Compliance and Communications Management
Consolidated Reported Net
Sales: For the Six Months Ended June 30, 2020 $
63.0
$
219.9
$
31.9
$
159.9
$
474.7
For the Six Months Ended June 30, 2019
62.7
229.2
29.8
166.8
488.5
Net sales change
0.5
%
(4.1
%)
7.0
%
(4.1
%)
(2.8
%) Supplementary non-GAAP
information: Year-over-year impact of changes in
foreign exchange (FX) rates
(0.5
%)
(0.3
%)
(0.7
%)
—
(0.2
%) Net organic sales change
1.0
%
(3.8
%)
7.7
%
(4.1
%)
(2.6
%)
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Reconciliation of GAAP Net
Earnings (Loss) to Adjusted EBITDA
(UNAUDITED)
(in millions)
For the Twelve Months
Ended
For the Three Months
Ended
June 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
GAAP net earnings (loss)
$
24.5
$
(1.3
)
$
4.1
$
7.0
$
14.7
Adjustments
Net gain on sale of building
(19.2
)
—
—
—
(19.2
)
Gain on equity investment
(13.6
)
—
—
(13.6
)
—
Restructuring, impairment and other
charges, net
35.9
25.1
3.1
4.9
2.8
Share-based compensation expense
9.2
3.1
2.3
1.2
2.6
LSC multiemployer pension plans
obligation
12.3
12.3
—
—
—
COVID-19 related sales surcharges and
expenses, net
1.9
1.1
0.8
—
—
Accelerated rent expense
0.6
0.6
—
—
—
eBrevia contingent consideration
(0.4
)
—
(0.4
)
—
—
Net loss on sale of Language Solutions
business
1.2
—
—
1.2
—
Pension settlement charges
3.9
—
—
3.9
—
Acquisition-related expenses
0.1
—
—
—
0.1
Spin-off related transaction expenses
(0.4
)
—
—
(0.4
)
—
Depreciation and amortization
52.6
14.7
12.4
12.8
12.7
Interest expense, net
31.0
6.3
4.6
11.5
8.6
Pension income and other income, net
(1.8
)
(0.5
)
(0.4
)
(0.4
)
(0.5
)
Income tax expense (benefit)
10.3
(0.6
)
3.6
(2.0
)
9.3
Total Non-GAAP adjustments
123.6
62.1
26.0
19.1
16.4
Adjusted EBITDA
$
148.1
$
60.8
$
30.1
$
26.1
$
31.1
Net sales
$
860.9
$
254.0
$
220.7
$
190.3
$
195.9
Adjusted EBITDA margin %
17.2
%
23.9
%
13.6
%
13.7
%
15.9
%
For the Twelve Months
Ended
For the Three Months
Ended
June 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
GAAP net earnings (loss)
62.9
$
17.3
$
(1.4
)
$
(1.0
)
$
48.0
Adjustments
Gain on equity investment
(11.8
)
—
—
—
(11.8
)
Restructuring, impairment and other
charges, net
7.0
3.8
2.1
0.3
0.8
Share-based compensation expense
9.2
3.6
1.5
2.0
2.1
Net (gain) loss on sale of Language
Solutions business
(51.0
)
2.8
—
(0.3
)
(53.5
)
Investor-related expenses
2.0
0.5
1.0
0.5
—
Acquisition-related expenses
0.3
—
—
0.3
—
Gain on eBrevia investment
(1.8
)
—
—
(1.8
)
—
Spin-off related transaction expenses
4.3
—
0.4
0.2
3.7
Disposition-related expenses
4.8
—
—
0.3
4.5
Depreciation and amortization
48.4
12.0
12.1
12.7
11.6
Interest expense, net
35.9
9.1
8.9
9.5
8.4
Pension income and other income, net
(4.2
)
(0.5
)
(0.6
)
(0.9
)
(2.2
)
Income tax expense (benefit)
24.5
7.5
(0.3
)
(2.4
)
19.7
Total Non-GAAP adjustments
67.6
38.8
25.1
20.4
(16.7
)
Adjusted EBITDA
$
130.5
$
56.1
$
23.7
$
19.4
$
31.3
Net sales
$
905.7
$
258.9
$
229.6
$
200.3
$
216.9
Adjusted EBITDA margin %
14.4
%
21.7
%
10.3
%
9.7
%
14.4
%
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Reconciliation of GAAP Net
Earnings (Loss) to Non-GAAP Adjusted EBITDA
Estimated impact of regulatory
changes and exit from certain print-related relationships
(UNAUDITED)
(in millions)
For the Twelve Months Ended
December 31, 2021
Low end of Expected
Range
High end of Expected
Range
Estimated GAAP net earnings
impact
$
(3.9
)
$
(7.4
)
Adjustments
Restructuring
0.5
0.5
Income tax expense (benefit)
(1.6
)
(3.1
)
Total Adjustments
(1.1
)
(2.6
)
Estimated Non-GAAP Adjusted EBITDA
impact
$
(5.0
)
$
(10.0
)
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Debt and Liquidity Summary
(UNAUDITED)
(in millions)
Total Liquidity
June 30, 2020
December 31,
2019
June 30, 2019
Availability
Stated amount of the Revolving Facility
(1)
$
300.0
$
300.0
$
300.0
Less: availability reduction from
covenants
—
68.4
165.3
Amount available under the Revolving
Facility
300.0
231.6
134.7
Usage
Borrowings under the Revolving
Facility
120.0
—
55.5
Impact on availability related to
outstanding letters of credit
—
—
—
Amount used under the Revolving
Facility
120.0
—
55.5
Availability under the Revolving
Facility
180.0
231.6
79.2
Cash
37.4
17.2
9.5
Net Available Liquidity
$
217.4
$
248.8
$
88.7
Long-term debt
350.2
296.0
419.1
Adjusted EBITDA for the twelve months
ended June 30, 2020 and 2019, and the year ended December 31,
2019
$
148.1
$
137.0
$
130.5
Non-GAAP Gross Leverage (defined as
total debt divided by Adjusted EBITDA)
2.4
x
2.2
x
3.2
x
Non-GAAP Net Debt (defined as total debt
less cash)
313.3
278.8
409.6
Non-GAAP Net Leverage (defined as
non-GAAP Net Debt divided by Adjusted EBITDA)
2.1
x
2.0
x
3.1
x
__________
(1)
The Company has a $300.0 million senior
secured revolving credit facility (the “Revolving Facility”). The
Revolving Facility is subject to a number of covenants, including a
minimum Interest Coverage Ratio and a maximum Leverage Ratio, both
as defined and calculated in the credit agreement. There was $120.0
million outstanding borrowings under the Revolving Facility as of
June 30, 2020. Based on the Company’s results of operations for the
twelve months ended June 30, 2020 and existing debt, the Company
would have had the ability to utilize an incremental $180.0 million
of the $300.0 million Revolving Facility and not have been in
violation of the terms of the agreement.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200805005220/en/
Investor Contact: Justin Ritchie Investor Relations
investors@dfinsolutions.com
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