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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/01/23 Donnelley Fin’l Solutions, Inc. 10-Q 9/30/23 76:13M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.82M
2: EX-10.41 Material Contract HTML 38K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 27K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 25K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 25K
12: R1 Document and Entity Information HTML 75K
13: R2 Condensed Consolidated Statements of Operations HTML 97K
(Unaudited)
14: R3 Condensed Consolidated Statements of Comprehensive HTML 51K
Income (Unaudited)
15: R4 Condensed Consolidated Balance Sheets (Unaudited) HTML 136K
16: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 49K
(Parenthetical)
17: R6 Condensed Consolidated Statements of Cash Flows HTML 120K
(Unaudited)
18: R7 Condensed Consolidated Statements of Changes in HTML 85K
Stockholders' Equity (Unaudited)
19: R8 Overview, Basis of Presentation and Significant HTML 92K
Accounting Policies
20: R9 Revenue HTML 204K
21: R10 Goodwill and Other Intangible Assets HTML 124K
22: R11 Leases HTML 148K
23: R12 Restructuring, Impairment and Other Charges, net HTML 251K
24: R13 Retirement Plans HTML 63K
25: R14 Commitments and Contingencies HTML 27K
26: R15 Debt HTML 84K
27: R16 Earnings per Share HTML 85K
28: R17 Capital Stock HTML 41K
29: R18 Comprehensive Income HTML 205K
30: R19 Segment Information HTML 263K
31: R20 Overview, Basis of Presentation and Significant HTML 120K
Accounting Policies (Policies)
32: R21 Overview, Basis of Presentation and Significant HTML 72K
Accounting Policies (Tables)
33: R22 Revenue (Tables) HTML 191K
34: R23 Goodwill and Other Intangible Assets (Tables) HTML 128K
35: R24 Leases (Tables) HTML 151K
36: R25 Restructuring, Impairment and Other Charges, net HTML 249K
(Tables)
37: R26 Retirement Plans (Tables) HTML 59K
38: R27 Debt (Tables) HTML 71K
39: R28 Earnings per Share (Tables) HTML 84K
40: R29 Comprehensive Income (Tables) HTML 209K
41: R30 Segment Information (Tables) HTML 252K
42: R31 Overview, Basis of Presentation and Significant HTML 34K
Accounting Policies - Summary of Current Expected
Credit Loss Reserve (Details)
43: R32 Overview, Basis of Presentation and Significant HTML 27K
Accounting Policies - Summary of Current Expected
Credit Loss Reserve (Parenthetical) (Details)
44: R33 Overview, Basis of Presentation and Significant HTML 38K
Accounting Policies - Components of Company's
Property, Plant and Equipment (Details)
45: R34 Overview, Basis of Presentation and Significant HTML 61K
Accounting Policies - Additional Information
(Details)
46: R35 Revenue - Schedule of Disaggregation of Revenue HTML 52K
between Tech-Enabled Services, Software Solutions
and Print and Distribution by Reportable Segment
(Details)
47: R36 Revenue - Additional Information (Details) HTML 32K
48: R37 Revenue (Additional Information 1) (Details) HTML 31K
49: R38 Revenue - Changes in Contract Liabilities HTML 30K
(Details)
50: R39 Goodwill and Other Intangible Assets - Additional HTML 36K
Information (Details)
51: R40 Goodwill and Other Intangible Assets - Balances of HTML 52K
Goodwill by Reporting Segment (Details)
52: R41 Goodwill and Other Intangible Assets - Components HTML 36K
of Other Intangible Assets (Detail)
53: R42 Goodwill and Other Intangible Assets - Schedule of HTML 32K
Estimated Annual Amortization Expense Related to
Other Intangible Assets (Detail)
54: R43 Leases - Summary of Payments Related to Operating HTML 28K
and Finance Lease Liabilities (Details)
55: R44 Leases - Summary of Components of Lease Expense HTML 37K
(Details)
56: R45 Leases - Summary of Company's Finance Leases HTML 38K
Presented within Unaudited Condensed Consolidated
Balance Sheets (Details)
57: R46 Leases - Summary of Other Information Related to HTML 30K
Finance Leases (Details)
58: R47 Restructuring, Impairment and Other Charges, net - HTML 57K
Schedule of Restructuring, Impairment and Other
Charges by Segment Recognized in Results of
Operations (Details)
59: R48 Restructuring, Impairment and Other Charges, net - HTML 34K
Additional Information (Details)
60: R49 Restructuring, Impairment and Other Charges, net - HTML 37K
Schedule of Changes in the Employee Terminations
Liability (Details)
61: R50 Retirement Plans - Components of Estimated Net HTML 36K
Periodic Benefit Income (Detail)
62: R51 Debt - Schedule of Company's Debt (Details) HTML 44K
63: R52 Debt - Additional Information (Details) HTML 59K
64: R53 Debt - Summary of Interest Expense, Net (Details) HTML 33K
65: R54 Earnings per Share - Reconciliation of Numerator HTML 57K
and Denominator of Basic and Diluted Earnings per
Share Calculation and Anti-dilutive Share-based
Awards (Detail)
66: R55 Capital Stock - Additional Information (Details) HTML 54K
67: R56 Comprehensive Income - Schedule of Components of HTML 42K
Other Comprehensive (Loss) Income and Income Tax
Expense Allocated to Each Component (Details)
68: R57 Comprehensive Income - Schedule of Changes in HTML 51K
Accumulated Other Comprehensive Loss (Details)
69: R58 Comprehensive Income - Reclassifications from HTML 39K
Accumulated Other Comprehensive Loss, Amortization
of Pension Plan Cost (Details)
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Reporting Information (Details)
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, i 2023 /
OR
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number i 1-37728
i Donnelley Financial Solutions, Inc.
(Exact name of registrant as specified in its charter)
i Delaware |
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i 36-4829638 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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i 35 West Wacker Drive, i Chicago, i Illinois |
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i 60601 |
(Address of principal executive offices) |
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(Zip code) |
( i 800) i 823-5304
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
i Common Stock (Par Value $0.01) |
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i DFIN |
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i NYSE |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
i Large Accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-Accelerated filer |
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☐ |
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Smaller reporting company |
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i ☐ |
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Emerging growth company |
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i ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No i ☒
As of October 27, 2023, i 29,107,640 shares of common stock were outstanding.
DONNELLEY FINANCIAL SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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Page |
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3 |
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Part I |
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Item 1: |
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4 |
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5 |
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Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 |
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6 |
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7 |
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8 |
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10 |
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Item 2: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
Item 3: |
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38 |
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Item 4: |
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38 |
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Part II |
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Item 1: |
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38 |
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Item 1A: |
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38 |
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Item 2: |
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39 |
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Item 3: |
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39 |
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Item 4: |
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39 |
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Item 5: |
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39 |
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Item 6: |
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40 |
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44 |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Donnelley Financial Solutions, Inc. and subsidiaries (“DFIN” or the “Company”) has made forward-looking statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company. These statements may include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and variations of such words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are not guarantees of future performance. These forward-looking statements are subject to a number of important factors, including those factors discussed in detail in Part I, Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023 (the “Annual Report”), in addition to those discussed elsewhere in this Quarterly Report, that could cause the Company’s actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:
Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.
Consequently, readers of the Quarterly Report should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. Except to the extent required by law, the Company does not undertake 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 statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this Quarterly Report to reflect any new events or any change in conditions or circumstances other than to the extent required by law.
3
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Operations
(in millions, except per share data)
(UNAUDITED)
|
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Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
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2022 |
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2023 |
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2022 |
|
|||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tech-enabled services |
|
$ |
i 80.4 |
|
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$ |
i 87.4 |
|
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$ |
i 263.3 |
|
|
$ |
i 312.4 |
|
Software solutions |
|
|
i 73.2 |
|
|
|
i 69.5 |
|
|
|
i 219.0 |
|
|
|
i 210.9 |
|
Print and distribution |
|
|
i 26.4 |
|
|
|
i 31.8 |
|
|
|
i 138.4 |
|
|
|
i 142.6 |
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Total net sales |
|
|
i 180.0 |
|
|
|
i 188.7 |
|
|
|
i 620.7 |
|
|
|
i 665.9 |
|
Cost of sales (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tech-enabled services |
|
|
i 29.3 |
|
|
|
i 35.3 |
|
|
|
i 99.6 |
|
|
|
i 113.2 |
|
Software solutions |
|
|
i 25.9 |
|
|
|
i 29.0 |
|
|
|
i 81.2 |
|
|
|
i 85.1 |
|
Print and distribution |
|
|
i 15.7 |
|
|
|
i 19.6 |
|
|
|
i 78.6 |
|
|
|
i 96.2 |
|
Total cost of sales |
|
|
i 70.9 |
|
|
|
i 83.9 |
|
|
|
i 259.4 |
|
|
|
i 294.5 |
|
Selling, general and administrative expenses (a) |
|
|
i 65.4 |
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|
|
i 63.8 |
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|
|
i 212.1 |
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|
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i 205.5 |
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Depreciation and amortization |
|
|
i 14.4 |
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|
|
i 11.7 |
|
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i 41.2 |
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i 33.6 |
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Restructuring, impairment and other charges, net |
|
|
( i 0.3 |
) |
|
|
i 2.6 |
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|
|
i 8.4 |
|
|
|
i 4.6 |
|
Other operating income, net |
|
|
( i 0.2 |
) |
|
|
i — |
|
|
|
( i 0.6 |
) |
|
|
( i 0.2 |
) |
Income from operations |
|
|
i 29.8 |
|
|
|
i 26.7 |
|
|
|
i 100.2 |
|
|
|
i 127.9 |
|
Interest expense, net |
|
|
i 4.1 |
|
|
|
i 2.3 |
|
|
|
i 12.2 |
|
|
|
i 5.9 |
|
Investment and other income, net |
|
|
( i 0.1 |
) |
|
|
( i 2.8 |
) |
|
|
( i 7.3 |
) |
|
|
( i 3.3 |
) |
Earnings before income taxes |
|
|
i 25.8 |
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|
|
i 27.2 |
|
|
|
i 95.3 |
|
|
|
i 125.3 |
|
Income tax expense |
|
|
i 7.7 |
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|
|
i 8.0 |
|
|
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i 23.7 |
|
|
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i 33.7 |
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Net earnings |
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$ |
i 18.1 |
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$ |
i 19.2 |
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$ |
i 71.6 |
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$ |
i 91.6 |
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Net earnings per share: |
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Basic |
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$ |
i 0.62 |
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$ |
i 0.64 |
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$ |
i 2.44 |
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$ |
i 2.93 |
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Diluted |
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$ |
i 0.60 |
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$ |
i 0.62 |
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$ |
i 2.36 |
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$ |
i 2.81 |
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Weighted average number of common shares outstanding: |
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Basic |
|
|
i 29.4 |
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i 29.8 |
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i 29.4 |
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i 31.3 |
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Diluted |
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|
i 30.3 |
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i 30.9 |
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|
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i 30.4 |
|
|
|
i 32.6 |
|
See Notes to the Unaudited Condensed Consolidated Financial Statements
4
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(UNAUDITED)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2023 |
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2022 |
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|||||
Net earnings |
|
$ |
i 18.1 |
|
|
$ |
i 19.2 |
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$ |
i 71.6 |
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$ |
i 91.6 |
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Other comprehensive income (loss), net of tax: |
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|
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|
||||
Translation adjustments |
|
|
( i 1.0 |
) |
|
|
( i 1.7 |
) |
|
|
i — |
|
|
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( i 2.1 |
) |
Adjustment for net periodic pension and other postretirement benefits plans |
|
|
i 0.1 |
|
|
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i 0.5 |
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i 0.5 |
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i 1.8 |
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Other comprehensive income (loss), net of tax |
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|
( i 0.9 |
) |
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( i 1.2 |
) |
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|
i 0.5 |
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( i 0.3 |
) |
Comprehensive income |
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$ |
i 17.2 |
|
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$ |
i 18.0 |
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$ |
i 72.1 |
|
|
$ |
i 91.3 |
|
See Notes to the Unaudited Condensed Consolidated Financial Statements
5
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Balance Sheets
(in millions, except per share data)
(UNAUDITED)
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ASSETS |
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Cash and cash equivalents |
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$ |
i 11.7 |
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$ |
i 34.2 |
|
Receivables, less allowances for expected losses of $ i 19.3 in 2023 (2022 - $ i 17.1) |
|
|
i 189.7 |
|
|
|
i 163.5 |
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Prepaid expenses and other current assets |
|
|
i 25.9 |
|
|
|
i 28.1 |
|
Assets held for sale |
|
|
i 2.6 |
|
|
|
i 2.6 |
|
Total current assets |
|
|
i 229.9 |
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|
|
i 228.4 |
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Property, plant and equipment, net |
|
|
i 14.8 |
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|
i 17.6 |
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Operating lease right-of-use assets |
|
|
i 23.7 |
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|
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i 33.3 |
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Software, net |
|
|
i 86.6 |
|
|
|
i 75.6 |
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Goodwill |
|
|
i 405.8 |
|
|
|
i 405.8 |
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Other intangible assets, net |
|
|
i 5.6 |
|
|
|
i 7.8 |
|
Deferred income taxes, net |
|
|
i 43.3 |
|
|
|
i 33.4 |
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Other noncurrent assets |
|
|
i 29.6 |
|
|
|
i 26.4 |
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Total assets |
|
$ |
i 839.3 |
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$ |
i 828.3 |
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LIABILITIES |
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Accounts payable |
|
$ |
i 37.2 |
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$ |
i 49.2 |
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Operating lease liabilities |
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|
i 14.5 |
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|
i 16.3 |
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Accrued liabilities |
|
|
i 145.1 |
|
|
|
i 159.3 |
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Total current liabilities |
|
|
i 196.8 |
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|
|
i 224.8 |
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Long-term debt |
|
|
i 165.9 |
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|
|
i 169.2 |
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Deferred compensation liabilities |
|
|
i 14.1 |
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|
|
i 13.6 |
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Pension and other postretirement benefits plans liabilities |
|
|
i 40.5 |
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|
i 42.9 |
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Noncurrent operating lease liabilities |
|
|
i 17.6 |
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|
i 28.4 |
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Other noncurrent liabilities |
|
|
i 19.1 |
|
|
|
i 19.9 |
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Total liabilities |
|
|
i 454.0 |
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|
i 498.8 |
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Commitments and Contingencies (Note 7) |
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EQUITY |
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Preferred stock, $ i i 0.01 / par value |
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Authorized: i i 1.0 / shares; Issued: i i None / |
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i — |
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i — |
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Common stock, $ i i 0.01 / par value |
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Authorized: i i 65.0 / shares; |
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Issued and outstanding: i 37.9 shares and i 29.1 shares in 2023 (2022 - i 36.9 shares and i 28.9 shares) |
|
|
i 0.4 |
|
|
|
i 0.4 |
|
Treasury stock, at cost: i 8.8 shares in 2023 (2022 - i 8.0 shares) |
|
|
( i 257.2 |
) |
|
|
( i 221.8 |
) |
Additional paid-in capital |
|
|
i 299.3 |
|
|
|
i 280.2 |
|
Retained earnings |
|
|
i 425.5 |
|
|
|
i 353.9 |
|
Accumulated other comprehensive loss |
|
|
( i 82.7 |
) |
|
|
( i 83.2 |
) |
Total equity |
|
|
i 385.3 |
|
|
|
i 329.5 |
|
Total liabilities and equity |
|
$ |
i 839.3 |
|
|
$ |
i 828.3 |
|
See Notes to the Unaudited Condensed Consolidated Financial Statements
6
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Cash Flows
(in millions)
(UNAUDITED)
|
|
Nine Months Ended September 30, |
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2022 |
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|||
OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net earnings |
|
$ |
i 71.6 |
|
|
$ |
i 91.6 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 41.2 |
|
|
|
i 33.6 |
|
Provision for expected losses on accounts receivable |
|
|
i 10.8 |
|
|
|
i 6.2 |
|
Share-based compensation expense |
|
|
i 17.1 |
|
|
|
i 13.9 |
|
Deferred income taxes |
|
|
( i 10.2 |
) |
|
|
i 0.4 |
|
Net pension plan income |
|
|
( i 0.5 |
) |
|
|
( i 0.7 |
) |
Gain on investments in equity securities |
|
|
( i 6.9 |
) |
|
|
i — |
|
Amortization of right-of-use assets |
|
|
i 9.5 |
|
|
|
i 12.1 |
|
Other |
|
|
i 0.7 |
|
|
|
i 0.5 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( i 37.0 |
) |
|
|
( i 20.5 |
) |
Prepaid expenses and other current assets |
|
|
i 1.8 |
|
|
|
( i 3.3 |
) |
Accounts payable |
|
|
( i 13.8 |
) |
|
|
i 4.9 |
|
Income taxes payable and receivable |
|
|
i 1.3 |
|
|
|
( i 1.7 |
) |
Accrued liabilities and other |
|
|
( i 22.7 |
) |
|
|
( i 44.2 |
) |
Operating lease liabilities |
|
|
( i 12.3 |
) |
|
|
( i 14.7 |
) |
Pension and other postretirement benefits plans contributions |
|
|
( i 1.4 |
) |
|
|
( i 1.2 |
) |
Net cash provided by operating activities |
|
|
i 49.2 |
|
|
|
i 76.9 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( i 43.0 |
) |
|
|
( i 39.4 |
) |
Proceeds from sales of investments in equity securities |
|
|
i 9.9 |
|
|
|
i — |
|
Net cash used in investing activities |
|
|
( i 33.1 |
) |
|
|
( i 39.4 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Revolving facility borrowings |
|
|
i 218.0 |
|
|
|
i 270.0 |
|
Payments on revolving facility borrowings |
|
|
( i 221.5 |
) |
|
|
( i 202.5 |
) |
Treasury share repurchases |
|
|
( i 35.4 |
) |
|
|
( i 150.0 |
) |
Proceeds from exercise of stock options |
|
|
i 1.9 |
|
|
|
i 0.3 |
|
Finance lease payments |
|
|
( i 1.7 |
) |
|
|
( i 1.4 |
) |
Net cash used in financing activities |
|
|
( i 38.7 |
) |
|
|
( i 83.6 |
) |
Effect of exchange rate on cash and cash equivalents |
|
|
i 0.1 |
|
|
|
i 2.4 |
|
Net decrease in cash and cash equivalents |
|
|
( i 22.5 |
) |
|
|
( i 43.7 |
) |
Cash and cash equivalents at beginning of year |
|
|
i 34.2 |
|
|
|
i 54.5 |
|
Cash and cash equivalents at end of period |
|
$ |
i 11.7 |
|
|
$ |
i 10.8 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
||
Income taxes paid (net of refunds) |
|
$ |
i 32.4 |
|
|
$ |
i 34.4 |
|
Interest paid |
|
$ |
i 12.8 |
|
|
$ |
i 4.9 |
|
Non-cash investing activities: |
|
|
|
|
|
|
||
Non-cash consideration from sale of investment in an equity security (Note 1) |
|
$ |
i 2.9 |
|
|
$ |
i — |
|
Capitalized software included in accounts payable |
|
$ |
i 1.7 |
|
|
$ |
i 1.4 |
|
See Notes to the Unaudited Condensed Consolidated Financial Statements
7
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended September 30, 2023 and 2022
(in millions)
(UNAUDITED)
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at June 30, 2023 |
|
|
i 37.9 |
|
|
$ |
i 0.4 |
|
|
|
i 8.5 |
|
|
$ |
( i 242.3 |
) |
|
$ |
i 292.3 |
|
|
$ |
i 407.4 |
|
|
$ |
( i 81.8 |
) |
|
$ |
i 376.0 |
|
Net earnings |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 18.1 |
|
|
|
i — |
|
|
|
i 18.1 |
|
Other comprehensive loss |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 0.9 |
) |
|
|
( i 0.9 |
) |
Share-based compensation expense |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 6.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 6.1 |
|
Common stock repurchases |
|
|
i — |
|
|
|
i — |
|
|
|
i 0.3 |
|
|
|
( i 14.8 |
) |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 14.8 |
) |
Issuance of share-based awards, net of withholdings and other |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 0.1 |
) |
|
|
i 0.9 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.8 |
|
Balance at September 30, 2023 |
|
|
i 37.9 |
|
|
$ |
i 0.4 |
|
|
|
i 8.8 |
|
|
$ |
( i 257.2 |
) |
|
$ |
i 299.3 |
|
|
$ |
i 425.5 |
|
|
$ |
( i 82.7 |
) |
|
$ |
i 385.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at June 30, 2022 |
|
|
i 36.9 |
|
|
$ |
i 0.4 |
|
|
|
i 6.6 |
|
|
$ |
( i 175.6 |
) |
|
$ |
i 270.2 |
|
|
$ |
i 323.8 |
|
|
$ |
( i 77.4 |
) |
|
$ |
i 341.4 |
|
Net earnings |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 19.2 |
|
|
|
i — |
|
|
|
i 19.2 |
|
Other comprehensive loss |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 1.2 |
) |
|
|
( i 1.2 |
) |
Share-based compensation expense |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 4.4 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 4.4 |
|
Common stock repurchases |
|
|
i — |
|
|
|
i — |
|
|
|
i 1.0 |
|
|
|
( i 32.3 |
) |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 32.3 |
) |
Issuance of share-based awards, net of withholdings and other |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 0.1 |
) |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
Balance at September 30, 2022 |
|
|
i 36.9 |
|
|
$ |
i 0.4 |
|
|
|
i 7.6 |
|
|
$ |
( i 208.0 |
) |
|
$ |
i 274.7 |
|
|
$ |
i 343.0 |
|
|
$ |
( i 78.6 |
) |
|
$ |
i 331.5 |
|
8
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2023 and 2022
(in millions)
(UNAUDITED)
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at December 31, 2022 |
|
|
i 36.9 |
|
|
$ |
i 0.4 |
|
|
|
i 8.0 |
|
|
$ |
( i 221.8 |
) |
|
$ |
i 280.2 |
|
|
$ |
i 353.9 |
|
|
$ |
( i 83.2 |
) |
|
$ |
i 329.5 |
|
Net earnings |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 71.6 |
|
|
|
i — |
|
|
|
i 71.6 |
|
Other comprehensive income |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.5 |
|
|
|
i 0.5 |
|
Share-based compensation expense |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 17.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 17.1 |
|
Common stock repurchases |
|
|
i — |
|
|
|
i — |
|
|
|
i 0.4 |
|
|
|
( i 18.0 |
) |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 18.0 |
) |
Issuance of share-based awards, net of withholdings and other |
|
|
i 1.0 |
|
|
|
i — |
|
|
|
i 0.4 |
|
|
|
( i 17.4 |
) |
|
|
i 2.0 |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 15.4 |
) |
Balance at September 30, 2023 |
|
|
i 37.9 |
|
|
$ |
i 0.4 |
|
|
|
i 8.8 |
|
|
$ |
( i 257.2 |
) |
|
$ |
i 299.3 |
|
|
$ |
i 425.5 |
|
|
$ |
( i 82.7 |
) |
|
$ |
i 385.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at December 31, 2021 |
|
|
i 35.9 |
|
|
$ |
i 0.4 |
|
|
|
i 2.9 |
|
|
$ |
( i 57.1 |
) |
|
$ |
i 260.6 |
|
|
$ |
i 251.4 |
|
|
$ |
( i 78.3 |
) |
|
$ |
i 377.0 |
|
Net earnings |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 91.6 |
|
|
|
i — |
|
|
|
i 91.6 |
|
Other comprehensive loss |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 0.3 |
) |
|
|
( i 0.3 |
) |
Share-based compensation expense |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 13.9 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 13.9 |
|
Common stock repurchases |
|
|
i — |
|
|
|
i — |
|
|
|
i 4.3 |
|
|
|
( i 138.8 |
) |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 138.8 |
) |
Issuance of share-based awards, net of withholdings and other |
|
|
i 1.0 |
|
|
|
i — |
|
|
|
i 0.4 |
|
|
|
( i 12.1 |
) |
|
|
i 0.2 |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 11.9 |
) |
Balance at September 30, 2022 |
|
|
i 36.9 |
|
|
$ |
i 0.4 |
|
|
|
i 7.6 |
|
|
$ |
( i 208.0 |
) |
|
$ |
i 274.7 |
|
|
$ |
i 343.0 |
|
|
$ |
( i 78.6 |
) |
|
$ |
i 331.5 |
|
See Notes to the Unaudited Condensed Consolidated Financial Statements
9
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Note 1. Overview, Basis of Presentation and Significant Accounting Policies
Description of Business
DFIN is a leading global risk and compliance solutions company. The Company provides regulatory filing and deal solutions via its software, technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve its clients’ regulatory and compliance needs. DFIN helps its clients comply with applicable regulations where and how they want to work in a digital world, providing numerous solutions tailored to each client’s precise needs. The prevailing trend is toward clients choosing to utilize the Company’s software solutions, in conjunction with its tech-enabled services, to meet their document and filing needs, while at the same time shifting away from physical print and distribution of documents, except for cases where it is still regulatorily required or requested by investors.
The Company serves its clients’ regulatory and compliance needs throughout their respective life cycles. For its capital markets clients, the Company offers solutions that allow companies to comply with U.S. Securities and Exchange Commission (“SEC”) regulations including filing agent services, where applicable, digital document creation and online content management tools that support their corporate financial transactions and regulatory/financial reporting; solutions to facilitate clients’ communications with their investors; and virtual data rooms and other deal management solutions. For investment companies, including mutual fund, insurance-investment and alternative investment companies, the Company provides solutions for creating, compiling and filing regulatory communications as well as solutions for investors designed to improve the access to and accuracy of their investment information.
Services and Products
The Company separately reports its net sales and related cost of sales for its software solutions, tech-enabled services and print and distribution offerings. The Company’s software solutions consist of Venue® Virtual Data Room (“Venue”), ActiveDisclosure®, eBrevia and the Arc Suite® software platform (“Arc Suite”), among others. The Company’s tech-enabled services offerings consist of document composition, compliance-related SEC Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) filing services and transaction solutions. The Company’s print and distribution offerings primarily consist of conventional and digital printed products and related shipping.
Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of DFIN and all majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial data presented herein should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in the Company's latest Annual Report. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year.
Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with GAAP requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical accounting estimates are disclosed in the Annual Report.
10
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
Allowances for Expected Losses— i Transactions affecting the current expected credit loss (“CECL”) reserve during the nine months ended September 30, 2023 and 2022 were as follows:
|
|
|
||||||
|
|
|
|
2022 |
|
|||
Balance, beginning of year (a) |
|
$ |
i 17.1 |
|
|
$ |
i 12.7 |
|
Provisions charged to expense |
|
|
i 10.8 |
|
|
|
i 6.2 |
|
Write-offs, reclassifications and other |
|
|
( i 8.6 |
) |
|
|
( i 1.4 |
) |
Balance, end of period (a) |
|
$ |
i 19.3 |
|
|
$ |
i 17.5 |
|
Assets Held for Sale—As of September 30, 2023 and December 31, 2022, the Company had land held for sale with a carrying value of $ i i 2.6 / million. On August 30, 2022, the Company entered into an agreement to sell the land for $ i 13.0 million. The closing of this transaction is subject to the buyer obtaining necessary entitlements and customary closing conditions and there is no assurance that the sale will be completed.
/Property, Plant and Equipment, net— i The components of the Company’s property, plant and equipment, net at September 30, 2023 and December 31, 2022 were as follows:
|
|
|
|
|
||||
Land |
|
$ |
i 0.3 |
|
|
$ |
i 0.3 |
|
Buildings |
|
|
i 19.9 |
|
|
|
i 20.2 |
|
Machinery and equipment |
|
|
i 68.1 |
|
|
|
i 66.8 |
|
|
|
|
i 88.3 |
|
|
|
i 87.3 |
|
Less: Accumulated depreciation |
|
|
( i 73.5 |
) |
|
|
( i 69.7 |
) |
Total |
|
$ |
i 14.8 |
|
|
$ |
i 17.6 |
|
Depreciation expense was $ i 2.0 million and $ i 1.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ i 5.8 million and $ i 4.8 million for the nine months ended September 30, 2023 and 2022, respectively.
Software, net—Capitalized software development costs are amortized over their estimated useful life using the straight-line method, up to a maximum of i three years. Amortization expense related to internally-developed software, excluding amortization expense related to other intangible assets, was $ i 11.4 million and $ i 9.8 million for the three months ended September 30, 2023 and 2022, respectively, and $ i 33.2 million and $ i 28.1 million for the nine months ended September 30, 2023 and 2022, respectively.
/Investments—The carrying value of the Company’s investments in equity securities was $ i 5.5 million and $ i 8.5 million at September 30, 2023 and December 31, 2022, respectively. The Company measures its equity securities that do not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company performs an assessment on a quarterly basis to determine whether triggering events for impairment exist and to identify any observable price changes. During the three months ended September 30, 2023, there were no events or changes in circumstances that suggested an impairment or an observable price change. During the three and nine months ended September 30, 2022, the Company recorded an unrealized gain of $ i i 0.5 / million resulting from an observable price change.
In March 2023, the Company sold an investment in an equity security. As a result of the sale, for the nine months ended September 30, 2023, the Company received proceeds of $ i 11.9 million, including $ i 9.0 million of cash and common stock of the acquiror. In May 2023, the Company sold another investment in an equity security and received proceeds of $ i 0.9 million in cash, which approximated its carrying value. The sales resulted in a net realized gain of $ i 6.9 million for the nine months ended September 30, 2023, which is included in investment and other income, net, on the Unaudited Condensed Consolidated Statements of Operations within Corporate.
/11
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update No. 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts, rather than at fair value. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted the standard prospectively on January 1, 2023. The adoption of this standard did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.
Note 2. Revenue
Revenue Recognition
The Company manages highly-customized data and materials to enable filings with the SEC on behalf of its customers as well as performs eXtensible Business Reporting Language (“XBRL”) and other services. Clients are provided with EDGAR filing services, XBRL compliance services and translation, editing, interpreting, proof-reading and multilingual typesetting services, among other services. The Company provides software solutions to public and private companies, mutual funds and other regulated investment firms to serve their regulatory and compliance needs, including Venue, Arc Suite, ActiveDisclosure, among others, and provides digital document creation, online content management and print and distribution solutions.
Revenue is recognized upon transfer of control of promised services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products. The Company’s services include software solutions and tech-enabled services whereas the Company’s products are comprised of print and distribution offerings. The Company’s arrangements with customers often include promises to transfer multiple services or products to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately requires significant judgment. Certain customer arrangements have multiple performance obligations as certain promises are both capable of being distinct and are distinct within the context of the contract. Other customer arrangements have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, and therefore is not distinct. Revenue for the Company’s tech-enabled services, software solutions and print and distribution offerings is recognized either over time or at a point in time, as further disclosed in the Annual Report.
Disaggregation of Revenue
The following table disaggregates revenue between tech-enabled services, software solutions and print and distribution by reportable segment:
|
Three Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
|
2022 |
|
|||||||||||||||||||||||||||
|
Tech-enabled Services |
|
|
Software Solutions |
|
|
Print and Distribution |
|
|
Total |
|
|
Tech-enabled Services |
|
|
Software Solutions |
|
|
Print and Distribution |
|
|
Total |
|
||||||||
Capital Markets - Software Solutions |
$ |
i — |
|
|
$ |
i 46.5 |
|
|
$ |
i — |
|
|
$ |
i 46.5 |
|
|
$ |
i — |
|
|
$ |
i 45.8 |
|
|
$ |
i — |
|
|
$ |
i 45.8 |
|
Capital Markets - Compliance and Communications Management |
|
i 60.7 |
|
|
|
i — |
|
|
|
i 9.4 |
|
|
|
i 70.1 |
|
|
|
i 66.8 |
|
|
|
i — |
|
|
|
i 16.5 |
|
|
|
i 83.3 |
|
Investment Companies - Software Solutions |
|
i — |
|
|
|
i 26.7 |
|
|
|
i — |
|
|
|
i 26.7 |
|
|
|
i — |
|
|
|
i 23.7 |
|
|
|
i — |
|
|
|
i 23.7 |
|
Investment Companies - Compliance and Communications Management |
|
i 19.7 |
|
|
|
i — |
|
|
|
i 17.0 |
|
|
|
i 36.7 |
|
|
|
i 20.6 |
|
|
|
i — |
|
|
|
i 15.3 |
|
|
|
i 35.9 |
|
Total net sales |
$ |
i 80.4 |
|
|
$ |
i 73.2 |
|
|
$ |
i 26.4 |
|
|
$ |
i 180.0 |
|
|
$ |
i 87.4 |
|
|
$ |
i 69.5 |
|
|
$ |
i 31.8 |
|
|
$ |
i 188.7 |
|
12
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
|
|
2022 |
|
|||||||||||||||||||||||||||
|
|
Tech-enabled Services |
|
|
Software Solutions |
|
|
Print and Distribution |
|
|
Total |
|
|
Tech-enabled Services |
|
|
Software Solutions |
|
|
Print and Distribution |
|
|
Total |
|
||||||||
Capital Markets - Software Solutions |
|
$ |
i — |
|
|
$ |
i 137.9 |
|
|
$ |
i — |
|
|
$ |
i 137.9 |
|
|
$ |
i — |
|
|
$ |
i 136.8 |
|
|
$ |
i — |
|
|
$ |
i 136.8 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 205.4 |
|
|
|
i — |
|
|
|
i 81.7 |
|
|
|
i 287.1 |
|
|
|
i 248.8 |
|
|
|
i — |
|
|
|
i 88.1 |
|
|
|
i 336.9 |
|
Investment Companies - Software Solutions |
|
|
i — |
|
|
|
i 81.1 |
|
|
|
i — |
|
|
|
i 81.1 |
|
|
|
i — |
|
|
|
i 74.1 |
|
|
|
i — |
|
|
|
i 74.1 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 57.9 |
|
|
|
i — |
|
|
|
i 56.7 |
|
|
|
i 114.6 |
|
|
|
i 63.6 |
|
|
|
i — |
|
|
|
i 54.5 |
|
|
|
i 118.1 |
|
Total net sales |
|
$ |
i 263.3 |
|
|
$ |
i 219.0 |
|
|
$ |
i 138.4 |
|
|
$ |
i 620.7 |
|
|
$ |
i 312.4 |
|
|
$ |
i 210.9 |
|
|
$ |
i 142.6 |
|
|
$ |
i 665.9 |
|
Unbilled Receivables and Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in contract assets, unbilled receivables or contract liabilities. Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists and therefore invoicing has not yet occurred. The Company generally estimates contract assets based on the historical selling price adjusted for its current experience and expected resolution of the variable consideration of the completed performance obligation. When the Company's contracts contain variable consideration, the variable consideration is recognized only to the extent that it is probable that a significant revenue reversal will not occur in a future period. As a result, the estimated revenue and contract assets may be constrained until the uncertainty associated with the variable consideration is resolved, which generally occurs in less than one year. Determining whether there will be a significant revenue reversal in the future and the determination of the amount of the constraint requires significant judgment.
Contract assets were $ i 19.9 million and $ i 20.1 million at September 30, 2023 and December 31, 2022, respectively. Generally, the contract assets balance is impacted by the recognition of additional revenue, amounts invoiced to customers and changes in the level of constraint applied to variable consideration. Amounts recognized as revenue exceeded the estimates for performance obligations satisfied in previous periods by approximately $ i 6.5 million and $ i 15.5 million for the three months ended September 30, 2023 and 2022, respectively, and $ i 20.2 million and $ i 14.9 million for the nine months ended September 30, 2023 and 2022, respectively, primarily due to changes in the Company’s estimate of variable consideration and the application of the constraint.
Unbilled receivables are recorded when there is an unconditional right to payment and invoicing has not yet occurred. The Company estimates the value of unbilled receivables based on a combination of historical customer selling price and management’s assessment of realizable selling price. Unbilled receivables were $ i 36.0 million and $ i 33.2 million at September 30, 2023 and December 31, 2022, respectively. Unbilled receivables and contract assets are included in receivables, less allowances for expected losses on the Unaudited Condensed Consolidated Balance Sheets.
Most of the Company's contracts with significant remaining performance obligations have an initial expected duration of one year or less. As of September 30, 2023, the future estimated revenue related to unsatisfied or partially satisfied performance obligations under contracts with an original contractual term in excess of one year was approximately $ i 140 million, of which approximately i 48% is expected to be recognized as revenue over the succeeding i twelve months, and the remainder recognized thereafter.
13
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
Contract liabilities consist of deferred revenue and progress billings, which are included in accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets. The Company recognized $ i 6.3 million and $ i 5.3 million of revenue during the three months ended September 30, 2023 and 2022, respectively, that was included in the deferred revenue balances at the beginning of the respective periods. The Company recognized $ i 38.0 million and $ i 31.4 million of revenue during the nine months ended September 30, 2023 and 2022, respectively, that was included in the deferred revenue balances at the beginning of the respective periods. Changes in contract liabilities were as follows:
|
|
|
||||||
|
|
|
|
2022 |
|
|||
Balance, beginning of year |
|
$ |
i 46.1 |
|
|
$ |
i 36.0 |
|
Deferral of revenue |
|
|
i 121.3 |
|
|
|
i 119.2 |
|
Revenue recognized |
|
|
( i 113.2 |
) |
|
|
( i 103.9 |
) |
Balance, end of period |
|
$ |
i 54.2 |
|
|
$ |
i 51.3 |
|
Note 3. Goodwill and Other Intangible Assets, net
Goodwill— i The goodwill balances by reportable segment were as follows:
|
|
Gross book |
|
|
Accumulated |
|
|
Net book |
|
|
Foreign |
|
|
Net book |
|
|||||
Capital Markets - Software Solutions |
|
$ |
i 100.1 |
|
|
$ |
i — |
|
|
$ |
i 100.1 |
|
|
$ |
i — |
|
|
$ |
i 100.1 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 252.7 |
|
|
|
i — |
|
|
|
i 252.7 |
|
|
|
i — |
|
|
|
i 252.7 |
|
Investment Companies - Software Solutions |
|
|
i 53.0 |
|
|
|
i — |
|
|
|
i 53.0 |
|
|
|
i — |
|
|
|
i 53.0 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 40.6 |
|
|
|
( i 40.6 |
) |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
Total |
|
$ |
i 446.4 |
|
|
$ |
( i 40.6 |
) |
|
$ |
i 405.8 |
|
|
$ |
i — |
|
|
$ |
i 405.8 |
|
Other Intangible Assets, net— i The components of other intangible assets at September 30, 2023 and December 31, 2022 were as follows:
|
|
|
|
|
||||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
||||||
Customer relationships |
|
$ |
i 10.4 |
|
|
$ |
( i 4.8 |
) |
|
$ |
i 5.6 |
|
|
$ |
i 10.4 |
|
|
$ |
( i 2.8 |
) |
|
$ |
i 7.6 |
|
Trade name |
|
|
i 1.0 |
|
|
|
( i 1.0 |
) |
|
|
i — |
|
|
|
i 1.0 |
|
|
|
( i 0.8 |
) |
|
|
i 0.2 |
|
Total other intangible assets |
|
$ |
i 11.4 |
|
|
$ |
( i 5.8 |
) |
|
$ |
i 5.6 |
|
|
$ |
i 11.4 |
|
|
$ |
( i 3.6 |
) |
|
$ |
i 7.8 |
|
Prior to the second quarter of 2023, the customer relationships intangible asset was amortized over a useful life of i 15 years. During the second quarter of 2023, the Company revised its estimate of the remaining useful life of its customer relationships intangible asset from i eleven years to i two years.
14
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
Amortization expense for other intangible assets was $ i 1.0 million and $ i 0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $ i 2.2 million and $ i 0.7 million for the nine months ended September 30, 2023 and 2022, respectively. The weighted-average remaining useful life for the unamortized other intangible assets as of September 30, 2023 is approximately i two years. i The following table outlines the estimated annual amortization expense related to other intangible assets:
For the year ending December 31, |
|
Amount |
|
|
2023 (excluding the nine months ended September 30, 2023) |
|
$ |
i 1.0 |
|
2024 |
|
|
i 3.7 |
|
2025 |
|
|
i 0.9 |
|
Total |
|
$ |
i 5.6 |
|
Note 4. Leases
i The Company has operating leases for certain service centers, office space and equipment as well as finance leases primarily related to certain IT equipment. i The Company made payments related to its operating and finance lease liabilities as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Cash paid related to operating leases |
|
$ |
i 4.4 |
|
|
$ |
i 5.6 |
|
|
$ |
i 13.3 |
|
|
$ |
i 16.3 |
|
Cash paid related to finance leases |
|
$ |
i 0.5 |
|
|
$ |
i 0.5 |
|
|
$ |
i 1.7 |
|
|
$ |
i 1.4 |
|
The components of lease expense were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Operating lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease expense |
|
$ |
i 3.0 |
|
|
$ |
i 4.4 |
|
|
$ |
i 10.2 |
|
|
$ |
i 13.2 |
|
Sublease income |
|
|
( i 1.1 |
) |
|
|
( i 1.2 |
) |
|
|
( i 3.2 |
) |
|
|
( i 3.3 |
) |
Net operating lease expense |
|
$ |
i 1.9 |
|
|
$ |
i 3.2 |
|
|
$ |
i 7.0 |
|
|
$ |
i 9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of right-of-use assets |
|
$ |
i 0.5 |
|
|
$ |
i 0.5 |
|
|
$ |
i 1.7 |
|
|
$ |
i 1.4 |
|
Interest on lease liabilities |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i 0.2 |
|
|
|
i 0.1 |
|
Total finance lease expense |
|
$ |
i 0.6 |
|
|
$ |
i 0.5 |
|
|
$ |
i 1.9 |
|
|
$ |
i 1.5 |
|
The Company’s finance leases are presented on the Company’s Unaudited Condensed Consolidated Balance Sheets as follows:
|
|
|
|
|
||||
Property, plant and equipment, net |
|
$ |
i 7.6 |
|
|
$ |
i 7.1 |
|
|
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
i 2.5 |
|
|
$ |
i 2.0 |
|
Other noncurrent liabilities |
|
|
i 5.3 |
|
|
|
i 5.1 |
|
Total |
|
$ |
i 7.8 |
|
|
$ |
i 7.1 |
|
15
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
/
Other information related to finance leases for the nine months ended September 30, 2023 and 2022 and as of September 30, 2023 and December 31, 2022 was as follows:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
Non-cash disclosure: |
|
|
|
|
|
|
||
Increase in finance lease liabilities due to new right-of-use assets |
|
$ |
i 2.5 |
|
|
$ |
i 0.9 |
|
|
|
|
|
||||
Finance lease weighted averages: |
|
|
|
|
|
||
Remaining lease term |
i 3.2 years |
|
|
i 3.4 years |
|
||
Discount rate |
|
i 3.5 |
% |
|
|
i 2.5 |
% |
Note 5. Restructuring, Impairment and Other Charges, net
Restructuring, Impairment and Other Charges, net recognized in Results of Operations
The Company records restructuring charges associated with management-approved restructuring plans, which could include the elimination of job functions, closure or relocation of facilities, reorganization of operations, changes in management structure, workforce reductions or other actions. Restructuring charges may include ongoing and enhanced termination benefits related to employee separations, contract termination costs and other related costs associated with exit or disposal activities. Restructuring charges for employee terminations include management's estimate as to the timing and amount of severance and actual results could differ from estimates.
For the three months ended September 30, 2023 and 2022, the Company recorded the following restructuring, impairment and other charges, net by reportable segment:
|
|
Employee Terminations |
|
|
Other Restructuring Charges |
|
|
Impairment Charges |
|
|
Other Charges |
|
|
Total |
|
|||||
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital Markets - Software Solutions |
|
$ |
( i 0.5 |
) |
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
( i 0.5 |
) |
Capital Markets - Compliance and Communications Management |
|
|
( i 0.2 |
) |
|
|
i 0.1 |
|
|
|
i 0.1 |
|
|
|
i 0.1 |
|
|
|
i 0.1 |
|
Investment Companies - Software Solutions |
|
|
( i 0.1 |
) |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 0.1 |
) |
Investment Companies - Compliance and Communications Management |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.1 |
|
Corporate |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.1 |
|
Total |
|
$ |
( i 0.6 |
) |
|
$ |
i 0.1 |
|
|
$ |
i 0.1 |
|
|
$ |
i 0.1 |
|
|
$ |
( i 0.3 |
) |
16
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
|
|
Employee Terminations |
|
|
Other Restructuring Charges |
|
|
Other Charges |
|
|
Total |
|
||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital Markets - Software Solutions |
|
$ |
i 0.1 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 0.1 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 1.8 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 1.8 |
|
Investment Companies - Software Solutions |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.1 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 0.2 |
|
|
|
i 0.2 |
|
|
|
i — |
|
|
|
i 0.4 |
|
Corporate |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i 0.1 |
|
|
|
i 0.2 |
|
Total |
|
$ |
i 2.3 |
|
|
$ |
i 0.2 |
|
|
$ |
i 0.1 |
|
|
$ |
i 2.6 |
|
For the nine months ended September 30, 2023 and 2022, the Company recorded the following restructuring, impairment and other charges, net by reportable segment:
|
|
Employee Terminations |
|
|
Other Restructuring Charges |
|
|
Impairment Charges |
|
|
Other Charges |
|
|
Total |
|
|||||
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital Markets - Software Solutions |
|
$ |
i 2.5 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 2.5 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 4.0 |
|
|
|
i 0.1 |
|
|
|
i 0.1 |
|
|
|
i 0.2 |
|
|
|
i 4.4 |
|
Investment Companies - Software Solutions |
|
|
i 0.5 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.5 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.1 |
|
Corporate |
|
|
i 0.8 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.1 |
|
|
|
i 0.9 |
|
Total |
|
$ |
i 7.9 |
|
|
$ |
i 0.1 |
|
|
$ |
i 0.1 |
|
|
$ |
i 0.3 |
|
|
$ |
i 8.4 |
|
|
|
Employee Terminations |
|
|
Other Restructuring Charges |
|
|
Other Charges |
|
|
Total |
|
||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital Markets - Software Solutions |
|
$ |
i 1.1 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 1.1 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 2.1 |
|
|
|
i — |
|
|
|
i 0.1 |
|
|
|
i 2.2 |
|
Investment Companies - Software Solutions |
|
|
i 0.2 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.2 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 0.3 |
|
|
|
i 0.3 |
|
|
|
i — |
|
|
|
i 0.6 |
|
Corporate |
|
|
i 0.3 |
|
|
|
i — |
|
|
|
i 0.2 |
|
|
|
i 0.5 |
|
Total |
|
$ |
i 4.0 |
|
|
$ |
i 0.3 |
|
|
$ |
i 0.3 |
|
|
$ |
i 4.6 |
|
17
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
For the nine months ended September 30, 2023, the Company recorded net restructuring charges of $ i 7.9 million related to employee termination costs for approximately i 150 employees, substantially all of whom will be terminated by December 31, 2023. The restructuring actions were primarily related to reorganization of certain capital markets operations.
For the three and nine months ended September 30, 2022, the Company recorded net restructuring charges of $ i 2.3 million and $ i 4.0 million, respectively, related to employee termination costs for approximately i 10 and i 80 employees, respectively, substantially all of whom were terminated as of December 31, 2022. The restructuring actions were primarily related to the reorganization of certain capital markets operations and the relocation of a digital print facility.
Restructuring Reserve – Employee Terminations
The Company’s employee terminations liability is included in accrued liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets. Changes in the accrual for employee terminations during the nine months ended September 30, 2023 were as follows:
|
|
Employee Terminations |
|
|
Balance at December 31, 2022 |
|
$ |
i 5.1 |
|
Restructuring charges, net |
|
|
i 8.1 |
|
Non-cash items |
|
|
( i 0.2 |
) |
Cash paid |
|
|
( i 10.7 |
) |
Balance at September 30, 2023 |
|
$ |
i 2.3 |
|
Note 6. Retirement Plans
The components of estimated net pension plan income for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Interest cost |
|
$ |
i 2.9 |
|
|
$ |
i 1.8 |
|
|
$ |
i 8.7 |
|
|
$ |
i 5.5 |
|
Expected return on assets |
|
|
( i 3.3 |
) |
|
|
( i 2.9 |
) |
|
|
( i 9.9 |
) |
|
|
( i 8.7 |
) |
Amortization, net |
|
|
i 0.2 |
|
|
|
i 0.9 |
|
|
|
i 0.7 |
|
|
|
i 2.5 |
|
Net pension plan income |
|
$ |
( i 0.2 |
) |
|
$ |
( i 0.2 |
) |
|
$ |
( i 0.5 |
) |
|
$ |
( i 0.7 |
) |
Note 7. Commitments and Contingencies
Litigation
From time to time, the Company’s customers and other counterparties file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.
Note 8. Debt
The Company’s debt as of September 30, 2023 and December 31, 2022 consisted of the following:
|
|
|
|
|
||||
Term Loan A Facility |
|
$ |
i 125.0 |
|
|
$ |
i 125.0 |
|
Borrowings under the Revolving Facility |
|
|
i 41.5 |
|
|
|
i 45.0 |
|
Unamortized debt issuance costs |
|
|
( i 0.6 |
) |
|
|
( i 0.8 |
) |
Total long-term debt |
|
$ |
i 165.9 |
|
|
$ |
i 169.2 |
|
18
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
/
Credit Agreement—On May 27, 2021 (the “Restatement Effective Date”), the Company amended and restated its credit agreement dated as of September 30, 2016 (as in effect prior to such amendment and restatement, the “Credit Agreement,” and the Credit Agreement, as so amended and restated, the “Amended and Restated Credit Agreement”), by and among the Company, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, to, among other things, provide for a $ i 200.0 million delayed-draw term loan A facility (the “Term Loan A Facility”) (bearing interest at a rate equal to the sum of the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from i 2.00% to i 2.50% based upon the Company's Consolidated Net Leverage Ratio), extend the maturity of the $ i 300.0 million revolving credit facility (the “Revolving Facility”) to May 27, 2026 and modify the financial maintenance and negative covenants in the Credit Agreement.
On May 11, 2023, the Company entered into the first amendment to the Amended and Restated Credit Agreement to change the reference rate from LIBOR, which ceased being published on June 30, 2023, to the Secured Overnight Financing Rate (“SOFR”) for both the Term Loan A Facility and the Revolving Facility. The SOFR interest rate was effective for the Revolving Facility and the Term Loan A on May 30, 2023 and June 12, 2023, respectively. No other significant terms of the Amended and Restated Credit Agreement were amended. The Amended and Restated Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and the Consolidated Net Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $ i 20.0 million in the aggregate.
Term Loan A Facility—The unpaid principal amount of the Term Loan A Facility is due and payable in full on May 27, 2026. Voluntary prepayments of the Term Loan A Facility are permitted at any time without premium or penalty. The weighted-average interest rate on borrowings under the Term Loan A Facility was i 6.8% and i 3.0% for the nine months ended September 30, 2023 and 2022, respectively. The fair value of the Term Loan A Facility was $ i 123.3 million and $ i 121.6 million as of September 30, 2023 and December 31, 2022, respectively, and was determined to be Level 2 under the fair value hierarchy.
Revolving Facility—As of September 30, 2023 and December 31, 2022, there were $ i 41.5 million and $ i 45.0 million, respectively, of borrowings outstanding under the Revolving Facility. The weighted average interest rate on borrowings under the Revolving Facility was i 7.2% and i 3.7% for the nine months ended September 30, 2023 and 2022, respectively. The fair value of the Company's borrowings under the Revolving Facility is classified as Level 2 under the fair value hierarchy and approximated its carrying value as of September 30, 2023 and December 31, 2022, as the Revolving Facility carries a variable rate of interest reflecting current market rates.
The following table summarizes interest expense, net included on the Unaudited Condensed Consolidated Statements of Operations:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Interest incurred |
|
$ |
i 4.7 |
|
|
$ |
i 2.5 |
|
|
$ |
i 13.7 |
|
|
$ |
i 6.4 |
|
Less: Interest income |
|
|
( i 0.6 |
) |
|
|
( i 0.2 |
) |
|
|
( i 1.5 |
) |
|
|
( i 0.5 |
) |
Interest expense, net |
|
$ |
i 4.1 |
|
|
$ |
i 2.3 |
|
|
$ |
i 12.2 |
|
|
$ |
i 5.9 |
|
Note 9. Earnings per Share
i Basic earnings per share is calculated by dividing net earnings by the weighted average number of common shares outstanding for the period. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock units, performance share units and restricted stock.
19
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive share-based awards for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
i 0.62 |
|
|
$ |
i 0.64 |
|
|
$ |
i 2.44 |
|
|
$ |
i 2.93 |
|
Diluted |
|
$ |
i 0.60 |
|
|
$ |
i 0.62 |
|
|
$ |
i 2.36 |
|
|
$ |
i 2.81 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings |
|
$ |
i 18.1 |
|
|
$ |
i 19.2 |
|
|
$ |
i 71.6 |
|
|
$ |
i 91.6 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average number of common shares outstanding |
|
|
i 29.4 |
|
|
|
i 29.8 |
|
|
|
i 29.4 |
|
|
|
i 31.3 |
|
Dilutive awards |
|
|
i 0.9 |
|
|
|
i 1.1 |
|
|
|
i 1.0 |
|
|
|
i 1.3 |
|
Diluted weighted average number of common shares outstanding |
|
|
i 30.3 |
|
|
|
i 30.9 |
|
|
|
i 30.4 |
|
|
|
i 32.6 |
|
Note 10. Capital Stock
The Company has authorized for issuance i 65 million shares of $ i 0.01 par value common stock and i one million shares of $ i 0.01 par value preferred stock. The Board may divide the preferred stock into one or more series and fix the redemption, dividend, voting, conversion, sinking fund, liquidation and other rights. The Company has no present plans to issue any preferred stock.
Common Stock Repurchases—On February 17, 2022, the Board authorized an increase to its previously approved stock repurchase program to bring the total remaining available repurchase authorization for shares on or after February 17, 2022 to $ i 150 million and extended the expiration date of the repurchase program through i December 31, 2023. On August 17, 2022, the Board authorized an increase to the stock repurchase program approved in February 2022 to bring the total remaining available repurchase authorization for shares on or after August 17, 2022 to $ i 150 million. The expiration date of the repurchase program remains through i December 31, 2023.
The stock repurchase program may be suspended or discontinued at any time. The timing and amount of any shares repurchased are determined by the Company based on its evaluation of market conditions and other factors and may be completed from time to time in one or more transactions on the open market or in privately negotiated purchases in accordance with all applicable securities laws and regulations and all repurchases in the open market will be made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so.
For the three and nine months ended September 30, 2023, the Company repurchased i 310,365 shares for $ i 14.8 million at an average price of $ i 47.77 per share and i 386,920 shares for $ i 18.0 million at an average price of $ i 46.53 per share, respectively. As of September 30, 2023, the remaining authorized amount was $ i 106.3 million. For the three and nine months ended September 30, 2022, the Company repurchased i 959,579 shares for $ i 32.3 million at an average price of $ i 33.72 per share and i 4,367,678 shares for $ i 138.8 million at an average price of $ i 31.78 per share, respectively.
/Note 11. Comprehensive Income
The components of other comprehensive (loss) income and income tax expense allocated to each component for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||||||||||
|
|
Before Tax |
|
|
Income Tax |
|
|
Net of Tax |
|
|
Before Tax |
|
|
Income Tax |
|
|
Net of Tax |
|
||||||
Translation adjustments |
|
$ |
( i 1.0 |
) |
|
$ |
i — |
|
|
$ |
( i 1.0 |
) |
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i — |
|
Adjustment for net periodic pension and other postretirement benefits plans |
|
|
i 0.2 |
|
|
|
i 0.1 |
|
|
|
i 0.1 |
|
|
|
i 0.7 |
|
|
|
i 0.2 |
|
|
|
i 0.5 |
|
Other comprehensive (loss) income |
|
$ |
( i 0.8 |
) |
|
$ |
i 0.1 |
|
|
$ |
( i 0.9 |
) |
|
$ |
i 0.7 |
|
|
$ |
i 0.2 |
|
|
$ |
i 0.5 |
|
20
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
|
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||||||||||||||||||
|
|
Before Tax |
|
|
Income Tax |
|
|
Net of Tax |
|
|
Before Tax |
|
|
Income Tax |
|
|
Net of Tax |
|
||||||
Translation adjustments |
|
$ |
( i 1.7 |
) |
|
$ |
i — |
|
|
$ |
( i 1.7 |
) |
|
$ |
( i 2.2 |
) |
|
$ |
( i 0.1 |
) |
|
$ |
( i 2.1 |
) |
Adjustment for net periodic pension and other postretirement benefits plans |
|
|
i 0.8 |
|
|
|
i 0.3 |
|
|
|
i 0.5 |
|
|
|
i 2.5 |
|
|
|
i 0.7 |
|
|
|
i 1.8 |
|
Other comprehensive (loss) income |
|
$ |
( i 0.9 |
) |
|
$ |
i 0.3 |
|
|
$ |
( i 1.2 |
) |
|
$ |
i 0.3 |
|
|
$ |
i 0.6 |
|
|
$ |
( i 0.3 |
) |
The following table summarizes changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2023:
|
|
Pension and Other Postretirement Benefits Plans Cost |
|
|
Translation Adjustments |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
( i 67.9 |
) |
|
$ |
( i 15.3 |
) |
|
$ |
( i 83.2 |
) |
Other comprehensive income before reclassifications |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
i 0.5 |
|
|
|
i — |
|
|
|
i 0.5 |
|
Net change in accumulated other comprehensive loss |
|
|
i 0.5 |
|
|
|
i — |
|
|
|
i 0.5 |
|
Balance at September 30, 2023 |
|
$ |
( i 67.4 |
) |
|
$ |
( i 15.3 |
) |
|
$ |
( i 82.7 |
) |
The following table summarizes changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2022:
|
|
Pension and Other Postretirement Benefits Plans Cost |
|
|
Translation Adjustments |
|
|
Total |
|
|||
Balance at December 31, 2021 |
|
$ |
( i 64.4 |
) |
|
$ |
( i 13.9 |
) |
|
$ |
( i 78.3 |
) |
Other comprehensive loss before reclassifications |
|
|
i — |
|
|
|
( i 2.1 |
) |
|
|
( i 2.1 |
) |
Amounts reclassified from accumulated other comprehensive loss |
|
|
i 1.8 |
|
|
|
i — |
|
|
|
i 1.8 |
|
Net change in accumulated other comprehensive loss |
|
|
i 1.8 |
|
|
|
( i 2.1 |
) |
|
|
( i 0.3 |
) |
Balance at September 30, 2022 |
|
$ |
( i 62.6 |
) |
|
$ |
( i 16.0 |
) |
|
$ |
( i 78.6 |
) |
Reclassifications from accumulated other comprehensive loss for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Amortization of pension and other postretirement benefits plans cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net actuarial loss (a) |
|
$ |
i 0.2 |
|
|
$ |
i 0.9 |
|
|
$ |
i 0.7 |
|
|
$ |
i 2.5 |
|
Reclassifications before tax |
|
|
i 0.2 |
|
|
|
i 0.9 |
|
|
|
i 0.7 |
|
|
|
i 2.5 |
|
Income tax expense |
|
|
i 0.1 |
|
|
|
i 0.4 |
|
|
|
i 0.2 |
|
|
|
i 0.7 |
|
Reclassifications, net of tax |
|
$ |
i 0.1 |
|
|
$ |
i 0.5 |
|
|
$ |
i 0.5 |
|
|
$ |
i 1.8 |
|
21
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
Note 12. Segment Information
The Company operates its business through i i four / operating and reportable segments: Capital Markets – Software Solutions, Capital Markets – Compliance and Communications Management, Investment Companies – Software Solutions and Investment Companies – Compliance and Communications Management. Corporate is not an operating segment and consists primarily of unallocated selling, general and administrative (“SG&A”) activities and associated expenses including, in part, executive, legal, finance and certain facility costs. In addition, certain costs and earnings of employee benefits plans, such as pension and other postretirement benefits plans expense (income) as well as share-based compensation expense, are included in Corporate and not allocated to the operating segments.
Capital Markets
The Company provides software solutions, tech-enabled services and print and distribution solutions to public and private companies for deal solutions and compliance to companies that are, or are preparing to become, subject to the filing and reporting requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. Capital markets clients leverage the Company’s software offerings, proprietary technology, deep industry expertise and experience to successfully navigate the SEC’s specified file formats when submitting compliance documents through the SEC's EDGAR system for their transactional and ongoing compliance needs. The Company assists its capital markets clients throughout the course of initial public offerings, secondary offerings, mergers and acquisitions, public and private debt offerings, leveraged buyouts, spinouts, special purpose acquisition company (“SPAC”) and de-SPAC transactions and other similar transactions. In addition, the Company provides clients with compliance solutions to prepare their ongoing required Exchange Act filings that are compatible with the SEC’s EDGAR system, most notably Form 10-K, Form 10-Q, Form 8-K and proxy filings. The Company’s operating segments associated with its capital markets services and product offerings are as follows:
Capital Markets – Software Solutions—The Company provides Venue, ActiveDisclosure, eBrevia and other solutions to public and private companies to help manage public and private transactional and compliance processes; extract data and analyze contracts; collaborate; and tag, validate and file SEC documents.
Capital Markets – Compliance & Communications Management—The Company provides tech-enabled services and print and distribution solutions to public and private companies for deal solutions and SEC compliance requirements.
Investment Companies
The Company provides software solutions, tech-enabled services and print, distribution and fulfillment solutions to its investment companies clients that are subject to the filing and reporting requirements of the Investment Company Act of 1940, as amended (the “Investment Company Act”), primarily mutual fund companies, alternative investment companies, insurance companies and third-party fund administrators. The Company’s suite of solutions enables its investment companies clients to comply with applicable ongoing SEC regulations, as well as to create, manage and deliver accurate and timely financial communications to investors and regulators. Investment companies clients leverage the Company’s proprietary technology, deep industry expertise and experience to successfully navigate the SEC’s specified file formats when submitting compliance documents through the SEC's EDGAR system. The Company’s operating segments associated with its investment companies services and products offerings are as follows:
Investment Companies – Software Solutions—The Company provides clients with the Arc Suite platform that contains a comprehensive suite of cloud-based solutions, including ArcDigital, ArcReporting, ArcPro and ArcRegulatory, as well as services that enable storage and management of compliance and regulatory information in a self-service, central repository so that documents can be easily accessed, assembled, edited, tagged, translated, rendered and submitted to regulators and investors.
Investment Companies – Compliance & Communications Management—The Company provides its investment companies clients tech-enabled services to prepare, file and distribute registration forms, as well as XBRL-formatted filings pursuant to the Investment Company Act, through the SEC’s EDGAR system. In addition, the Company provides print and distribution solutions for its clients to communicate with their investors.
22
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Notes to the Unaudited Condensed Consolidated Financial Statements (continued)
(in millions, except per share data, unless otherwise indicated)
Information by Segment
The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision maker and is most consistent with the presentation of profitability reported on the Unaudited Condensed Consolidated Financial Statements.
|
|
Net Sales |
|
|
Income (Loss) |
|
|
Depreciation and Amortization |
|
|
Capital Expenditures |
|
||||
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital Markets - Software Solutions |
|
$ |
i 46.5 |
|
|
$ |
i 4.9 |
|
|
$ |
i 7.7 |
|
|
$ |
i 11.6 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 70.1 |
|
|
|
i 24.9 |
|
|
|
i 1.9 |
|
|
|
i 1.8 |
|
Investment Companies - Software Solutions |
|
|
i 26.7 |
|
|
|
i 6.6 |
|
|
|
i 3.5 |
|
|
|
i 5.0 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 36.7 |
|
|
|
i 11.2 |
|
|
|
i 1.2 |
|
|
|
i 0.4 |
|
Total operating segments |
|
|
i 180.0 |
|
|
|
i 47.6 |
|
|
|
i 14.3 |
|
|
|
i 18.8 |
|
Corporate |
|
|
i — |
|
|
|
( i 17.8 |
) |
|
|
i 0.1 |
|
|
|
i 0.4 |
|
Total |
|
$ |
i 180.0 |
|
|
$ |
i 29.8 |
|
|
$ |
i 14.4 |
|
|
$ |
i 19.2 |
|
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital Markets - Software Solutions |
|
$ |
i 45.8 |
|
|
$ |
i 4.4 |
|
|
$ |
i 6.0 |
|
|
$ |
i 6.8 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 83.3 |
|
|
|
i 22.2 |
|
|
|
i 1.5 |
|
|
|
i 0.9 |
|
Investment Companies - Software Solutions |
|
|
i 23.7 |
|
|
|
i 3.9 |
|
|
|
i 3.0 |
|
|
|
i 4.6 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 35.9 |
|
|
|
i 10.5 |
|
|
|
i 1.2 |
|
|
|
i 0.8 |
|
Total operating segments |
|
|
i 188.7 |
|
|
|
i 41.0 |
|
|
|
i 11.7 |
|
|
|
i 13.1 |
|
Corporate |
|
|
i — |
|
|
|
( i 14.3 |
) |
|
|
i — |
|
|
|
i 1.5 |
|
Total |
|
$ |
i 188.7 |
|
|
$ |
i 26.7 |
|
|
$ |
i 11.7 |
|
|
$ |
i 14.6 |
|
|
|
Net Sales |
|
|
Income (Loss) from Operations |
|
|
Assets(a) |
|
|
Depreciation and Amortization |
|
|
Capital Expenditures |
|
|||||
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital Markets - Software Solutions |
|
$ |
i 137.9 |
|
|
$ |
i 8.7 |
|
|
$ |
i 198.4 |
|
|
$ |
i 21.8 |
|
|
$ |
i 23.4 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 287.1 |
|
|
|
i 88.5 |
|
|
|
i 387.0 |
|
|
|
i 5.6 |
|
|
|
i 4.8 |
|
Investment Companies - Software Solutions |
|
|
i 81.1 |
|
|
|
i 18.3 |
|
|
|
i 105.3 |
|
|
|
i 10.2 |
|
|
|
i 12.3 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 114.6 |
|
|
|
i 35.4 |
|
|
|
i 43.9 |
|
|
|
i 3.5 |
|
|
|
i 1.4 |
|
Total operating segments |
|
|
i 620.7 |
|
|
|
i 150.9 |
|
|
|
i 734.6 |
|
|
|
i 41.1 |
|
|
|
i 41.9 |
|
Corporate |
|
|
i — |
|
|
|
( i 50.7 |
) |
|
|
i 104.7 |
|
|
|
i 0.1 |
|
|
|
i 1.1 |
|
Total |
|
$ |
i 620.7 |
|
|
$ |
i 100.2 |
|
|
$ |
i 839.3 |
|
|
$ |
i 41.2 |
|
|
$ |
i 43.0 |
|
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital Markets - Software Solutions |
|
$ |
i 136.8 |
|
|
$ |
i 11.8 |
|
|
$ |
i 191.6 |
|
|
$ |
i 16.7 |
|
|
$ |
i 19.6 |
|
Capital Markets - Compliance and Communications Management |
|
|
i 336.9 |
|
|
|
i 111.6 |
|
|
|
i 419.8 |
|
|
|
i 4.7 |
|
|
|
i 3.6 |
|
Investment Companies - Software Solutions |
|
|
i 74.1 |
|
|
|
i 16.0 |
|
|
|
i 97.5 |
|
|
|
i 8.7 |
|
|
|
i 11.8 |
|
Investment Companies - Compliance and Communications Management |
|
|
i 118.1 |
|
|
|
i 32.3 |
|
|
|
i 52.4 |
|
|
|
i 3.4 |
|
|
|
i 2.1 |
|
Total operating segments |
|
|
i 665.9 |
|
|
|
i 171.7 |
|
|
|
i 761.3 |
|
|
|
i 33.5 |
|
|
|
i 37.1 |
|
Corporate |
|
|
i — |
|
|
|
( i 43.8 |
) |
|
|
i 89.5 |
|
|
|
i 0.1 |
|
|
|
i 2.3 |
|
Total |
|
$ |
i 665.9 |
|
|
$ |
i 127.9 |
|
|
$ |
i 850.8 |
|
|
$ |
i 33.6 |
|
|
$ |
i 39.4 |
|
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this management’s discussion and analysis, unless otherwise specified or the context otherwise requires, the “Company,” “DFIN,” “we,” “our,” and “us” refer to Donnelley Financial Solutions, Inc. and its consolidated subsidiaries. This discussion and analysis should be read together with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes thereto, as well as the Company’s audited Consolidated Financial Statements for the year ended December 31, 2022.
Company Overview
DFIN is a leading global risk and compliance solutions company. The Company provides regulatory filing and deal solutions via its software, technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve its clients’ regulatory and compliance needs. DFIN helps its clients comply with applicable regulations where and how they want to work in a digital world, providing numerous solutions tailored to each client’s precise needs. The prevailing trend is toward clients choosing to utilize the Company’s software solutions, in conjunction with its tech-enabled services, to meet their document and filing needs, while at the same time shifting away from physical print and distribution of documents, except for cases where it is still regulatorily required or requested by investors.
The Company serves its clients’ regulatory and compliance needs throughout their respective life cycles. For its capital markets clients, the Company offers solutions that allow companies to comply with U.S. Securities and Exchange Commission (“SEC”) regulations including filing agent services, where applicable, digital document creation and online content management tools that support their corporate financial transactions and regulatory/financial reporting; solutions to facilitate clients’ communications with their investors; and virtual data rooms and other deal management solutions. For investment companies, including mutual fund, insurance-investment and alternative investment companies, the Company provides solutions for creating, compiling and filing regulatory communications as well as solutions for investors designed to improve the access to and accuracy of their investment information.
Technological advancements, regulatory changes, and evolving workflow preferences have led to the Company’s clients managing more of the financial disclosure process themselves, changing the marketplace for the Company’s services and products. DFIN’s strategy in its Software Solutions segments (CM-SS and IC-SS, as defined below) aligns with the changing marketplace by focusing the Company’s investments and resources in its advanced software solutions, primarily ActiveDisclosure®, Arc Suite® software platform (“Arc Suite”) and Venue® Virtual Data Room (“Venue”), while making targeted investments, such as the Company’s acquisition of Guardum Holdings Limited in 2021, to further enhance product features. In its Compliance & Communications Management segments (CM-CCM and IC-CCM, as defined below), the Company’s strategy focuses on maintaining its market-leading position by offering a high-touch, service-oriented experience, using its unique combination of tech-enabled services and print and distribution capabilities.
Market Volatility/Cyclicality and Seasonality
The Company’s Capital Markets segments (CM-SS and CM-CCM), in particular, are subject to market volatility in the United States and world economies, as the success of the transactional and Venue offerings is largely dependent on the global market for initial public offerings (“IPOs”), secondary offerings, mergers and acquisitions (“M&A”), public and private debt offerings, leveraged buyouts, spinouts, special purpose acquisition company (“SPAC”) and de-SPAC transactions and other similar transactions. A variety of factors impact the global markets for transactions, including economic activity levels, interest rates, market volatility, the regulatory and political environment, geopolitical and civil unrest and global pandemics, among others. Due to the significant net sales and profitability derived from transactional and Venue offerings, market volatility can lead to uneven financial performance when comparing to previous periods. U.S. IPOs, M&A transactions and public debt offerings were also previously disrupted by U.S. federal government shutdowns, and any future government shutdowns could result in additional volatility. The Company mitigates a portion of this volatility through its compliance offerings, supporting the quarterly and annual public company reporting processes through its filing services and ActiveDisclosure, as well as its Investment Companies segments (IC-SS and IC-CCM) regulatory and stockholder communications offerings, including Arc Suite. The Company also mitigates some of the risk by offering services in higher demand during a down market, such as document management tools for the bankruptcy/restructuring process and by moving upstream in the filing process with products like Venue.
24
The quarterly/annual public company reporting process work subjects the Company to filing seasonality which peaks shortly after the end of each fiscal quarter. Additionally, investment companies clients require the Company to manage the financial and regulatory reporting and filing for mutual funds on a semi-annual basis as well as annual prospectus filings, which peaks during the second fiscal quarter. The seasonality and associated operational implications include the need to increase staff during peak periods through a combined strategy of hiring temporary personnel, increasing the premium time of existing staff and outsourcing production for a number of services. Additionally, clients and their financial advisors have begun to increasingly rely on web-based services which allow clients to autonomously file and distribute compliance documents with regulatory agencies, such as the SEC. While the Company believes that its ActiveDisclosure and Arc Suite solutions are competitive in this space, competitors are also continuing to develop technologies that aim to improve clients’ ability to autonomously produce and file documents to meet their regulatory obligations. The Company remains focused on driving annual recurring revenue to mitigate market volatility.
Services and Products
The Company separately reports its net sales and related cost of sales for its software solutions, tech-enabled services and print and distribution offerings. The Company’s software solutions consist of Venue, ActiveDisclosure, eBrevia and Arc Suite, among others. The Company’s tech-enabled services offerings consist of document composition, compliance-related SEC Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) filing services and transaction solutions. The Company’s print and distribution offerings primarily consist of conventional and digital printed products and related shipping.
Government Regulations and Regulatory Impact
The SEC is adopting new as well as amending existing rules and forms to modernize the reporting and disclosure of information under the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Investment Company Act of 1940, as amended (the “Investment Company Act”). These actions, primarily within the Investment Companies business, are driving significant regulatory changes which impact the Company’s customers, and have enabled the Company to accelerate its transition from print and distribution to software solutions.
On October 26, 2022, the SEC announced that it adopted the Tailored Shareholder Reports (“TSR”) for Mutual Funds and Exchange-Traded Funds rule which requires certain investment companies to complete a new concise and visually engaging annual and semi-annual TSR that highlights key information that is particularly important for retail investors to assess and monitor their investments. The TSR, which can be printed and mailed or delivered electronically upon request of the investor, replaces Rule 30e-3 for open-ended funds and ETFs registered under Form N-1A and will require iXBRL tagging. While the rule was effective January 24, 2023, due to an 18-month transition period, compliance is not required until July 24, 2024. As a result, the Company is expecting an increase in revenue from Arc Suite software and related regulatory filings beginning in the second half of 2024.
Segments
The Company’s four operating and reportable segments are: Capital Markets – Software Solutions (“CM-SS”), Capital Markets – Compliance and Communications Management (“CM-CCM”), Investment Companies – Software Solutions (“IC-SS”) and Investment Companies – Compliance and Communications Management (“IC-CCM”). Corporate is not an operating segment and consists primarily of unallocated selling, general and administrative (“SG&A”) activities and associated expenses including, in part, executive, legal, finance and certain facility costs. In addition, certain costs and earnings of employee benefits plans, such as pension and other postretirement benefits plans expense (income) as well as share-based compensation expense, are included in Corporate and not allocated to the operating segments.
Capital Markets
The Company provides software solutions, tech-enabled services and print and distribution solutions to public and private companies for deal solutions and compliance to companies that are, or are preparing to become, subject to the filing and reporting requirements of the Securities Act and the Exchange Act. The Company’s operating segments associated with its capital markets services and products offerings are as follows:
Capital Markets – Software Solutions—The CM-SS segment provides Venue, ActiveDisclosure, eBrevia and other solutions to public and private companies to help manage public and private transactional and compliance processes; extract data and analyze contracts; collaborate; and tag, validate and file SEC documents.
25
Capital Markets – Compliance & Communications Management—The CM-CCM segment provides tech-enabled services and print and distribution solutions to public and private companies for deal solutions and SEC compliance requirements. The Company's private conference facilities offer around-the-clock services to support the transaction process, production platform and service delivery model for a fully-virtual experience while replicating the in-person experience. The Company has seen clients utilizing the range of options available to them, including a hybrid approach with working group members working both virtually and in-person during drafting sessions for their transactions. While the Company has significantly reduced its private conferencing footprint, the service helps clients maintain confidentiality in deal negotiations and provides clients a place to host in-person working groups to meet, strategize and prepare documents for transactions.
Investment Companies
The Company provides software solutions, tech-enabled services and print, distribution and fulfillment solutions to its investment companies clients that are subject to the filing and reporting requirements of the Investment Company Act, primarily mutual fund companies, alternative investment companies, insurance companies and third-party fund administrators. The Company’s operating segments associated with its investment companies services and products offerings are as follows:
Investment Companies – Software Solutions—The IC-SS segment provides clients with the Arc Suite platform that contains a comprehensive suite of cloud-based solutions, including ArcDigital, ArcReporting, ArcPro and ArcRegulatory as well as services that enable storage and management of compliance and regulatory information in a self-service, central repository so that documents can be easily accessed, assembled, edited, tagged, translated, rendered and submitted to regulators and investors.
Investment Companies – Compliance & Communications Management—The IC-CCM segment provides clients with tech-enabled solutions for creating, filing and distributing regulatory communications and solutions for investor communications, as well as XBRL-formatted filings pursuant to the Investment Company Act, through the SEC's EDGAR system. The IC-CCM segment also provides turnkey proxy services, including discovery, planning and implementation, print and mail management, solicitation, tabulation services, stockholder meeting review and expert support.
Executive Overview
Third Quarter Overview
Net sales for three months ended September 30, 2023 decreased by $8.7 million, or 4.6%, to $180.0 million from $188.7 million for the three months ended September 30, 2022, including a $1.5 million, or 0.8%, decrease due to the disposition of the EdgarOnline (“EOL”) business and a $0.7 million, or 0.4%, increase due to changes in foreign currency exchange rates. Net sales decreased primarily due to lower capital markets transactional and compliance volumes, partially offset by software solutions price increases and higher volumes.
Income from operations for the three months ended September 30, 2023 increased by $3.1 million, or 11.6%, to $29.8 million from $26.7 million for the three months ended September 30, 2022, primarily due to cost control initiatives, lower selling expense as a result of the decrease in sales volumes, lower restructuring, impairment and other charges, net and lower incentive compensation expense, partially offset by lower sales volumes, an unfavorable sales mix and higher depreciation and amortization expense.
Year-to-Date Overview
Net sales for the nine months ended September 30, 2023 decreased by $45.2 million, or 6.8%, to $620.7 million from $665.9 million for the nine months ended September 30, 2022, including a $4.7 million, or 0.7%, decrease due to the disposition of the EOL business and a $1.4 million, or 0.2%, decrease due to changes in foreign currency exchange rates. Net sales decreased primarily due to lower capital markets transactional volumes, partially offset by software solutions price increases and higher volumes.
Income from operations for the nine months ended September 30, 2023 decreased by $27.7 million, or 21.7%, to $100.2 million from $127.9 million for the nine months ended September 30, 2022, primarily due to lower sales volumes, an unfavorable sales mix, higher depreciation and amortization expense, higher bad debt expense and higher restructuring, impairment and other charges, net, partially offset by cost control initiatives, lower selling expense as a result of the decrease in sales volumes and lower incentive compensation expense.
26
Financial Review
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical estimates are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 21, 2023 (the “Annual Report”).
In the financial review that follows, the Company discusses its unaudited condensed consolidated results of operations, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes thereto.
Results of Operations for the Three and Nine Months Ended September 30, 2023 as Compared to the Three and Nine Months Ended September 30, 2022
The following table shows the results of operations for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||||||
|
|
(in millions, except percentages) |
|
|||||||||||||||||||||||||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Tech-enabled services |
|
$ |
80.4 |
|
|
$ |
87.4 |
|
|
$ |
(7.0 |
) |
|
|
(8.0 |
%) |
|
$ |
263.3 |
|
|
$ |
312.4 |
|
|
$ |
(49.1 |
) |
|
|
(15.7 |
%) |
Software solutions |
|
|
73.2 |
|
|
|
69.5 |
|
|
|
3.7 |
|
|
|
5.3 |
% |
|
|
219.0 |
|
|
|
210.9 |
|
|
|
8.1 |
|
|
|
3.8 |
% |
Print and distribution |
|
|
26.4 |
|
|
|
31.8 |
|
|
|
(5.4 |
) |
|
|
(17.0 |
%) |
|
|
138.4 |
|
|
|
142.6 |
|
|
|
(4.2 |
) |
|
|
(2.9 |
%) |
Total net sales |
|
|
180.0 |
|
|
|
188.7 |
|
|
|
(8.7 |
) |
|
|
(4.6 |
%) |
|
|
620.7 |
|
|
|
665.9 |
|
|
|
(45.2 |
) |
|
|
(6.8 |
%) |
Cost of sales (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Tech-enabled services |
|
|
29.3 |
|
|
|
35.3 |
|
|
|
(6.0 |
) |
|
|
(17.0 |
%) |
|
|
99.6 |
|
|
|
113.2 |
|
|
|
(13.6 |
) |
|
|
(12.0 |
%) |
Software solutions |
|
|
25.9 |
|
|
|
29.0 |
|
|
|
(3.1 |
) |
|
|
(10.7 |
%) |
|
|
81.2 |
|
|
|
85.1 |
|
|
|
(3.9 |
) |
|
|
(4.6 |
%) |
Print and distribution |
|
|
15.7 |
|
|
|
19.6 |
|
|
|
(3.9 |
) |
|
|
(19.9 |
%) |
|
|
78.6 |
|
|
|
96.2 |
|
|
|
(17.6 |
) |
|
|
(18.3 |
%) |
Total cost of sales |
|
|
70.9 |
|
|
|
83.9 |
|
|
|
(13.0 |
) |
|
|
(15.5 |
%) |
|
|
259.4 |
|
|
|
294.5 |
|
|
|
(35.1 |
) |
|
|
(11.9 |
%) |
Selling, general and administrative expenses (a) |
|
|
65.4 |
|
|
|
63.8 |
|
|
|
1.6 |
|
|
|
2.5 |
% |
|
|
212.1 |
|
|
|
205.5 |
|
|
|
6.6 |
|
|
|
3.2 |
% |
Depreciation and amortization |
|
|
14.4 |
|
|
|
11.7 |
|
|
|
2.7 |
|
|
|
23.1 |
% |
|
|
41.2 |
|
|
|
33.6 |
|
|
|
7.6 |
|
|
|
22.6 |
% |
Restructuring, impairment and other charges, net |
|
|
(0.3 |
) |
|
|
2.6 |
|
|
|
(2.9 |
) |
|
nm |
|
|
|
8.4 |
|
|
|
4.6 |
|
|
|
3.8 |
|
|
|
82.6 |
% |
|
Other operating income, net |
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.2 |
) |
|
nm |
|
|
|
(0.6 |
) |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
nm |
|
||
Income from operations |
|
|
29.8 |
|
|
|
26.7 |
|
|
|
3.1 |
|
|
|
11.6 |
% |
|
|
100.2 |
|
|
|
127.9 |
|
|
|
(27.7 |
) |
|
|
(21.7 |
%) |
Interest expense, net |
|
|
4.1 |
|
|
|
2.3 |
|
|
|
1.8 |
|
|
|
78.3 |
% |
|
|
12.2 |
|
|
|
5.9 |
|
|
|
6.3 |
|
|
nm |
|
|
Investment and other income, net |
|
|
(0.1 |
) |
|
|
(2.8 |
) |
|
|
2.7 |
|
|
|
(96.4 |
%) |
|
|
(7.3 |
) |
|
|
(3.3 |
) |
|
|
(4.0 |
) |
|
nm |
|
|
Earnings before income taxes |
|
|
25.8 |
|
|
|
27.2 |
|
|
|
(1.4 |
) |
|
|
(5.1 |
%) |
|
|
95.3 |
|
|
|
125.3 |
|
|
|
(30.0 |
) |
|
|
(23.9 |
%) |
Income tax expense |
|
|
7.7 |
|
|
|
8.0 |
|
|
|
(0.3 |
) |
|
|
(3.8 |
%) |
|
|
23.7 |
|
|
|
33.7 |
|
|
|
(10.0 |
) |
|
|
(29.7 |
%) |
Net earnings |
|
$ |
18.1 |
|
|
$ |
19.2 |
|
|
$ |
(1.1 |
) |
|
|
(5.7 |
%) |
|
$ |
71.6 |
|
|
$ |
91.6 |
|
|
$ |
(20.0 |
) |
|
|
(21.8 |
%) |
nm – Not meaningful
Consolidated
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Net sales of tech-enabled services of $80.4 million for the three months ended September 30, 2023 decreased $7.0 million, or 8.0%, as compared to the three months ended September 30, 2022. Net sales of tech-enabled services decreased primarily due to lower capital markets transactional and compliance volumes.
Net sales of software solutions of $73.2 million for the three months ended September 30, 2023 increased $3.7 million, or 5.3%, as compared to the three months ended September 30, 2022. Net sales of software solutions increased primarily due to Venue and ActiveDisclosure price increases and higher ArcRegulatory and Venue volumes, partially offset by the disposition of the EOL business in the fourth quarter of 2022.
27
Net sales of print and distribution of $26.4 million for the three months ended September 30, 2023 decreased $5.4 million, or 17.0%, as compared to the three months ended September 30, 2022. Net sales of print and distribution decreased primarily due to lower capital markets transactional and compliance volumes.
Tech-enabled services cost of sales of $29.3 million for the three months ended September 30, 2023 decreased $6.0 million, or 17.0%, as compared to the three months ended September 30, 2022. Tech-enabled services cost of sales decreased primarily due to lower sales volumes, cost control initiatives, a lower allocation of technology-related expense and lower incentive compensation expense, partially offset by an unfavorable sales mix. As a percentage of tech-enabled services net sales, tech-enabled services cost of sales decreased 4.0%, primarily driven by cost control initiatives and lower incentive compensation expense, partially offset by an unfavorable sales mix.
Software solutions cost of sales of $25.9 million for the three months ended September 30, 2023 decreased $3.1 million, or 10.7%, as compared to the three months ended September 30, 2022. Software solutions cost of sales decreased primarily due to cost control initiatives, partially offset by higher product development costs. As a percentage of software solutions net sales, software solutions cost of sales decreased 6.3%, primarily driven by price increases and cost control initiatives, partially offset by higher product development costs.
Print and distribution cost of sales of $15.7 million for the three months ended September 30, 2023 decreased $3.9 million, or 19.9%, as compared to the three months ended September 30, 2022. Print and distribution cost of sales decreased primarily due to lower sales volumes and cost control initiatives. As a percentage of print and distribution net sales, print and distribution cost of sales decreased 2.1%, primarily driven by cost control initiatives.
SG&A expenses of $65.4 million for the three months ended September 30, 2023 increased $1.6 million, or 2.5%, as compared to the three months ended September 30, 2022. SG&A expenses increased primarily due to a higher allocation of technology-related expense, higher share-based compensation expense and higher bad debt expense, partially offset by cost control initiatives and lower selling expense as a result of the decrease in sales volumes. As a percentage of net sales, SG&A expenses increased to 36.3% for the three months ended September 30, 2023 from 33.8% for the three months ended September 30, 2022, primarily driven by higher share-based compensation expense, a higher allocation of technology-related expense and higher bad debt expense, partially offset by cost control initiatives and lower selling expense.
Depreciation and amortization of $14.4 million for the three months ended September 30, 2023 increased $2.7 million, or 23.1%, as compared to the three months ended September 30, 2022. Depreciation and amortization increased primarily due to additional software development and higher other intangible asset amortization expense, as further described in Note 3, Goodwill and Other Intangible Assets, net.
Restructuring, impairment and other charges, net decreased $2.9 million as compared to the three months ended September 30, 2022. In 2022, these charges included $2.3 million of employee termination costs for approximately 10 employees.
Income from operations of $29.8 million for the three months ended September 30, 2023 increased $3.1 million, or 11.6%, as compared to the three months ended September 30, 2022. Income from operations increased primarily due to cost control initiatives, lower selling expense as a result of the decrease in sales volumes, lower restructuring, impairment and other charges, net and lower incentive compensation expense, partially offset by lower sales volumes, an unfavorable sales mix and higher depreciation and amortization expense.
Interest expense, net of $4.1 million for the three months ended September 30, 2023 increased $1.8 million, or 78.3%, as compared to the three months ended September 30, 2022. Interest expense, net increased primarily due to a higher variable interest rate on the Company's outstanding debt facilities.
Investment and other income, net of $0.1 million for the three months ended September 30, 2023 decreased $2.7 million, or 96.4%, as compared to the three months ended September 30, 2022. Investment and other income, net decreased primarily due to a decrease in earnings on equity investments.
The effective income tax rate was 29.8% for the three months ended September 30, 2023 as compared to 29.4% for the three months ended September 30, 2022. The increase in the effective income tax rate was primarily driven by a higher forecasted annual effective rate as a result of permanent adjustments and lower pre-tax earnings, partially offset by a decrease in non-recognizable losses in the current period and the net favorable impact of discrete adjustments.
28
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Net sales of tech-enabled services of $263.3 million for the nine months ended September 30, 2023 decreased $49.1 million, or 15.7%, as compared to the nine months ended September 30, 2022. Net sales of tech-enabled services decreased primarily due to lower capital markets transactional and compliance volumes and lower investment companies compliance volumes.
Net sales of software solutions of $219.0 million for the nine months ended September 30, 2023 increased $8.1 million, or 3.8%, as compared to the nine months ended September 30, 2022. Net sales of software solutions increased primarily due to ActiveDisclosure and Venue price increases and higher ArcRegulatory, ArcPro and Venue volumes, partially offset by the disposition of the EOL business in the fourth quarter of 2022.
Net sales of print and distribution of $138.4 million for the nine months ended September 30, 2023 decreased $4.2 million, or 2.9%, as compared to the nine months ended September 30, 2022. Net sales of print and distribution decreased primarily due to lower capital markets transactional and compliance volumes.
Tech-enabled services cost of sales of $99.6 million for the nine months ended September 30, 2023 decreased $13.6 million, or 12.0%, as compared to the nine months ended September 30, 2022. Tech-enabled services cost of sales decreased primarily due to lower sales volumes, cost control initiatives, lower incentive compensation expense and a lower allocation of technology-related expense, partially offset by an unfavorable sales mix. As a percentage of tech-enabled services net sales, tech-enabled services cost of sales increased 1.6%, primarily driven by an unfavorable sales mix, partially offset by cost control initiatives and lower incentive compensation expense.
Software solutions cost of sales of $81.2 million for the nine months ended September 30, 2023 decreased $3.9 million, or 4.6%, as compared to the nine months ended September 30, 2022. Software solutions cost of sales decreased primarily due to cost control initiatives and lower incentive compensation expense, partially offset by higher product development costs. As a percentage of software solutions net sales, software solutions cost of sales decreased 3.3%, primarily driven by cost control initiatives and lower incentive compensation expense, partially offset by higher product development costs.
Print and distribution cost of sales of $78.6 million for the nine months ended September 30, 2023 decreased $17.6 million, or 18.3%, as compared to the nine months ended September 30, 2022. Print and distribution cost of sales decreased primarily due to cost control initiatives. As a percentage of print and distribution net sales, print and distribution cost of sales decreased 10.7%, primarily driven by cost control initiatives.
SG&A expenses of $212.1 million for the nine months ended September 30, 2023 increased $6.6 million, or 3.2%, as compared to the nine months ended September 30, 2022. SG&A expenses increased primarily due to a higher allocation of technology-related expense, higher bad debt expense, higher share-based compensation expense and higher employee-related expense driven by additional headcount in areas that support the Company's strategic initiatives, partially offset by cost control initiatives and lower selling expense as a result of the decrease in sales volumes. As a percentage of net sales, SG&A expenses increased to 34.2% for the nine months ended September 30, 2023 from 30.9% for the nine months ended September 30, 2022, primarily due to higher bad debt expense, higher share-based compensation expense, a higher allocation of technology-related expense and higher employee-related expense, partially offset by cost control initiatives and lower selling expense.
Depreciation and amortization of $41.2 million for the nine months ended September 30, 2023 increased $7.6 million, or 22.6%, as compared to the nine months ended September 30, 2022, primarily due to additional software development and higher other intangible assets amortization expense, as further described in Note 3, Goodwill and Other Intangible Assets, net.
Restructuring, impairment and other charges, net of $8.4 million for the nine months ended September 30, 2023 increased $3.8 million, or 82.6%, as compared to the nine months ended September 30, 2022. In 2023, these charges included $7.9 million of employee termination costs for approximately 150 employees. In 2022, these charges included $4.0 million of employee termination costs for approximately 80 employees.
Income from operations of $100.2 million for the nine months ended September 30, 2023 decreased $27.7 million, or 21.7%, as compared to the nine months ended September 30, 2022. Income from operations decreased primarily due to lower sales volumes, an unfavorable sales mix, higher depreciation and amortization expense, higher bad debt expense and higher restructuring, impairment and other charges, net, partially offset by cost control initiatives, lower selling expense as a result of the decrease in sales volumes and lower incentive compensation expense.
29
Interest expense, net of $12.2 million for the nine months ended September 30, 2023 increased $6.3 million as compared to the nine months ended September 30, 2022. Interest expense, net increased primarily due to a higher variable interest rate on the Company's debt facilities and a higher average Revolving Facility (as defined below) balance during the nine months ended September 30, 2023.
Investment and other income, net of $7.3 million for the nine months ended September 30, 2023 increased $4.0 million as compared to the nine months ended September 30, 2022. Investment and other income, net increased primarily due to realized gains on the sale of investments in equity securities, partially offset by a decrease in earnings on equity investments.
The effective income tax rate was 24.9% for the nine months ended September 30, 2023, as compared to 26.9% for the nine months ended September 30, 2022. The decrease in the effective income tax rate was primarily driven by the net favorable impact of discrete adjustments and lower pre-tax earnings.
Information by Segment
The following tables summarize net sales, income from operations, operating margin and certain items impacting comparability within each of the operating segments and Corporate.
Capital Markets – Software Solutions
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||||||
|
|
(in millions, except percentages) |
|
|||||||||||||||||||||||||||||
Net sales |
|
$ |
46.5 |
|
|
$ |
45.8 |
|
|
$ |
0.7 |
|
|
|
1.5 |
% |
|
$ |
137.9 |
|
|
$ |
136.8 |
|
|
$ |
1.1 |
|
|
|
0.8 |
% |
Income from operations |
|
|
4.9 |
|
|
|
4.4 |
|
|
|
0.5 |
|
|
|
11.4 |
% |
|
|
8.7 |
|
|
|
11.8 |
|
|
|
(3.1 |
) |
|
|
(26.3 |
%) |
Operating margin |
|
|
10.5 |
% |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
6.3 |
% |
|
|
8.6 |
% |
|
|
|
|
|
|
||||
Items impacting comparability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restructuring, impairment and other charges, net |
|
|
(0.5 |
) |
|
|
0.1 |
|
|
|
(0.6 |
) |
|
nm |
|
|
|
2.5 |
|
|
|
1.1 |
|
|
|
1.4 |
|
|
nm |
|
||
Non-income tax, net |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
|
— |
|
nm – Not meaningful
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Net sales of $46.5 million for the three months ended September 30, 2023 increased $0.7 million, or 1.5%, as compared to the three months ended September 30, 2022. Net sales increased primarily due to Venue and ActiveDisclosure price increases and higher Venue volumes, partially offset by a $1.5 million decrease due to the disposition of the EOL business in the fourth quarter of 2022.
Income from operations of $4.9 million for the three months ended September 30, 2023 increased $0.5 million, or 11.4%, as compared to the three months ended September 30, 2022, primarily due to cost control initiatives and price increases, partially offset by an increase in depreciation and amortization expense and higher selling expense.
Operating margin increased from 9.6% for the three months ended September 30, 2022 to 10.5% for the three months ended September 30, 2023, primarily due to cost control initiatives and price increases, partially offset by an increase in depreciation and amortization expense and higher selling expense.
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Net sales of $137.9 million for the nine months ended September 30, 2023 increased $1.1 million, or 0.8%, as compared to the nine months ended September 30, 2022. Net sales increased primarily due to ActiveDisclosure and Venue price increases and higher Venue volumes, partially offset by a $4.7 million decrease due to the disposition of the EOL business in the fourth quarter of 2022.
30
Income from operations of $8.7 million for the nine months ended September 30, 2023 decreased $3.1 million, or 26.3%, as compared to the nine months ended September 30, 2022, primarily due to an increase in depreciation and amortization expense, the decline in sales due to the disposition of EOL, higher selling expense, a higher allocation of overhead costs and higher restructuring, impairment, and other charges, net, partially offset by price increases, cost control initiatives and lower incentive compensation expense.
Operating margin decreased from 8.6% for the nine months ended September 30, 2022 to 6.3% for the nine months ended September 30, 2023, primarily due to an increase in depreciation and amortization expense, the decline in sales due to the disposition of EOL, a higher allocation of overhead costs and higher restructuring, impairment, and other charges, net, partially offset by price increases, cost control initiatives and lower incentive compensation expense.
Capital Markets – Compliance and Communications Management
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||||||
|
|
(in millions, except percentages) |
|
|||||||||||||||||||||||||||||
Net sales |
|
$ |
70.1 |
|
|
$ |
83.3 |
|
|
$ |
(13.2 |
) |
|
|
(15.8 |
%) |
|
$ |
287.1 |
|
|
$ |
336.9 |
|
|
$ |
(49.8 |
) |
|
|
(14.8 |
%) |
Income from operations |
|
|
24.9 |
|
|
|
22.2 |
|
|
|
2.7 |
|
|
|
12.2 |
% |
|
|
88.5 |
|
|
|
111.6 |
|
|
|
(23.1 |
) |
|
|
(20.7 |
%) |
Operating margin |
|
|
35.5 |
% |
|
|
26.7 |
% |
|
|
|
|
|
|
|
|
30.8 |
% |
|
|
33.1 |
% |
|
|
|
|
|
|
||||
Items impacting comparability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restructuring, impairment and other charges, net |
|
|
0.1 |
|
|
|
1.8 |
|
|
|
(1.7 |
) |
|
|
(94.4 |
%) |
|
|
4.4 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
100.0 |
% |
Accelerated rent expense |
|
|
— |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
(100.0 |
%) |
|
|
0.6 |
|
|
|
0.1 |
|
|
|
0.5 |
|
|
nm |
|
|
Gain on sale of long-lived assets |
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.2 |
) |
|
nm |
|
|
|
(0.6 |
) |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
nm |
|
||
Non-income tax, net |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
nm |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
COVID-19 related recoveries |
|
|
— |
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(100.0 |
%) |
|
|
— |
|
|
|
(0.3 |
) |
|
|
0.3 |
|
|
|
(100.0 |
%) |
nm – Not meaningful
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Net sales of $70.1 million for the three months ended September 30, 2023 decreased $13.2 million, or 15.8%, as compared to the three months ended September 30, 2022. Net sales decreased primarily due to lower transactional and compliance volumes.
Income from operations of $24.9 million for the three months ended September 30, 2023 increased $2.7 million, or 12.2%, as compared to the three months ended September 30, 2022, primarily due to cost control initiatives, lower selling expense as a result of the decrease in sales volumes and lower restructuring, impairment and other charges, net, partially offset by lower sales volumes and an unfavorable sales mix.
Operating margin increased from 26.7% for the three months ended September 30, 2022 to 35.5% for the three months ended September 30, 2023, primarily due to cost control initiatives, lower selling expense as a result of the decrease in sales volumes and lower restructuring, impairment and other charges, net, which had a positive impact on operating margin of 2.4%, partially offset by lower sales volumes and an unfavorable sales mix.
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Net sales of $287.1 million for the nine months ended September 30, 2023 decreased $49.8 million, or 14.8%, as compared to the nine months ended September 30, 2022. Net sales decreased primarily due to lower transactional and compliance volumes.
31
Income from operations of $88.5 million for the nine months ended September 30, 2023 decreased $23.1 million, or 20.7%, as compared to the nine months ended September 30, 2022, primarily due to lower sales volumes, an unfavorable sales mix, higher bad debt expense and higher restructuring, impairment and other charges, net, partially offset by cost control initiatives, lower selling expense as a result of the decrease in sales volumes and lower incentive compensation expense.
Operating margin decreased from 33.1% for the nine months ended September 30, 2022 to 30.8% for the nine months ended September 30, 2023, primarily due to an unfavorable sales mix, higher bad debt expense and higher restructuring, impairment and other charges, net, partially offset by cost control initiatives, lower selling expense as a result of the decrease in sales volumes and lower incentive compensation expense.
Investment Companies – Software Solutions
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||||||
|
|
(in millions, except percentages) |
|
|||||||||||||||||||||||||||||
Net sales |
|
$ |
26.7 |
|
|
$ |
23.7 |
|
|
$ |
3.0 |
|
|
|
12.7 |
% |
|
$ |
81.1 |
|
|
$ |
74.1 |
|
|
$ |
7.0 |
|
|
|
9.4 |
% |
Income from operations |
|
|
6.6 |
|
|
|
3.9 |
|
|
|
2.7 |
|
|
|
69.2 |
% |
|
|
18.3 |
|
|
|
16.0 |
|
|
|
2.3 |
|
|
|
14.4 |
% |
Operating margin |
|
|
24.7 |
% |
|
|
16.5 |
% |
|
|
|
|
|
|
|
|
22.6 |
% |
|
|
21.6 |
% |
|
|
|
|
|
|
||||
Items impacting comparability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restructuring, impairment and other charges, net |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
nm |
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
nm |
|
||
Non-income tax, net |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
nm |
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
100.0 |
% |
|
nm – Not meaningful
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Net sales of $26.7 million for the three months ended September 30, 2023 increased $3.0 million, or 12.7%, as compared to the three months ended September 30, 2022. Net sales increased primarily due to higher ArcRegulatory and ArcPro volumes.
Income from operations of $6.6 million for the three months ended September 30, 2023 increased $2.7 million, or 69.2%, as compared to the three months ended September 30, 2022, primarily due to higher sales volumes and cost control initiatives, partially offset by a higher allocation of overhead costs and higher product development costs.
Operating margin increased from 16.5% for the three months ended September 30, 2022 to 24.7% for the three months ended September 30, 2023, primarily due to higher sales volumes and cost control initiatives, partially offset by higher product development costs.
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Net sales of $81.1 million for the nine months ended September 30, 2023 increased $7.0 million, or 9.4%, as compared to the nine months ended September 30, 2022. Net sales increased primarily due to higher ArcRegulatory and ArcPro volumes and price increases.
Income from operations of $18.3 million for the nine months ended September 30, 2023 increased $2.3 million, or 14.4%, as compared to the nine months ended September 30, 2022, primarily due to higher sales volumes, cost control initiatives and price increases, partially offset by a higher allocation of overhead costs, higher product development costs and an increase in depreciation and amortization expense.
Operating margin increased from 21.6% for the nine months ended September 30, 2022 to 22.6% for the nine months ended September 30, 2023, primarily due to higher sales volumes, cost control initiatives and price increases, partially offset by higher product development costs, a higher allocation of overhead costs and an increase in depreciation and amortization expense.
32
Investment Companies – Compliance and Communications Management
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||||||
|
|
(in millions, except percentages) |
|
|||||||||||||||||||||||||||||
Net sales |
|
$ |
36.7 |
|
|
$ |
35.9 |
|
|
$ |
0.8 |
|
|
|
2.2 |
% |
|
$ |
114.6 |
|
|
$ |
118.1 |
|
|
$ |
(3.5 |
) |
|
|
(3.0 |
%) |
Income from operations |
|
|
11.2 |
|
|
|
10.5 |
|
|
|
0.7 |
|
|
|
6.7 |
% |
|
|
35.4 |
|
|
|
32.3 |
|
|
|
3.1 |
|
|
|
9.6 |
% |
Operating margin |
|
|
30.5 |
% |
|
|
29.2 |
% |
|
|
|
|
|
|
|
|
30.9 |
% |
|
|
27.3 |
% |
|
|
|
|
|
|
||||
Items impacting comparability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restructuring, impairment and other charges, net |
|
|
0.1 |
|
|
|
0.4 |
|
|
|
(0.3 |
) |
|
|
(75.0 |
%) |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
(0.5 |
) |
|
|
(83.3 |
%) |
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Net sales of $36.7 million for the three months ended September 30, 2023 increased $0.8 million, or 2.2%, as compared to the three months ended September 30, 2022. Net sales increased primarily due to higher transactional volumes, partially offset by lower compliance volumes.
Income from operations of $11.2 million for the three months ended September 30, 2023 increased $0.7 million, or 6.7%, as compared to the three months ended September 30, 2022, primarily due to cost control initiatives and higher sales volumes, partially offset by a higher allocation of overhead costs.
Operating margin increased from 29.2% for the three months ended September 30, 2022 to 30.5% for the three months ended September 30, 2023, primarily due to cost control initiatives, partially offset by a higher allocation of overhead costs.
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Net sales of $114.6 million for the nine months ended September 30, 2023 decreased $3.5 million, or 3.0%, as compared to the nine months ended September 30, 2022. Net sales decreased primarily due to lower compliance volumes.
Income from operations of $35.4 million for the nine months ended September 30, 2023 increased $3.1 million, or 9.6%, compared to the nine months ended September 30, 2022, primarily due to cost control initiatives and operational efficiencies as well as lower incentive compensation expense, partially offset by lower sales volumes and a higher allocation of overhead costs.
Operating margin increased from 27.3% for the nine months ended September 30, 2022 to 30.9% for the nine months ended September 30, 2023, primarily due to cost control initiatives and operational efficiencies as well as lower incentive compensation expense, partially offset by a higher allocation of overhead costs.
Corporate
The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
|
|
(in millions) |
|
|||||||||||||
Operating expenses |
|
$ |
17.8 |
|
|
$ |
14.3 |
|
|
$ |
50.7 |
|
|
$ |
43.8 |
|
Items impacting comparability |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
6.1 |
|
|
|
4.4 |
|
|
|
17.1 |
|
|
|
13.9 |
|
Restructuring, impairment and other charges, net |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.9 |
|
|
|
0.5 |
|
Accelerated rent expense |
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022
Corporate operating expenses for the three months ended September 30, 2023 increased $3.5 million as compared to the three months ended September 30, 2022, primarily due to higher share-based compensation expense, higher incentive compensation expense and higher healthcare expense.
33
Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022
Corporate operating expenses for the nine months ended September 30, 2023 increased $6.9 million as compared to the nine months ended September 30, 2022, primarily due to higher share-based compensation expense and higher consulting expense.
Non-GAAP Measures
The Company believes that certain non-GAAP measures, such as non-GAAP adjusted EBITDA (“Adjusted EBITDA”), provide useful information about the Company’s operating results and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance prepared in accordance with GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Adjusted EBITDA allows investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as historic cost and age of assets, restructuring, impairment and other charges, net, non-income tax, net, gain on investments in equity securities as well as other items, as described below, the Company believes that Adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.
Adjusted EBITDA is not presented in accordance with GAAP and has important limitations as an analytical tool. These measures should not be considered as a substitute for analysis of the Company’s results as reported under GAAP. In addition, these measures are defined differently by different companies and, accordingly, such measures may not be comparable to similarly-titled measures of other companies. In addition to the factors listed above, share-based compensation expense is excluded from Adjusted EBITDA. Although share-based compensation is a key incentive offered to certain of the Company’s employees, business performance is evaluated excluding share-based compensation expense. Depending upon the size, timing and the terms of grants, share-based compensation expense may vary but will recur in future periods.
A reconciliation of net earnings to Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022 is presented in the following table:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
|
(in millions) |
|
|||||||||||||
Net earnings |
$ |
18.1 |
|
|
$ |
19.2 |
|
|
$ |
71.6 |
|
|
$ |
91.6 |
|
Restructuring, impairment and other charges, net |
|
(0.3 |
) |
|
|
2.6 |
|
|
|
8.4 |
|
|
|
4.6 |
|
Share-based compensation expense |
|
6.1 |
|
|
|
4.4 |
|
|
|
17.1 |
|
|
|
13.9 |
|
Accelerated rent expense |
|
— |
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.2 |
|
Gain on investments in equity securities |
|
— |
|
|
|
(0.5 |
) |
|
|
(6.9 |
) |
|
|
(0.5 |
) |
Non-income tax, net |
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
Gain on sale of long-lived assets |
|
(0.2 |
) |
|
|
— |
|
|
|
(0.6 |
) |
|
|
(0.2 |
) |
COVID-19 related recoveries |
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.3 |
) |
Depreciation and amortization |
|
14.4 |
|
|
|
11.7 |
|
|
|
41.2 |
|
|
|
33.6 |
|
Interest expense, net |
|
4.1 |
|
|
|
2.3 |
|
|
|
12.2 |
|
|
|
5.9 |
|
Investment and other income, net |
|
(0.1 |
) |
|
|
(2.3 |
) |
|
|
(0.4 |
) |
|
|
(2.8 |
) |
Income tax expense |
|
7.7 |
|
|
|
8.0 |
|
|
|
23.7 |
|
|
|
33.7 |
|
Adjusted EBITDA |
$ |
49.4 |
|
|
$ |
45.3 |
|
|
$ |
166.1 |
|
|
$ |
179.0 |
|
Restructuring, impairment and other charges, net—The three months ended September 30, 2023 included a net credit for employee termination costs of $0.6 million. The nine months ended September 30, 2023 included employee termination costs of $7.9 million. The three and nine months ended September 30, 2022 included employee termination costs of $2.3 million and $4.0 million, respectively. Refer to Note 5, Restructuring, Impairment and Other Charges, net, for additional information.
Share-based compensation expense—Included charges of $6.1 million and $17.1 million for the three and nine months ended September 30, 2023, respectively, and $4.4 million and $13.9 million for the three and nine months ended September 30, 2022, respectively.
34
Accelerated rent expense—Includes charges of $0.6 million for the nine months ended September 30, 2023, and $0.2 million for both the three and nine months ended September 30, 2022, related to the acceleration of rent expense associated with abandoned operating leases.
Gain on investments in equity securities—Included a net realized gain of $6.9 million for the nine months ended September 30, 2023 related to the sales of investments in equity securities and an unrealized gain of $0.5 million for both the three and nine months ended September 30, 2022. Refer to Note 1, Overview, Basis of Presentation and Significant Accounting Policies, for additional information.
Non-income tax, net—Included income of $0.4 million and $0.8 million for the three and nine months ended September 30, 2023, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2022, respectively, related to certain estimated non-income tax exposures previously accrued by the Company.
Gain on sale of long-lived assets—Included a gain of $0.2 million and $0.6 million for the three and nine months ended September 30, 2023, respectively, and a gain of $0.2 million for the nine months ended September 30, 2022, from non-refundable deposits on the potential sale of land.
COVID-19 related recoveries—Included recoveries of $0.1 million and $0.3 million for the three and nine months ended September 30, 2022, respectively, from certain governmental subsidies related to employee wages at certain international locations.
Liquidity and Capital Resources
The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its investors. Cash on hand, operating cash flows and the Company’s Revolving Facility are the primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s debt obligations, capital expenditures necessary to support productivity improvement and growth and completion of restructuring programs.
The Company maintains cash pooling structures that enable participating international locations to draw on the pools’ cash resources to meet local liquidity needs. Foreign cash balances may be loaned from certain cash pools to U.S. operating entities on a temporary basis in order to reduce the Company’s short-term borrowing costs or for other purposes. The Company has the ability to repatriate foreign cash, associated with foreign earnings previously subjected to U.S. tax, with minimal additional tax consequences. The Company maintains its assertion of indefinite reinvestment on all foreign earnings and other outside basis differences to indicate that the Company remains indefinitely reinvested in operations outside of the U.S., with the exception of the previously taxed foreign earnings already subject to U.S. tax. The Company did not repatriate excess cash at its foreign subsidiaries to the U.S. during the year ended December 31, 2022 or during the nine months ended September 30, 2023. The Company is evaluating whether to make any cash repatriations in the future.
On August 16, 2022, President Biden signed the Inflation Reduction Act (“IRA”) into law, which included enactment of a 15% corporate minimum tax effective in 2023 and imposes a 1% excise tax on share repurchases that occur after December 31, 2022. The Company currently does not expect the IRA to have a material impact on its Unaudited Condensed Consolidated Financial Statements.
Cash and cash equivalents were $11.7 million at September 30, 2023, which included $4.6 million in the U.S. and $7.1 million at international locations.
The following describes the Company’s cash flows for the nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
|
|
(in millions) |
|
|||||
Net cash provided by operating activities |
|
$ |
49.2 |
|
|
$ |
76.9 |
|
Net cash used in investing activities |
|
|
(33.1 |
) |
|
|
(39.4 |
) |
Net cash used in financing activities |
|
|
(38.7 |
) |
|
|
(83.6 |
) |
Effect of exchange rate on cash and cash equivalents |
|
|
0.1 |
|
|
|
2.4 |
|
Net decrease in cash and cash equivalents |
|
$ |
(22.5 |
) |
|
$ |
(43.7 |
) |
35
Cash Flows Provided by Operating Activities
Operating cash inflows and outflows are largely attributable to sales of the Company’s services and products as well as recurring expenditures for labor, rent and other operating activities.
Net cash provided by operating activities was $49.2 million for the nine months ended September 30, 2023 compared to $76.9 million for the nine months ended September 30, 2022. The decrease in cash provided by operating activities was primarily due to a decrease in net earnings, an unfavorable change in accounts payable, an unfavorable change in accounts receivable and an increase in interest paid, partially offset by lower incentive compensation and commissions payments. Accounts payable decreased operating cash flows by $13.8 million for the nine months ended September 30, 2023, as compared to increasing operating cash flows by $4.9 million for the nine months ended September 30, 2022, primarily due to timing of supplier payments. Accounts receivables decreased operating cash flows by $37.0 million for the nine months ended September 30, 2023, as compared to a decrease of $20.5 million for the nine months ended September 30, 2022, primarily due to timing of collections. The Company's interest payments increased from $4.9 million to $12.8 million for the nine months ended September 30, 2023, primarily due to higher interest rates and higher average borrowings on the Revolving Facility (as defined below). These decreases in cash provided were partially offset by accrued liabilities and other, which decreased operating cash flows by $22.7 million for the nine months ended September 30, 2023, as compared to a decrease of $44.2 million for the nine months ended September 30, 2022, primarily due to lower incentive compensation payments in 2023 as a result of the Company's 2022 operating results and lower commissions payments in 2023 as a result of lower sales volumes.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $33.1 million for the nine months ended September 30, 2023, which consisted of $43.0 million of capital expenditures, substantially all related to investments in software development, partially offset by $9.9 million of proceeds from sales of investments in equity securities. The Company expects that capital expenditures for the year ended December 31, 2023 will be approximately $60 million.
Net cash used in investing activities was $39.4 million for the nine months ended September 30, 2022, which consisted of capital expenditures, mostly driven by investments in software development.
Cash Flows Used in Financing Activities
Net cash used in financing activities was $38.7 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2023, the Company made payments of $221.5 million on the Revolving Facility borrowings, partially offset by $218.0 million of proceeds from the Revolving Facility borrowings. The Company's common stock repurchases for the nine months ended September 30, 2023 totaled $35.4 million, which included $18.0 million of repurchases under the stock repurchase program and $17.4 million associated with vesting of the Company employee's equity awards.
Net cash used in financing activities was $83.6 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the Company received $270.0 million of proceeds from the Revolving Facility borrowings, offset by $202.5 million of payments on the Revolving Facility borrowings. The Company’s common stock repurchases for the nine months ended September 30, 2022 totaled $150.0 million, which included $137.9 million of repurchases under the stock repurchase program and $12.1 million associated with vesting of the Company employees' equity awards.
Debt
The Company’s debt as of September 30, 2023 and December 31, 2022 consisted of the following (in millions):
|
|
|
|
|
||||
Term Loan A Facility |
|
$ |
125.0 |
|
|
$ |
125.0 |
|
Borrowings under the Revolving Facility |
|
|
41.5 |
|
|
|
45.0 |
|
Unamortized debt issuance costs |
|
|
(0.6 |
) |
|
|
(0.8 |
) |
Total long-term debt |
|
$ |
165.9 |
|
|
$ |
169.2 |
|
36
Credit Agreement—On May 27, 2021 (the “Restatement Effective Date”), the Company amended and restated its credit agreement dated as of September 30, 2016 (as in effect prior to such amendment and restatement, the “Credit Agreement,” and the Credit Agreement, as so amended and restated, the “Amended and Restated Credit Agreement”), by and among the Company, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, to, among other things, provide for a $200.0 million delayed-draw term loan A facility (the “Term Loan A Facility”) (bearing interest at a rate equal to the sum of the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 2.00% to 2.50% based upon the Company's Consolidated Net Leverage Ratio), extend the maturity of the $300.0 million revolving credit facility (the “Revolving Facility”) to May 27, 2026 and modify the financial maintenance and negative covenants in the Credit Agreement.
On May 11, 2023, the Company entered into the first amendment to the Amended and Restated Credit Agreement to change the reference rate from LIBOR, which ceased being published on June 30, 2023, to the Secured Overnight Financing Rate (“SOFR”) for both the Term Loan A Facility and the Revolving Facility. The SOFR interest rate was effective for the Revolving Facility and the Term Loan A on May 30, 2023 and June 12, 2023, respectively. No other significant terms of the Amended and Restated Credit Agreement were amended. The Amended and Restated Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and the Consolidated Net Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $20.0 million in the aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications. The unpaid principal amount of the Term Loan A Facility is due and payable in full on May 27, 2026. Voluntary prepayments of the Term Loan A Facility are permitted at any time without premium or penalty.
As of September 30, 2023, there were $41.5 million of borrowings outstanding under the Revolving Facility as well as $2.5 million in outstanding letters of credit and bank guarantees, of which $1.0 million of the outstanding letters of credit reduced the availability under the Revolving Facility. Based on the Company’s results of operations for the twelve months ended September 30, 2023 and existing debt, the Company would have had the ability to utilize the remaining $257.5 million of the Revolving Facility and not have been in violation of the terms of the agreement.
The current availability under the Revolving Facility and net available liquidity as of September 30, 2023 are shown in the table below:
|
|
|
||
Availability |
|
(in millions) |
|
|
Revolving Facility |
|
$ |
300.0 |
|
Availability reduction from covenants |
|
|
— |
|
|
|
$ |
300.0 |
|
Usage |
|
|
|
|
Borrowings under the Revolving Facility |
|
$ |
41.5 |
|
Impact on availability related to outstanding letters of credit |
|
|
1.0 |
|
|
|
$ |
42.5 |
|
|
|
|
|
|
Current availability at September 30, 2023 |
|
$ |
257.5 |
|
Cash and cash equivalents |
|
|
11.7 |
|
Net Available Liquidity |
|
$ |
269.2 |
|
The Company was in compliance with its debt covenants as of September 30, 2023, and expects to remain in compliance based on management’s estimates of operating and financial results for fiscal year 2023 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s services and products could impact the Company’s ability to remain in compliance with its debt covenants in future periods.
The failure of a financial institution supporting the Revolving Facility would reduce the size of the Company’s committed facility unless a replacement institution was added. As of September 30, 2023, the Revolving Facility is supported by fifteen U.S. and international financial institutions.
As of September 30, 2023, the Company met all the conditions required to borrow under the Revolving Facility, and management expects the Company to continue to meet the applicable borrowing conditions.
37
OTHER INFORMATION
Litigation and Contingent Liabilities
For a discussion of certain litigation involving the Company, see Note 7, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Estimates
There were no changes to critical accounting estimates from those disclosed in the Annual Report.
New Accounting Pronouncements
Recently adopted accounting standards and their estimated effect on the Company’s Unaudited Condensed Consolidated Financial Statements are described in Note 1, Overview, Basis of Presentation and Significant Accounting Policies, to the Unaudited Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to the Company’s market risk disclosed in the Annual Report.
Item 4. Controls and Procedures
Management, together with the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and Rule 15d-15(e) of the Exchange Act) as of September 30, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.
The Company is implementing a new quote-to-cash process, including the implementation of new systems, for certain of its software services ("QTC Process"). This project is expected to improve the efficiency and effectiveness of certain business transactions, invoicing and reporting processes, as well as the underlying systems environment. The new QTC Process will be a significant component of the Company's internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of certain litigation involving the Company, see Note 7, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
There were no material changes during the three months ended September 30, 2023 to the risk factors identified in the Annual Report.
38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (a) |
|
||||
|
|
105,106 |
|
|
$ |
46.42 |
|
|
|
105,106 |
|
|
$ |
116,236,372 |
|
|
|
|
130,789 |
|
|
|
47.59 |
|
|
|
129,327 |
|
|
|
110,080,793 |
|
|
|
|
76,854 |
|
|
|
49.95 |
|
|
|
75,932 |
|
|
$ |
106,289,792 |
|
|
Total |
|
|
312,749 |
|
|
$ |
47.78 |
|
|
|
310,365 |
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
39
Item 6. Exhibits
3.1 |
|
||
|
|
|
|
3.2 |
|
||
|
|
|
|
3.3 |
|
||
|
|
|
|
4.1 |
|
||
|
|
|
|
4.2 |
|
||
|
|
|
|
10.1 |
|
||
|
|
|
|
10.2 |
|
||
|
|
|
|
10.3 |
|
||
|
|
|
|
10.4 |
|
||
|
|
|
|
10.5 |
|
||
|
|
|
|
10.6 |
|
||
|
|
|
|
10.7 |
|
||
|
|
|
|
10.8 |
|
||
|
|
|
|
10.9 |
|
||
|
|
|
|
10.10 |
|
||
|
|
|
|
40
10.11 |
|
|
|
|
|
10.12 |
|
|
10.13 |
|
|
|
|
|
10.14 |
|
|
|
|
|
10.15 |
|
|
|
|
|
10.16 |
|
|
|
|
|
10.17 |
|
|
|
|
|
10.18 |
|
|
|
|
|
10.19 |
|
|
|
|
|
10.20 |
|
|
|
|
|
10.21 |
|
|
|
|
|
10.22 |
|
|
|
|
|
10.23 |
|
|
|
|
|
10.24 |
|
|
|
|
|
10.25 |
|
|
|
|
|
10.26 |
|
|
|
|
|
10.27 |
|
|
|
|
|
10.28 |
|
41
|
|
|
10.29 |
|
|
|
|
|
10.30 |
|
|
|
|
|
10.31 |
|
|
|
|
|
10.32 |
|
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10.33 |
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10.34 |
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10.35 |
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10.36 |
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10.37 |
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10.38 |
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10.39 |
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10.40 |
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10.41 |
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14.1 |
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31.1 |
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31.2 |
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42
32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
* Management contract or compensatory plan or arrangement.
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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DONNELLEY FINANCIAL SOLUTIONS, INC. |
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By: |
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Executive Vice President and Chief Financial Officer |
Date: November 1, 2023
44
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 5/27/26 | ||||
| 7/24/24 | ||||
| 12/31/23 | ||||
| Filed on: | 11/1/23 | 8-K | ||
| 10/27/23 | ||||
| For Period end: | 9/30/23 | |||
| 9/1/23 | 4 | |||
| 8/31/23 | 4 | |||
| 8/1/23 | ||||
| 7/31/23 | ||||
| 7/1/23 | ||||
| 6/30/23 | 10-Q | |||
| 6/12/23 | ||||
| 5/30/23 | SD | |||
| 5/11/23 | ||||
| 2/21/23 | 10-K, 8-K | |||
| 1/24/23 | ||||
| 1/1/23 | ||||
| 12/31/22 | 10-K, ARS, SD | |||
| 12/15/22 | ||||
| 10/26/22 | ||||
| 9/30/22 | 10-Q | |||
| 8/30/22 | 8-K | |||
| 8/17/22 | 8-K | |||
| 8/16/22 | ||||
| 6/30/22 | 10-Q | |||
| 2/17/22 | ||||
| 12/31/21 | 10-K, SD | |||
| 5/27/21 | 8-K, SD | |||
| 9/30/16 | 10-Q, 8-K, S-8 | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/20/24 Donnelley Fin’l Solutions, Inc. 10-K 12/31/23 114:18M Donnelley … Solutions/FA |