DFIN Reports Fourth Quarter and Full Year 2021 Results

CHICAGO, Feb. 22, 2022 /PRNewswire/ -- Donnelley Financial Solutions, Inc. (NYSE: DFIN), (the "Company" or "DFIN") today reported financial results for the fourth quarter and full year 2021.

Highlights for the fourth quarter of 2021:

• Net sales of $232.8 million, up $22.5 million, or 10.7%, from the fourth quarter of 2020, primarily driven by growth in software solutions and strength in capital markets net sales, partially offset by lower print and distribution volume in the Investment Companies - Compliance and Communications Management segment as a result of the impact of regulatory changes; excluding print and distribution, net sales grew 23.0% from the fourth quarter of 2020.
• Record quarterly software solutions net sales of $73.8 million, up $19.6 million, or 36.2%, from the fourth quarter of 2020; software solutions net sales accounted for 31.7% of total net sales, up from 25.8% in the fourth quarter of 2020.
• Net earnings of $25.6 million, up $61.4 million from the fourth quarter of 2020, primarily driven by a decrease in restructuring, impairment and other charges, net, an increase in net sales, and a favorable sales mix, partially offset by higher selling expense as a result of the increased sales volume, higher incentive compensation expense and loss on debt extinguishments.
• Adjusted EBITDA of $61.3 million, up $26.4 million, or 75.6%, from the fourth quarter of 2020, primarily driven by higher net sales, a favorable sales mix, and cost control initiatives, partially offset by higher selling expense as a result of increased sales volume and incentive compensation expense.
• Adjusted EBITDA margin of 26.3%, up 970 basis points from the fourth quarter of 2020; the tenth consecutive quarter of year-over-year Adjusted EBITDA margin expansion.
• Non-GAAP gross leverage of 0.4x and non-GAAP net leverage of 0.2x; down 0.9x and 0.7x, respectively, from December 31, 2020; total debt of $124.0 million and total non-GAAP net debt of $69.5 million as of December 31, 2021, a reduction of $106.5 million and $87.4 million versus December 31, 2020, respectively.
• During the fourth quarter, the Company repurchased 357,560 shares in open market transactions for $13.7 million at an average price of $38.42 per share. As of December 31, 2021, the remaining share repurchase reauthorization was $17.7 million.

Other Business Highlights:

• Received a favorable ruling in the LSC Multiemployer Pension Plan arbitration proceedings, with the liabilities being allocated 1/3 to DFIN and 2/3 to R.R. Donnelley & Sons Company ("RRD"). Received a $7.1 million reimbursement in the fourth quarter of 2021 from RRD for payments made in excess of the Company's allocated share of liabilities.
• Nearly completed the previous $50 million share repurchase plan during the first quarter of 2022.  The Company's Board of Directors authorized a $150 million common stock repurchase program that expires December 31, 2023.

"We are pleased with the results in the fourth quarter, which capped off a record-setting year. Our team's focused execution, combined with a robust capital markets environment, resulted in record full-year software sales, Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow. The strong operating performance gave us the financial flexibility to accelerate investments in software development, reduce debt, and deliver value to shareholders through our share repurchase program. Our efforts to drive software growth delivered positive results as software solutions full-year net sales grew 35% from 2020, reaching $270 million. While the strong transactional environment benefitted our Venue software, our recurring compliance offerings, which include New ActiveDisclosure and Arc Suite, delivered 31% sales growth. Additionally, our proactive actions to right-size DFIN's fixed cost infrastructure minimized the impact to Adjusted EBITDA related to the approximately $100 million in lower print and distribution sales in the Investment Companies - Compliance and Communications Management segment resulting from regulatory changes and our exiting low-margin print contracts," said Daniel N. Leib, DFIN's president and chief executive officer.

Leib continued, "Momentum in our software solutions net sales accelerated in the fourth quarter. Our portfolio of recurring compliance software featuring ActiveDisclosure and Arc Suite continued to deliver outstanding results. Since launching New ActiveDisclosure a year ago, the purpose-built SEC compliance platform has received an outstanding market response, resulting in very strong client adoption. ActiveDisclosure's sales growth of 41% in the fourth quarter was the highest-growth quarter of the year, as sales momentum accelerated since its introduction.  Arc Suite capped off a successful year by growing 28% in the fourth quarter as a result of the strong demand for our Total Compliance Management solution. Sales of our transactional software, Venue, grew 48% and once again achieved record quarterly sales, driven by a strong M&A market. We are encouraged by the performance of our software solutions portfolio and believe our recurring compliance products and highly-profitable transactional software are well positioned for future growth."

"2021 represents another positive proof point in our transformational journey, with software solutions sales exceeding print and distribution sales for the first time in the Company's history. In addition, we are significantly ahead of the plan we laid out in 2018 with our '44 in 24' strategy. Looking ahead to 2022, we remain committed to executing our strategy of being the market-leading provider of regulatory and compliance solutions." Leib concluded.

Net Sales

Net sales in the fourth quarter of 2021 were $232.8 million, an increase of $22.5 million, or 10.7%, from the fourth quarter of 2020. Net sales increased primarily due to growth in software solutions and higher capital markets transactional and compliance volume, partially offset by lower print and distribution volume as a result of the impact of SEC Rules 30e-3 and 498A eliminating print requirements.

Net Earnings (Loss)

For the fourth quarter of 2021, net earnings were $25.6 million, or $0.73 per diluted share, as compared to a net loss of $35.8 million, or $1.07 loss per diluted share, in the fourth quarter of 2020. Net earnings in the fourth quarter of 2021 included after-tax charges of $12.1 million, or $0.34 per diluted share, primarily due to loss on debt extinguishments, restructuring, impairment, and other charges, net, and share-based compensation expense. Net loss in the fourth quarter of 2020 included after-tax charges of $47.7 million (including a pre-tax $40.6 million non-cash goodwill impairment charge in the Investment Companies - Compliance and Communications Management segment), or $1.43 per diluted share, primarily related to restructuring, impairment and other charges, net and share-based compensation expense.

Adjusted EBITDA and Non-GAAP Net Earnings

For the fourth quarter of 2021, Adjusted EBITDA was $61.3 million, an increase of $26.4 million as compared to the fourth quarter of 2020. For the fourth quarter of 2021, Adjusted EBITDA margin was 26.3%, an improvement of approximately 970 basis points as compared to the fourth quarter of 2020, primarily driven by higher sales, a favorable sales mix and cost control initiatives, partially offset by higher selling expenses and higher incentive compensation expense.

For the fourth quarter of 2021, non-GAAP net earnings were $37.7 million, or $1.07 per diluted share, up from $11.9 million, or $0.36 per diluted share, in the fourth quarter of 2020.

Reconciliations of net earnings to Adjusted EBITDA, Adjusted EBITDA margin and non-GAAP net earnings are presented in the attached tables.

Regulatory Impacts

The Company previously disclosed in a Current Report on Form 8-K on July 22, 2020, that the implementation of SEC Rule 30e-3 (elimination or reduction of print annual and semi-annual reports), Rule 498A (elimination or reduction of print summary prospectus) and the Company's exiting of certain printing and distribution relationships were expected to reduce the Company's print-related 2021 net sales by approximately $130 million to $140 million, with the associated reduction in net earnings and Adjusted EBITDA of approximately $4 million to $7 million and approximately $5 million to $10 million, respectively, in 2021.

In 2021, the Company realized reductions in net sales, net earnings and Adjusted EBITDA of approximately $100 million, $2 million and $3 million, respectively. For 2022, the Company expects an incremental impact in net sales of approximately $40 million, and only a de minimis impact on net earnings and Adjusted EBITDA. In aggregate, the expected impacts to net sales remains in line with previous guidance, while net earnings and Adjusted EBITDA impacts are favorable to previous guidance.

Share Repurchase Program

Today the Company announced that its board of directors authorized the repurchase of up to $150 million of the Company's outstanding common stock from time to time in one or more transactions on the open market or in privately negotiated purchases. This stock repurchase program replaces the previous $50 million plan, which was nearly completed in the first quarter of 2022, and will be effective through December 31, 2023.

The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. 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 under insider trading laws. The repurchase program may be suspended or discontinued at any time.

Company Results and Conference Call

DFIN's earnings press release for the fourth quarter and full year 2021, which is included as Exhibit 99.1 to the Company's Current Report on Form 8-K that has been furnished to the SEC on February 22, 2022, is available on the Company's investor relations website at investor.dfinsolutions.com. A supplemental trending schedule of historical results, including additional breakouts of segment-level net sales, is also available on the Company's investor relations website.

DFIN will hold a conference call and webcast on February 22, 2022 at 9:00 a.m. Eastern time to discuss financial results for the fourth quarter of 2021, provide a general business update and respond to analyst questions.

A live webcast of the call will also be available on the Company's investor relations website. Please visit investor.dfinsolutions.com at least fifteen minutes prior to the start of the event to register, download and install any necessary audio software.

If you are unable to participate live, a replay of the webcast will be available following the conference call on the Company's investor relations website, along with the earnings press release, and related financial tables.

About DFIN

DFIN is a leading global risk and compliance solutions company. We provide domain expertise, enterprise software and data analytics for every stage of our clients' business and investment lifecycles. Markets fluctuate, regulations evolve, technology advances, and through it all, DFIN delivers confidence with the right solutions in moments that matter. Learn about DFIN's end-to-end risk and compliance solutions online at DFINsolutions.com or you can also follow us on Twitter @DFINSolutions or on LinkedIn.

Use of Non-GAAP Information

This news release contains certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP selling, general, and administrative expenses ("SG&A"), non-GAAP income from operations, non-GAAP operating margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax rate, non-GAAP net earnings, non-GAAP diluted earnings per share, Free Cash Flow and organic net sales. The Company believes that these non-GAAP financial measures, when presented in conjunction with comparable GAAP measures, provide useful information about the Company's operating results and liquidity and enhance the overall ability to assess the Company's financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. 

The Company's non-GAAP statement of operations measures, which include non-GAAP gross profit, non-GAAP SG&A, non-GAAP SG&A as % of total net sales, non-GAAP income from operations, non-GAAP operating margin, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP effective tax rate, non-GAAP net earnings and non-GAAP diluted earnings per share, are adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items that management believes are not indicative of our ongoing operations. These adjusted measures exclude the impact of expenses associated with the Company's COVID-19 related recoveries and expenses, LSC multiemployer pension plans obligation, non-income tax charges (income), net, accelerated rent expense, share-based compensation and eliminate potential differences in results of operations between periods caused by factors such as historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges and gain or loss on certain equity investments and asset sales. 

Free Cash Flow is a non-GAAP financial measure and is defined by the Company as net cash flow provided by operating activities less capital expenditures. By adjusting for the level of capital investment in operations, the Company believes that free cash flow can provide useful additional basis for understanding the Company's ability to generate cash after capital investment and provides a comparison to peers with differing capital intensity.

Organic net sales is a non-GAAP financial measure and is defined by the Company as reported net sales adjusted for the changes in foreign currency exchange rates.

These non-GAAP financial measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. In addition, these measures are defined differently by different companies in our industry and, accordingly, such measures may not be comparable to similarly-titled measures of other companies.

Use of Forward-Looking Statements

This news release includes certain "forward-looking statements" within the meaning of, and subject to the safe harbor created by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans of DFIN and its expectations relating to future financial condition and performance. Statements that are not historical facts, including statements about DFIN management's beliefs and expectations, are forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. While DFIN believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond DFIN's control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from DFIN's current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in DFIN periodic public filings with the SEC, including but not limited to those discussed under "Special Note Regarding Forward-Looking Statements" in DFIN's Form 10-K for the fiscal year ended December 31, 2021, those discussed under "Special Note Regarding Forward-Looking Statements" in DFIN's quarterly Form 10-Q filings, and in other investor communications of DFIN's from time to time. DFIN does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

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The Company believes that certain non-GAAP financial measures, when presented in conjunction with comparable GAAP measures, are useful because that information is an appropriate measure for evaluating the Company's operating performance. Internally, the Company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to this indicator. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

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SOURCE Donnelley Financial Solutions