Donnelley Financial Solutions, Inc. (NYSE: DFIN), (the
“Company”) today reported financial results for the third
quarter of 2020.
Third-quarter 2020
Third-quarter 2019
Net Sales
$209.5 million
$195.9 million
GAAP Net Earnings
$7.1 million
$14.7 million
Non-GAAP Adjusted EBITDA(1)
$47.6 million
$31.1 million
Operating Cash Flow
$76.4 million
$61.1 million
Free Cash Flow(1) (2)
$67.6 million
$52.2 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)
Defined as operating cash flow less
capital expenditures.
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.
Net Sales
Net sales in the third quarter of 2020 were $209.5 million, an
increase of $13.6 million, or 6.9%, from the third quarter of 2019.
Net sales increased primarily due to higher capital markets
transaction and compliance volume, increased volume in
FundSuiteArc, Venue data rooms and ActiveDisclosure and price
increases in other compliance software solutions, partially offset
by lower commercial, mutual fund transaction and compliance print
volume.
Net Earnings
Net earnings in the third quarter of 2020 were $7.1 million, or
$0.21 per diluted share, compared to net earnings of $14.7 million,
or $0.43 per diluted share, in the third quarter of 2019. Net
earnings in the third of 2020 included after-tax charges of $14.4
million, or $0.42 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. Net
earnings in the third quarter of 2019 included after-tax gain of
$10.1 million, or $0.30 per diluted share, including an after-tax
gain of $14.3 million, or $0.41 per diluted share, related to the
sale of the Company’s Secaucus, New Jersey facility, partially
offset by charges of $4.2 million, or $0.11 per diluted share,
primarily related to restructuring, impairment and other charges
and share-based compensation expense, all of which are excluded
from the presentation of non-GAAP earnings. Additional details
regarding the amount and nature of these and other items are
included in the attached schedules.
Adjusted EBITDA and Non-GAAP Net Earnings
Adjusted EBITDA in the third quarter of 2020 was $47.6 million,
compared to $31.1 million in the third quarter of 2019. Adjusted
EBITDA margin in the third quarter of 2020 was 22.7%, an
improvement of 680 basis points versus the third quarter of 2019.
The increase in Adjusted EBITDA was primarily driven by the impact
of cost control initiatives, higher sales volume and improved
business mix, partially offset by increases in incentive
compensation and employee benefits expense.
Non-GAAP net earnings in the third quarter of 2020 totaled $21.5
million, or $0.63 per diluted share, compared to non-GAAP net
earnings in the third quarter of 2019 of $4.6 million, or $0.13 per
diluted share. Reconciliations of net earnings to Adjusted EBITDA,
non-GAAP net earnings and Adjusted EBITDA margin, are presented in
the attached schedules.
Regulatory Impacts
As previously disclosed on Form 8-K on July 22, 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 is expected to
reduce the Company’s print-related net sales by approximately $130
million to $140 million, and the associated reduction in non-GAAP
adjusted EBITDA is expected to be approximately $5 million to $10
million in 2021. The Company reaffirms these estimates at this
time.
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 November 4, 2020
at 9:00 a.m. Eastern time to discuss its third-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, non-income tax charges, 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)
September 30, 2020
December 31, 2019
Assets
Cash and cash equivalents
$
40.9
$
17.2
Receivables, less allowances for expected
losses of $11.2 in 2020 (2019 - $7.7)
217.0
161.4
Inventories
9.9
11.1
Prepaid expenses and other current
assets
24.3
15.9
Assets held for sale
5.5
5.6
Total current assets
297.6
211.2
Property, plant and equipment, net
12.3
17.5
Right-of-use assets
58.8
80.7
Software, net
52.6
55.0
Goodwill
450.1
450.3
Other intangible assets, net
12.0
21.9
Deferred income taxes, net
18.1
9.0
Other noncurrent assets
28.8
41.3
Total assets
$
930.3
$
886.9
Liabilities
Accounts payable
$
47.3
$
58.5
Accrued liabilities
160.3
121.0
Total current liabilities
207.6
179.5
Long-term debt
291.9
296.0
Deferred compensation liabilities
20.1
20.0
Pension and other postretirement benefits
plan liabilities
54.2
58.8
Noncurrent lease liabilities
55.5
57.9
Other noncurrent liabilities
23.3
6.1
Total liabilities
652.6
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
33.4 shares in 2020 (2019 - 34.5 shares and 34.2 shares)
0.3
0.3
Treasury stock, at cost: 1.5 shares in
2020 (2019 - 0.3 shares)
(14.6
)
(4.2
)
Additional paid-in capital
235.0
225.2
Retained earnings
141.3
131.9
Accumulated other comprehensive loss
(84.3
)
(84.6
)
Total equity
277.7
268.6
Total liabilities and equity
$
930.3
$
886.9
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Statements
of Operations
(UNAUDITED)
(in millions, except per share
data)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Net sales
Tech-enabled services
$
104.5
$
83.9
$
301.8
$
280.5
Software solutions
51.1
46.6
146.0
139.1
Print and distribution
53.9
65.4
236.4
264.8
Total net sales
209.5
195.9
684.2
684.4
Cost of sales (1)
Tech-enabled services
42.6
41.7
132.9
141.1
Software solutions
23.3
25.2
71.8
76.8
Print and distribution
46.6
54.4
181.6
206.3
Total cost of sales
112.5
121.3
386.3
424.2
Selling, general and administrative
expenses (1)
62.2
46.2
192.0
159.0
Depreciation and amortization
12.6
12.7
39.7
36.8
Restructuring, impairment and other
charges, net
7.0
2.8
35.2
8.7
Other operating income, net
—
(19.2
)
—
(16.4
)
Income from operations
15.2
32.1
31.0
72.1
Interest expense, net
5.9
8.6
16.8
26.6
Investment and other income, net
(0.4
)
(0.5
)
(1.3
)
(1.6
)
Earnings before income taxes
9.7
24.0
15.5
47.1
Income tax expense
2.6
9.3
5.6
16.5
Net earnings
$
7.1
$
14.7
$
9.9
$
30.6
Net earnings per share:
Basic
$
0.21
$
0.43
$
0.29
$
0.90
Diluted
$
0.21
$
0.43
$
0.29
$
0.89
Weighted average number of common
shares outstanding:
Basic
34.0
34.2
34.0
34.1
Diluted
34.2
34.3
34.0
34.2
Additional
information:
Gross margin (1)
46.3
%
38.1
%
43.5
%
38.0
%
SG&A as a % of total net sales (1)
29.7
%
23.6
%
28.1
%
23.2
%
Operating margin
7.3
%
16.4
%
4.5
%
10.5
%
Effective tax rate
26.8
%
38.8
%
36.1
%
35.0
%
__________
(1)
Exclusive of depreciation and
amortization
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Reconciliation of GAAP to
Non-GAAP Measures
For the Three and Nine Months
Ended September 30, 2020 and 2019
(UNAUDITED)
(in millions, except per share
data)
For the Three Months Ended
September 30, 2020
For the Nine Months Ended
September 30, 2020
SG&A
Income (loss) from
operations
Operating margin
Net earnings (loss)
Net earnings (loss) per
diluted share (1)
SG&A
Income (loss) from
operations
Operating margin
Net earnings (loss)
Net earnings (loss) per
diluted share (1)
GAAP basis measures
$
62.2
$
15.2
7.3
%
7.1
$
0.21
$
192.0
$
31.0
4.5
%
$
9.9
$
0.29
Non-GAAP adjustments:
Restructuring, impairment and other
charges, net
—
7.0
3.3
%
5.2
0.15
—
35.2
5.1
%
25.7
0.75
Share-based compensation expense
(4.4
)
4.4
2.1
%
3.2
0.09
(9.8
)
9.8
1.4
%
8.0
0.24
LSC multiemployer pension plans
obligation
(5.8
)
5.8
2.8
%
4.2
0.12
(18.1
)
18.1
2.6
%
13.2
0.39
Non-income tax expense
(2.7
)
2.7
1.3
%
2.0
0.06
(2.7
)
2.7
0.4
%
2.0
0.06
COVID-19 sales surcharges and related
expenses
0.2
(1.0
)
(0.5
%)
(0.8
)
(0.02
)
0.3
0.9
0.1
%
0.6
0.02
Accelerated rent expense
(0.2
)
1.3
0.6
%
1.0
0.03
(0.3
)
1.9
0.3
%
1.4
0.04
Gain on debt extinguishment (2)
—
—
—
—
—
—
—
—
(1.7
)
(0.05
)
eBrevia contingent consideration
0.4
(0.4
)
(0.2
%)
(0.4
)
(0.01
)
0.8
(0.8
)
(0.1
%)
(0.8
)
(0.02
)
Total Non-GAAP adjustments
(12.5
)
19.8
9.4
%
14.4
0.42
(29.8
)
67.8
9.8
%
48.4
1.42
Non-GAAP measures
$
49.7
$
35.0
16.7
%
$
21.5
$
0.63
$
162.2
$
98.8
14.3
%
$
58.3
$
1.71
For the Three Months Ended
September 30, 2019
For the Nine Months Ended
September 30, 2019
SG&A
Income (loss) from
operations
Operating margin
Net earnings (loss)
Net earnings (loss) per
diluted share (1)
SG&A
Income (loss) from
operations
Operating margin
Net earnings (loss)
Net earnings (loss) per
diluted share (1)
GAAP basis measures
$
46.2
$
32.1
16.4
%
$
14.7
$
0.43
$
159.0
$
72.1
10.5
%
$
30.6
$
0.89
Non-GAAP adjustments:
Gain on sale of building
—
(19.2
)
(9.8
%)
(14.3
)
(0.41
)
—
(19.2
)
(2.8
%)
(14.3
)
(0.41
)
Restructuring, impairment and other
charges, net
—
2.8
1.4
%
2.0
0.06
—
8.7
1.3
%
6.5
0.19
Share-based compensation expense
(2.6
)
2.6
1.3
%
1.9
0.05
(7.7
)
7.7
1.1
%
5.7
0.17
Loss on sale of Language Solutions
business
—
—
—
—
—
—
2.8
0.4
%
2.1
0.06
Investor-related expenses
—
—
—
—
—
(1.5
)
1.5
0.2
%
1.1
0.03
Spin-off related transaction expenses
—
—
—
—
—
(0.4
)
0.4
0.1
%
0.3
0.01
Acquisition-related expenses
(0.1
)
0.1
0.1
%
0.1
—
(0.1
)
0.1
0.0
%
0.1
—
Income tax adjustments
—
—
—
0.2
—
—
—
—
0.1
—
Total Non-GAAP adjustments
(2.7
)
(13.7
)
(7.0
%)
(10.1
)
(0.30
)
(9.7
)
2.0
0.3
%
1.6
0.05
Non-GAAP measures
$
43.5
$
18.4
9.4
%
$
4.6
$
0.13
$
149.3
$
74.1
10.8
%
$
32.2
$
0.94
__________
(1)
Net earnings 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
September 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 September 30, 2020
Net sales
$
34.1
$
96.1
$
17.0
$
62.3
$
—
$
209.5
Income (loss) from operations
2.1
37.2
(0.8
)
(0.9
)
(22.4
)
15.2
Operating margin %
6.2
%
38.7
%
(4.7
%)
(1.4
%)
nm
7.3
%
Non-GAAP
Adjustments
Restructuring, impairment and other
charges, net
0.2
2.5
2.2
0.2
1.9
7.0
Share-based compensation expense
—
—
—
—
4.4
4.4
LSC multiemployer pension plans
obligation
—
—
—
—
5.8
5.8
Non-income tax expense
2.7
—
—
—
—
2.7
COVID-19 related sales surcharges and
expenses, net
—
(0.8
)
—
(0.2
)
—
(1.0
)
eBrevia contingent consideration
—
—
—
—
(0.4
)
(0.4
)
Accelerated rent expense
0.4
0.6
0.1
0.1
0.1
1.3
Total Non-GAAP adjustments
3.3
2.3
2.3
0.1
11.8
19.8
Non-GAAP income (loss) from operations
$
5.4
$
39.5
$
1.5
$
(0.8
)
$
(10.6
)
$
35.0
Non-GAAP operating margin %
15.8
%
41.1
%
8.8
%
(1.3
%)
nm
16.7
%
Depreciation and amortization
3.2
3.6
2.9
2.8
0.1
12.6
Adjusted EBITDA
$
8.6
$
43.1
$
4.4
$
2.0
$
(10.5
)
$
47.6
Adjusted EBITDA margin %
25.2
%
44.8
%
25.9
%
3.2
%
nm
22.7
%
For the Three
Months Ended September 30, 2019
Net sales
$
31.5
$
82.2
$
15.1
$
67.1
$
—
$
195.9
Income (loss) from operations
2.8
16.8
(1.7
)
20.1
(5.9
)
32.1
Operating margin %
8.9
%
20.4
%
(11.3
%)
30.0
%
nm
16.4
%
Non-GAAP
Adjustments
Gain on sale of building
—
—
—
(19.2
)
—
(19.2
)
Restructuring, impairment and other
charges, net
0.3
1.6
—
0.2
0.7
2.8
Share-based compensation expense
—
—
—
—
2.6
2.6
Acquisition-related expenses
—
—
—
—
0.1
0.1
Total Non-GAAP adjustments
0.3
1.6
—
(19.0
)
3.4
(13.7
)
Non-GAAP income (loss) from operations
$
3.1
$
18.4
$
(1.7
)
$
1.1
$
(2.5
)
$
18.4
Non-GAAP operating margin %
9.8
%
22.4
%
(11.3
%)
1.6
%
nm
9.4
%
Depreciation and amortization
3.2
4.0
3.1
2.4
—
12.7
Adjusted EBITDA
$
6.3
$
22.4
$
1.4
$
3.5
$
(2.5
)
$
31.1
Adjusted EBITDA margin %
20.0
%
27.3
%
9.3
%
5.2
%
nm
15.9
%
__________
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 Nine Months Ended
September 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 Nine
Months Ended September 30, 2020
Net sales
$
97.1
$
316.0
$
48.9
$
222.2
$
—
$
684.2
Income (loss) from operations
4.9
87.9
(0.3
)
3.2
(64.7
)
31.0
Operating margin %
5.0
%
27.8
%
(0.6
%)
1.4
%
nm
4.5
%
Non-GAAP
Adjustments
Restructuring, impairment and other
charges, net
1.0
19.9
2.6
5.4
6.3
35.2
Share-based compensation expense
—
—
—
—
9.8
9.8
LSC multiemployer pension plans
obligation
—
—
—
—
18.1
18.1
Non-income tax expense
2.7
—
—
—
—
2.7
COVID-19 related sales surcharges and
expenses, net
—
(1.6
)
—
2.4
0.1
0.9
eBrevia contingent consideration
—
—
—
—
(0.8
)
(0.8
)
Accelerated rent expense
0.5
0.8
0.1
0.4
0.1
1.9
Total Non-GAAP adjustments
4.2
19.1
2.7
8.2
33.6
67.8
Non-GAAP income (loss) from operations
$
9.1
$
107.0
$
2.4
$
11.4
$
(31.1
)
$
98.8
Non-GAAP operating margin %
9.4
%
33.9
%
4.9
%
5.1
%
nm
14.4
%
Depreciation and amortization
9.9
11.6
9.0
7.8
1.4
39.7
Adjusted EBITDA
$
19.0
$
118.6
$
11.4
$
19.2
$
(29.7
)
$
138.5
Adjusted EBITDA margin %
19.6
%
37.5
%
23.3
%
8.6
%
nm
20.2
%
For the Nine
Months Ended September 30, 2019
Net sales
$
94.2
$
311.4
$
44.9
$
233.9
$
—
$
684.4
Income (loss) from operations
$
6.3
$
69.8
$
(7.9
)
$
32.6
$
(28.7
)
72.1
Operating margin %
6.7
%
22.4
%
(17.6
%)
13.9
%
nm
10.5
%
Non-GAAP
Adjustments
Gain on sale of building
—
—
—
(19.2
)
—
(19.2
)
Restructuring, impairment and other
charges, net
1.3
5.0
0.1
1.1
1.2
8.7
Share-based compensation expense
—
—
—
—
7.7
7.7
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
Acquisition-related expenses
—
—
—
—
0.1
0.1
Total Non-GAAP adjustments
1.3
5.0
0.1
(18.1
)
13.7
2.0
Non-GAAP income (loss) from operations
$
7.6
$
74.8
$
(7.8
)
$
14.5
$
(15.0
)
$
74.1
Non-GAAP operating margin %
8.1
%
24.0
%
(17.4
%)
6.2
%
nm
10.8
%
Depreciation and amortization
9.3
11.3
9.5
6.7
—
36.8
Adjusted EBITDA
$
16.9
$
86.1
$
1.7
$
21.2
$
(15.0
)
$
110.9
Adjusted EBITDA margin %
17.9
%
27.6
%
3.8
%
9.1
%
nm
16.2
%
__________
nm - Not meaningful
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Statements
of Cash Flows
(UNAUDITED)
(in millions)
For the Nine Months Ended
September 30,
2020
2019
Operating Activities
Net earnings
$
9.9
$
30.6
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization
39.7
36.8
Provision for expected losses on accounts
receivable
4.0
3.3
Impairment charges
17.6
0.4
Share-based compensation
9.8
7.7
Gain on debt extinguishment
(2.3
)
—
Deferred income taxes
(9.8
)
(1.6
)
Net pension plan income
(1.5
)
(1.5
)
Gain on sale of building
—
(19.2
)
Net loss on disposition of Language
Solutions business
—
2.8
Amortization of right-of-use assets
18.4
16.6
Other
—
2.9
Changes in operating assets and
liabilities - net of acquisitions:
Accounts receivable, net
(59.4
)
(31.9
)
Inventories
1.1
(1.6
)
Prepaid expenses and other current
assets
(8.3
)
0.9
Accounts payable
(10.3
)
(22.3
)
Income taxes payable and receivable
2.9
(3.2
)
Accrued liabilities and other
57.6
(6.4
)
Lease liabilities
(16.2
)
(17.7
)
Pension and other postretirement benefits
plan contributions
(0.7
)
(0.8
)
Net cash provided by (used in) operating
activities
52.5
(4.2
)
Investing Activities
Capital expenditures
(24.5
)
(35.1
)
Proceeds from sale of building
—
30.6
Acquisition of business, net of cash
acquired
—
(2.6
)
Purchase of investments
(1.2
)
(2.3
)
Proceeds from sale of investment
12.8
—
Other investing activities
(0.3
)
—
Net cash used in investing activities
(13.2
)
(9.4
)
Financing Activities
Revolving facility borrowings
305.5
413.0
Payments on revolving facility
borrowings
(244.0
)
(413.0
)
Payments on long-term debt
(63.8
)
—
Treasury share repurchases
(10.3
)
(1.3
)
Debt issuance costs
—
(0.2
)
Other financing activities
(1.9
)
—
Net cash used in financing activities
(14.5
)
(1.5
)
Effect of exchange rate on cash and cash
equivalents
(1.1
)
2.2
Net increase (decrease) in cash and
cash equivalents
23.7
(12.9
)
Cash and cash equivalents at beginning of
year
17.2
47.4
Cash and cash equivalents at end of
period
$
40.9
$
34.5
Supplemental cash flow
information
Income taxes paid (net of refunds)
$
12.4
$
23.7
Interest paid
$
14.6
$
19.0
Non-cash investing activities:
Other investing activities
$
0.7
$
—
Conversion of note receivable to equity of
investee
$
(1.0
)
$
—
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Condensed Consolidated Statements
of Cash Flows
(UNAUDITED)
(in millions)
Additional
Information:
For the Three Months
Ended
September 30,
For the Nine Months
Ended
September 30,
2020
2019
2020
2019
Net cash provided by (used in) operating
activities
$
76.4
$
61.1
$
52.5
$
(4.2
)
Less: capital expenditures
8.8
8.9
24.5
35.1
Free Cash Flow
$
67.6
$
52.2
$
28.0
$
(39.3
)
Donnelley Financial Solutions,
Inc. and Subsidiaries ("DFIN")
Reconciliation of Reported to
Organic Net Sales
(UNAUDITED)
(in millions)
Capital
Markets -
Software
Solutions
Capital Markets -
Compliance and
Communications
Management
Investment
Companies -
Software
Solutions
Investment
Companies -
Compliance and
Communications
Management
Consolidated
Reported Net
Sales:
For the Three Months Ended September 30,
2020
$
34.1
$
96.1
$
17.0
$
62.3
$
209.5
For the Three Months Ended September 30,
2019
31.5
82.2
15.1
67.1
195.9
Net sales change
8.3
%
16.9
%
12.6
%
(7.2
%)
6.9
%
Supplementary
non-GAAP information:
Year-over-year impact of changes in
foreign exchange (FX) rates
(0.3
%)
0.2
%
1.3
%
0.0
%
0.2
%
Net organic sales change
8.6
%
16.7
%
11.3
%
(7.2
%)
6.7
%
Capital
Markets -
Software
Solutions
Capital Markets -
Compliance and
Communications
Management
Investment
Companies -
Software
Solutions
Investment
Companies -
Compliance and
Communications
Management
Consolidated
Reported Net
Sales:
For the Nine Months Ended September 30,
2020
$
97.1
$
316.0
$
48.9
$
222.2
$
684.2
For the Nine Months Ended September 30,
2019
94.2
311.4
44.9
233.9
684.4
Net sales change
3.1
%
1.5
%
8.9
%
(5.0
%)
0.0
%
Supplementary
non-GAAP information:
Year-over-year impact of changes in
foreign exchange (FX) rates
(0.4
%)
(0.1
%)
0.0
%
0.0
%
(0.1
%)
Net organic sales change
3.5
%
1.6
%
8.9
%
(5.0
%)
0.1
%
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
September 30,
2020
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
GAAP net earnings (loss)
$
16.9
$
7.1
$
(1.3
)
$
4.1
$
7.0
Adjustments
Gain on equity investment
(13.6
)
—
—
—
(13.6
)
Restructuring, impairment and other
charges, net
40.1
7.0
25.1
3.1
4.9
Share-based compensation expense
11.0
4.4
3.1
2.3
1.2
LSC multiemployer pension plans
obligation
18.1
5.8
12.3
—
—
Non-income tax expense
2.7
2.7
—
—
—
COVID-19 related sales surcharges and
expenses, net
0.9
(1.0
)
1.1
0.8
—
Accelerated rent expense
1.9
1.3
0.6
—
—
eBrevia contingent consideration
(0.8
)
(0.4
)
—
(0.4
)
—
Net loss on sale of Language Solutions
business
1.2
—
—
—
1.2
Pension settlement charges
3.9
—
—
—
3.9
Spin-off related transaction expenses
(0.4
)
—
—
—
(0.4
)
Depreciation and amortization
52.5
12.6
14.7
12.4
12.8
Interest expense, net
28.3
5.9
6.3
4.6
11.5
Pension income and other income, net
(1.7
)
(0.4
)
(0.5
)
(0.4
)
(0.4
)
Income tax expense (benefit)
3.6
2.6
(0.6
)
3.6
(2.0
)
Total Non-GAAP adjustments
147.7
40.5
62.1
26.0
19.1
Adjusted EBITDA
$
164.6
$
47.6
$
60.8
$
30.1
$
26.1
Net sales
$
874.5
$
209.5
$
254.0
$
220.7
$
190.3
Adjusted EBITDA margin %
18.8
%
22.7
%
23.9
%
13.6
%
13.7
%
For the Twelve
Months Ended
For the Three Months
Ended
September 30,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
GAAP net earnings (loss)
29.6
$
14.7
$
17.3
$
(1.4
)
$
(1.0
)
Adjustments
Net gain on sale of building
(19.2
)
(19.2
)
—
—
—
Restructuring, impairment and other
charges, net
9.0
2.8
3.8
2.1
0.3
Share-based compensation expense
9.7
2.6
3.6
1.5
2.0
Net (gain) loss on sale of Language
Solutions business
2.5
—
2.8
—
(0.3
)
Investor-related expenses
2.0
—
0.5
1.0
0.5
Acquisition-related expenses
0.4
0.1
—
—
0.3
Gain on e-Brevia investment
(1.8
)
—
—
—
(1.8
)
Spin-off related transaction expenses
0.6
—
—
0.4
0.2
Disposition-related expenses
0.3
—
—
—
0.3
Depreciation and amortization
49.5
12.7
12.0
12.1
12.7
Interest expense, net
36.1
8.6
9.1
8.9
9.5
Pension income and other income, net
(2.5
)
(0.5
)
(0.5
)
(0.6
)
(0.9
)
Income tax expense (benefit)
14.1
9.3
7.5
(0.3
)
(2.4
)
Total Non-GAAP adjustments
100.7
16.4
38.8
25.1
20.4
Adjusted EBITDA
$
130.3
$
31.1
$
56.1
$
23.7
$
19.4
Net sales
$
884.7
$
195.9
$
258.9
$
229.6
$
200.3
Adjusted EBITDA margin %
14.7
%
15.9
%
21.7
%
10.3
%
9.7
%
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
September 30,
2020
December 31,
2019
September 30,
2019
Availability
Stated amount of the Revolving Facility
(1)
$
300.0
$
300.0
$
300.0
Less: availability reduction from
covenants
—
68.4
144.6
Amount available under the Revolving
Facility
300.0
231.6
155.4
Usage
Borrowings under the Revolving
Facility
61.5
—
—
Impact on availability related to
outstanding letters of credit
—
—
—
Amount used under the Revolving
Facility
61.5
—
—
Availability under the Revolving
Facility
238.5
231.6
155.4
Cash
40.9
17.2
32.1
Net Available Liquidity
$
279.4
$
248.8
$
187.5
Long-term debt
291.9
296.0
364.1
Adjusted EBITDA for the twelve months
ended September 30, 2020 and 2019, and the year ended December 31,
2019
$
164.6
$
137.0
$
130.3
Non-GAAP Gross Leverage (defined as
total debt divided by Adjusted EBITDA)
1.8
x
2.2
x
2.8
x
Non-GAAP Net Debt (defined as total debt
less cash)
251.0
278.8
332.0
Non-GAAP Net Leverage (defined as
non-GAAP Net Debt divided by Adjusted EBITDA)
1.5
x
2.0
x
2.5
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 were $61.5
million outstanding borrowings under the Revolving Facility as of
September 30, 2020. Based on the Company’s results of operations
for the twelve months ended September 30, 2020 and existing debt,
the Company would have had the ability to utilize an incremental
$238.5 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/20201104005112/en/
Investor Contact: Justin Ritchie Investor Relations
investors@dfinsolutions.com
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