Donnelley Financial Solutions, Inc. Q2 FY2023 Earnings Call

Hello, and thank you for being here. My name is Regina, and I will be your conference operator today. I would like to welcome everyone to the Donnelley Financial Solutions Second Quarter 2023 Earnings Conference Call. I will now turn the conference over to Michael Zhao, Head of Investor Relations.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions' Second Quarter 2023 Results Conference Call. This morning, we released our earnings report, including a supplemental trending schedule of historical results, copies of which can be found in the Investors section of our website at dfinsolutions.com. During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further details in our most recent annual report on Form 10-K, quarterly report on Form 10-Q, and other filings with the SEC. Further, we will discuss certain non-GAAP financial information such as adjusted EBITDA, adjusted EBITDA margin, and organic net sales. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Dan Leib, Dave Gardella, Craig Clay, Eric Johnson, Floyd Strimling, and Kami Turner. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. We are pleased with the company's performance during the second quarter, especially in light of continuing softness in capital markets transactional activity. In this difficult operating environment, we delivered strong second quarter results, including net sales of $242.1 million and adjusted EBITDA of $74.3 million, resulting in adjusted EBITDA margin of 30.7%. Our second quarter performance once again demonstrated the resiliency of our operating model and the sustainability of our performance in a challenging external environment as our business mix continues to transform. A key driver of our second quarter results is the improving performance of our Software Solutions portfolio. Software Solutions' net sales growth accelerated in the second quarter to nearly 8% on an organic basis versus the second quarter of 2022, an increase from the growth trends over the last few quarters. Importantly, the second quarter Software Solutions net sales growth was broad-based, with all three of our key software offerings, Arc Suite, Venue, and ActiveDisclosure, delivering stronger year-over-year growth compared to recent trends. Software Solutions made up approximately 31% of total second quarter net sales, up approximately 440 basis points from last year's second quarter sales mix. As a reminder, the second quarter, largely due to the annual meeting and proxy season, historically represents our largest quarter overall yet represents a seasonal low for software as a percentage of revenue. On a trailing four-quarter basis, software sales of $284 million represented approximately 36% of total sales, an increase of approximately 590 basis points from the second quarter of 2022 trailing four quarter period. Our second quarter adjusted EBITDA margin of 30.7% is nearly in line with last year's very strong second quarter adjusted EBITDA margin despite a nearly $30 million or approximately 40% year-over-year reduction in capital markets transactional sales. During the second quarter, we made progress in achieving additional efficiencies driven by process improvement and simplification, in addition to adjusting our cost structure to the current demand environment. These actions, in combination with our previous cost reduction efforts, permanently reduce fixed costs, simplify our operations, and further improve DFIN's resiliency across various market conditions. While these cost savings benefited our margins, we continue to accelerate investments in certain areas of our business to drive recurring revenue growth and modernize existing business processes. Through the first half of the year, we are on track with our stated objective of investing approximately $25 million in 2023 related to these growth and modernization initiatives, of which approximately two-thirds of the total investment is incremental on a year-over-year basis. As demonstrated by our performance, the consistent progress against our plan is delivering outstanding results. Specifically, our ability to thrive in difficult market conditions is a testament to the strength of our recurring offerings. These offerings, which span across both Software Solutions and Tech-enabled Services, serve the ongoing compliance needs of corporations and investment companies and provide our business with stability during times of market volatility. As we invest to accelerate our recurring growth while protecting market share in our traditional transactional offerings, we will continue to shift DFIN toward a higher mix of recurring revenue, and more importantly, benefit from the financial profile associated with such a recurring revenue model. Dave will cover our results in more detail, but first, I'd like to provide an update on the tailored shareholder reports regulation, which has a compliance date of July 2024. We are making great progress in our technology development and go-to-market plans, both of which are aimed to help our mutual fund and exchange-traded funds clients operationalize the reporting to comply with this regulation. From a software product development perspective, our solution leverages the leading functionalities within Arc Suite while introducing additional features to create a modern and seamless client experience. Coupled with DFIN's service expertise and production capabilities, we have created a true end-to-end compliance solution that eliminates handoffs for our clients. We are especially encouraged by the positive market feedback and the pipeline of recurring revenue. Given our end-to-end solution, we expect sales will be recognized across multiple DFIN offerings, including Software Solutions, Tech-enabled Services, and Print and Distribution. We are currently working to quantify the estimated impact and look forward to providing additional details later this year or early next year. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our second quarter results and our outlook for the third quarter. Dave?

Thanks, Dan, and good morning, everyone. As Dan noted, we delivered strong second quarter results in a challenging environment. Despite an ongoing reduction in year-over-year transactional volumes, our focused efforts to execute our strategy have enabled DFIN to become fundamentally more profitable compared to historical quarters with similar overall sales and transactional activity levels. By continuing to focus on operational efficiencies while also growing our high-margin Software Solution sales, second quarter adjusted EBITDA margin was approximately 900 basis points and 680 basis points higher than the second quarters of 2019 and 2020 respectively, despite overall sales and transactional sales in this year's second quarter being slightly below the levels we reported in those quarters. Our second quarter results provide additional positive proof points that our strategy is working, allowing us to deliver strong financial results across various market conditions while also continuing to invest in evolving to a more recurring sales mix, aggressively managing our cost structure, and being disciplined stewards of capital. On a consolidated basis, total net sales for the second quarter of 2023 were $242.1 million, a decrease of $24.1 million or 9.1% on a reported basis and 8.3% on an organic basis from the second quarter of 2022. Given the very weak transactional environment, most of the year-over-year net sales decline occurred in capital markets transactional sales, which were down $28.1 million or 38.2% versus the second quarter of 2022. The decline in capital markets transactional sales was partially offset by growth in Software Solutions net sales, which increased $4.1 million or 5.7% on a reported basis and 7.9% on an organic basis compared to the second quarter of last year and reached a new quarterly net sales record. Second quarter adjusted non-GAAP gross margin was 59.5%, approximately 150 basis points higher than the second quarter of 2022, primarily driven by the impact of cost savings initiatives and price increases, partially offset by lower capital markets transactional activity and incremental investments to accelerate our transformation. Adjusted non-GAAP SG&A expense in the quarter was $69.7 million, a $2.1 million decrease from the second quarter of 2022. As a percentage of net sales, adjusted non-GAAP SG&A was 28.8%, an increase of approximately 180 basis points from the second quarter of 2022. The decrease in adjusted non-GAAP SG&A was primarily driven by the impact of cost control initiatives and a reduction in selling expense as a result of lower transactional sales volume, partially offset by incremental transformation-related investments and higher bad debt expense. Our second quarter adjusted EBITDA was $74.3 million, a decrease of $8.3 million or 10% from the second quarter of 2022. The second quarter adjusted EBITDA margin was 30.7%, a decrease of approximately 30 basis points from the second quarter of 2022, primarily driven by lower capital markets transactional sales and incremental investments in support of our strategic transformation, partially offset by the impact of cost control initiatives, price uplifts, and lower selling expense as a result of lower sales volumes. Turning now to our second quarter segment results. Net sales in our Capital Markets Software Solutions segment were $47.7 million, an increase of 6.5% on an organic basis from the second quarter of last year. Sales of our recurring compliance product, ActiveDisclosure, grew approximately 9% in the second quarter with the recurring subscription component increasing approximately 6%, both of which reflect the expected improvement as we finalize the transition from AD3, which was decommissioned in the second quarter. The decommissioning represents an important milestone and enables us to focus on driving stronger growth for the new AD platform while also realizing increased pricing, higher retention rates, and greater efficiency. We expect improved growth rates moving forward. Net sales of our virtual deal room offering, Venue, were up $2.2 million or 8.7% compared to the second quarter of last year, driven by increased room activity and higher pricing. Despite a continued steep decline in global M&A deal completions, the level of underlying activity remains strong, driven by the strong demand for high-quality assets and the abundance of capital. We are encouraged by the resiliency of the underlying activity taking place on our virtual data room platform. Adjusted EBITDA margin for the segment was 27.7%, an increase of approximately 870 basis points from the second quarter of 2022, primarily due to increased sales, price uplifts from new AD and Venue, and efficiencies within our service organization, partially offset by increased overhead costs and incremental investments in technology development. Net sales in our Capital Markets Compliance and Communications Management segment were $122.9 million, a decrease of 17.8% on an organic basis from the second quarter of 2022, driven by lower capital markets transactional activity, partially offset by a modest year-over-year growth in compliance revenue. While the demand for equity transactions remains very weak on a year-over-year basis, we experienced a modest sequential increase in transactional revenue from the first quarter of this year, consistent with the slight pickup in deal activity to start the second quarter, which we indicated on last quarter's earnings call. Similar to what we experienced at the start of the quarter, the transactional market for the second quarter also ended on a positive note with four priced IPOs taking place toward the end of June, representing the most active streak of IPO pricing so far this year. That said, the overall IPO activity still remains substantially lower than last year's second quarter. The M&A market remained very weak, with the number of completed M&A transactions down sequentially from the first quarter of 2023 and down approximately 40% versus last year's second quarter. While the outlook for the capital markets transactional environment is uncertain, DFIN remains very well positioned to capture a significant share of future demand for transaction-related products and services when market activity picks up. Additionally, the uptick in IPO activity in June and the transactional activity we've seen to start the third quarter creates positive momentum entering the second half of the year. The decline in capital markets transaction sales was partially offset by our Capital Markets Compliance offering, which grew approximately 1% from the second quarter of 2022 driven primarily by higher proxy volumes, part of which is associated with the new pay versus performance disclosure and increased pricing. Our second quarter compliance sales growth was against the backdrop of a very strong performance in the second quarter of 2022, during which capital markets compliance sales increased by approximately 31% versus the second quarter of 2021. As discussed previously, we faced a couple of headwinds in the quarter, including the timing shift of certain compliance volumes from the second quarter into the first quarter as well as the recent trend of increased back liquidations, which creates a headwind on the number of public companies and the associated demand for compliance services. We were able to more than offset the combined impact of those headwinds by the increase in proxy activity and higher pricing. Adjusted EBITDA margin for the segment was 36.5%, a decrease of approximately 470 basis points from the second quarter of 2022. The decrease in adjusted EBITDA margin was primarily due to the lower transactional sales and higher bad debt expense, partially offset by cost control initiatives, lower selling expenses as a result of lower sales volume, and price increases. Net sales in our Investment Company Software Solutions segment were $28 million, an increase of 10.7% on an organic basis versus the second quarter of 2022, primarily driven by growth in subscriptions as a result of the continued strong adoption of Arc Suite within investment companies. We are encouraged by the performance of Arc Suite in the second quarter and remain optimistic about the opportunities created by regulations, such as tailored shareholder reports, to drive future recurring revenue growth. Adjusted EBITDA margin for the segment was 38.2%, an increase of approximately 420 basis points from the second quarter of 2022. The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in sales and efficiencies within our service organization, partially offset by higher product development and technology investments in support of growth opportunities. Net sales in our Investment Companies Compliance and Communications Management segment were $43.5 million, a decrease of 2.3% on an organic basis from the second quarter of 2022, primarily driven by the exit of low-margin print work, partially offset by price increases on the remaining work. Adjusted EBITDA margin for the segment was 39.3%, approximately 660 basis points higher than the second quarter of 2022. The increase in adjusted EBITDA margin was primarily due to a favorable sales mix, the impact of cost reduction initiatives, including continued synergies from our print platform consolidation, and price increases, partially offset by higher overhead costs. Non-GAAP unallocated corporate expenses were $11.6 million in the quarter, an increase of $0.4 million from the second quarter of 2022, primarily driven by an increase in expenses aimed at accelerating our transformation, partially offset by the impact of cost control initiatives. Free cash flow in the quarter was positive $7 million, a decrease of $23.9 million as compared to the second quarter of 2022. The year-over-year decline in free cash flow was driven by a decline in adjusted EBITDA, higher restructuring and interest payments, partially offset by lower capital expenditures and lower cash tax payments. We ended the quarter with $219.8 million of total debt and $200.4 million of non-GAAP net debt, including $95.5 million drawn on our revolver. From a liquidity perspective, we had access to the remaining $203.5 million of our revolver as well as $19.4 million of cash on hand. As of June 30, 2023, our non-GAAP net leverage ratio was 1.0x. As a reminder, our cash flow is historically seasonal. We are a user of cash in the first quarter, close to breakeven in the second quarter, and generate more than 100% of our free cash flow in the second half of the year. As our sales mix continues to evolve to proportionately more subscription-based sales, we expect the seasonality to continue to become less significant. Regarding capital deployment, we repurchased approximately 43,000 shares of our common stock during the second quarter for $1.9 million at an average price of $43.59 per share. As of June 30, 2023, we had $121.1 million remaining on our $150 million stock repurchase authorization. Given the ongoing high-interest rate environment and our floating rate debt, we continue to assign a higher priority to debt management in the second quarter, which resulted in lower share repurchases. Going forward, we will continue to take a balanced approach towards capital deployment. We continue to view organic investments to drive our transformation, share repurchases, and net debt reduction, each as key components of our capital deployment strategy, and we'll remain disciplined in this area. As it relates to our outlook for the third quarter of 2023, while we expect the overall macroeconomic environment to remain challenging, we are encouraged by the recent modest pickup in transactional activity. We expect consolidated third quarter net sales in the range of $170 million to $190 million and adjusted EBITDA margin in the low to mid-20% range. Compared to the third quarter of last year, the midpoint of our revenue guidance, $180 million, implies a year-over-year net sales decline of approximately 5%, primarily as a result of lower transactional activity, with less of a year-over-year decline than we experienced in the first two quarters of the year. From an adjusted EBITDA margin perspective, our guidance of low to mid-20% contemplates the lower level of transactional sales, as well as incremental investments toward technology development and improving our operating efficiencies, similar to the level of incremental investments made in the first and second quarters. We expect our third quarter adjusted EBITDA margin to be much stronger than historical quarters of similar size total and transactional sales. With that, I'll now pass it back to Dan.

Thanks, Dave. Our performance in the second quarter offers a further proof point that our strategy and execution continue to make DFIN more durable and structurally resilient than in the past. As we progress on our transformation journey, we will continue to invest in opportunities to drive profitable recurring revenue growth while also continuing to aggressively manage our cost structure and be disciplined stewards of capital. We are excited by the opportunities created by regulatory changes on the horizon, including tailored shareholder reports, the Financial Data Transparency Act, and ESG, and the benefits they will bring starting in 2024. In the meantime, we're focused on creating best-in-class regulatory and compliance solutions to help our clients comply with regulations. Finally, as we head into the second half of the year, we are encouraged by the improved trend in capital markets transactional activity. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world who have been working tirelessly to ensure our clients continue to receive the highest quality solutions. Now with that, operator, we're ready for questions.

Our first question will come from Charles Strauzer with CJS Securities.

I was hoping you could delve a little bit more into the cost reduction efforts you've been taking on and really, what's going on there to drive the margins? And what portion of that is permanent versus temporary? And looking at the guidance for Q3, could we see potential upside there from continued efforts on the cost front?

Yes, it's Dave. I'll address that. We have consistently discussed cost reductions, and I can confirm that the actions we've taken are indeed permanent and span the entire company. The gross cost reductions are actually greater than what is shown in our margin performance. We have previously mentioned that a portion of the savings has been redirected towards increased investment, particularly in product development and IT, which supports our strategy to drive Software Sales growth and enhance our recurring revenue. We are committed to investing in these areas to create long-term value. The permanence of these actions is evident in our historical margin trends. In our investor presentation, we have a slide displaying the historical transactional revenue alongside the company's consolidated margin. The transactional revenue for the last quarter was approximately $200 million, significantly lower than the historical average; however, our EBITDA margin has improved by about 1,000 basis points, rising from the mid-teens to the mid-20s percent, despite the challenging environment. Moving forward, we will maintain our focus on driving efficiencies while also continuing to invest in our strategy. Dan, do you want to add anything?

Thank you, Dave, and thank you for the question, Charlie. I want to expand on the topic of permanence. As Dave mentioned, most of these changes are permanent because they stem from the evolution of our business operations. We have implemented numerous externally-facing improvements regarding our products and client services. Over the past few years, we have also worked on transforming our internal processes and workflows, which has introduced new metrics and methods for monitoring, contributing to increased efficiency in the company. As Dave highlighted, these are net results. We are continuing to invest in new product development and are committed to enhancing the employee value proposition. We have made significant improvements in what we provide to our associates worldwide who contribute to our strong results. There is more to achieve, but we are pleased with our accomplishments so far.

Great. Just a quick follow-up. When you look at the strength in Software Sales this quarter, maybe a little bit more color behind what drove that? And the sustainability of that into the back half of the year?

Yes, it was broad-based, with some variation in each area. Starting with ActiveDisclosure, we indicated that as we moved towards the decommission of AD3 in June, we anticipated an increase in sales growth in the latter half of the year. We experienced that uplift sooner than expected, which gives me confidence about the product's momentum. For Venue, we've observed strong performance without the volatility seen in our transactions offering, even though its primary application is in M&A. Venue has a wider range of use cases, including private deals using the deal room, and has consistently performed well, so I feel positive about that for the second half of the year. Additionally, our Arc Suite saw notable growth this quarter. We previously mentioned that last quarter's performance was lower than expected, but we anticipate higher sales growth going forward. I'm optimistic about that, especially considering our plans for the Arc Suite in relation to the TSR initiative in 2024.

Great. Just wanted to touch a little bit on the guide and some of the assumptions behind the Capital Markets expectations for the coming quarter. It sounds like you guys were kind of optimistic about how 2Q ended and about how the quarter started so far, but I guess what assumptions you guys may put in the guide for Capital Markets activity for the balance of the quarter? Is it kind of a status quo in terms of what you guys have been seeing in the past six weeks or so? Or any improvement or deterioration? Any assumptions would be helpful.

Yes. Thanks for the question, Kyle. I think when you look at the guidance and what we're implying, right, and I'll talk sequentially at first, right, the transactional activity in Capital Markets, I think went up $4 million or $5 million between Q1 and Q2. We're probably looking somewhere in that same range sequentially in the $50 million range, again, at the midpoint of our guidance. I think on a year-over-year basis, then that decline, it's still a decline, but certainly muted relative to the year-over-year declines that we saw in Q1 and Q2. So I would say cautiously optimistic, right? The activity in June had a modest pickup, and that obviously flowed through to the sequential impact in the quarter, essentially expecting that sequential uptick again here in Q3.

That makes sense, and it's helpful. And I just wanted to do a quick follow-up on compliance. It seems like that came in really strong this quarter. I know you guys called out both pricing and kind of pay versus performance disclosures, but I wanted to see if you guys could quantify or at least rank order on some of that upside and strength this quarter? Maybe how much came from pricing versus a cross-sell, upsell, or share gains here with some of these newer initiatives?

Yes. And it's tough to bring out specifically. I would say the vast majority of that compliance work. And again, I assume you're talking about the Compliance and Communications Management segment and the compliance revenue there. What was proxy-related, and again, some of it driven by in-performance, et cetera, some of it driven by pricing. The two kind of blend together, right, as we're performing additional work on behalf of the clients, aggregate pricing goes up. So it's a bit difficult to strip those two apart, but generally, proxy was the overall driver there.

Yes, David, if you wanted me to add to that. It's Craig. So from a compliance perspective, we have Q2 of '22, big growth, so over 27%. And pleased with the 1% this quarter. You mentioned the areas; it's a result of a number of things, which is increased client count, new disclosure for pay versus performance, which is the tagging of that exact comp table. And then certainly, price increases. We're in an inflationary environment; we were able to work with our clients and certainly capture the value that we're adding. So in CNCM compliance or our Software, we're really leveraging that entire team of deal experts here at DFIN, and I think it shows. The results show our extensive network and relationships throughout this ecosystem are really benefiting our recurring business, whether it's our CNCM or certainly our software.

All right. Makes sense. That's helpful.

I wanted to discuss price again, as it's a positive sign to hear it mentioned. Can you share your thoughts on how much you expect prices to increase this year? Specifically, how do you distinguish between the regular price increases for Software and the wage inflation-related increases for Tech-enabled Services?

Yes, I'll start. From a pricing perspective, it will certainly differ by product. There is an inflationary environment that we've been trying to address. For ActiveDisclosure, as we transitioned from AD3 to the new AD, we've mentioned that prices are expected to rise in the mid- to high-teens on average. This work has been ongoing for the last couple of years, and we are still ramping up on that product, which is likely seeing mid-single digit growth in 2023. Overall, on a consolidated basis for the company, it is probably closer to low single digit growth. However, this will vary by product. Additionally, while we are increasing our prices, we are also undertaking more work, making it challenging to separate those factors. I think low single digit growth is a reasonable indicator.

Yes, this is Craig. To give some context, it's about capturing the value we provide, whether in our services or through built-in price increases on renewals. Clients are acknowledging the benefits of a superior product by opting for multi-year contracts. We see pricing as an opportunity against our competitors, allowing us to deliver value where clients can choose what they need instead of paying for unused modules. This really gives us a chance to seize the value we're generating and align with market demands.

Okay, that's helpful. That's helpful. And then we've been talking about tailored shareholder reports for a while, and it does seem like an interesting opportunity. I know you're still trying to really get a tight quantification of the potential benefit. But could you give us some sort of broad range, just thinking about the multiple share classes and some of the additional work that might have to occur on a printing basis? I mean, is it reasonable to think something in the range of like the $20 million annual benefit? I'm just trying to figure out, is it the $10 million or $100 million in terms of the potential benefit?

Yes, I'll begin, and Eric or Dave can certainly add their thoughts. I believe you are considering this correctly regarding the extensive benefits across Software, Tech-enabled Services, and Print and Distribution. We will provide specific numbers later this year or at the start of next year. This opportunity requires a shift from the fund level to the share class level, which suggests a multiplier effect. As Craig mentioned, we aim to charge based on the value we provide, keeping in mind that this involves compliance-related work and our clients are facing fee pressures in both funds and ETFs. We are marketing to both third-party administrators and asset managers, and we look forward to offering more insights into the impact, which will begin at the end of this year and continue into early next year.

Pete, sorry. And just on Dan's comment, the rule becomes effective midyear next year. Depending on the cycles that each of the funds report on, the likely year one impact will be less than half a year would be probably 25% as you get kind of the clients overlapping their reporting timing and then the full impact starting in 2025.

Congratulations on a good quarter. Can I jump into the guidance? I’m trying to understand the outlook for Q3 better. Given the results in Q2, the Q3 outlook seems conservative. Can you comment on transactions versus compliance and the sequential performance you're expecting in Q3? Is it expected to go up, down, or how do transactions compare to compliance? Also, can we discuss the Software or Tech-enabled part or the Print part?

Yes, Raj, it's Dave. So I think I'll reiterate what I said on transactional, right? If you think about transactional sequentially, if you look at Q1 and Q2, we went from $41 million to just over $45 million and are estimating at the midpoint of our guidance around $50 million specific to transactional. I think when you look at Compliance, that analysis is more challenging just given the seasonality of the business. Certainly, Q1 and Q2 are much higher than the Compliance sales that we drive in Q3 and Q4. But when you look at it on a year-over-year basis, Compliance was, call it, flat to slightly up in the first half of the year. Again, at the midpoint of our guidance, kind of broadly flat or in that range for the balance of the year, and that's inclusive of Q3. That’s on the Capital Markets side. I think when we look at the Investment Companies Compliance work, again, some seasonality, a little bit less. Generally, we've seen some of that compliance shift from traditional to software. In the first couple of quarters, compliance revenue in investment companies was down, I think, $3.5 million over the first half of the year. Again expecting something in that range again in the back half of the year.

Can you discuss the actual composition of the transactions in the Q2 results? How much was contributed by M&A and IPOs?

Yes. So I can kick off, and then Craig, if you want to jump in with some additional detail here. When we look at, as we said, started to see a little bit of better IPO activity as we exited the quarter in June and the broad markets, they looked pretty reasonable in July as well. M&A remained very, very difficult. We commented that M&A was down 40% on a year-over-year basis, and so most of the benefit we saw was within IPO. Craig, anything to add there?

Yes. I think to reiterate, we have an M&A market that certainly has been significantly challenged, to say the least. When you look at the deals from CapIQ, whether it's $1 billion or $500 million, you have to go back before 2016 to find a market that even comes close. In the quarter, it doesn't even meet the COVID 2020 year. So certainly, in the M&A market, it was challenged. For the deals that are announced, we've been doing pretty well and holding our share there, just many fewer. From an IPO perspective, it's a market that's rebuilding. It is not fully open yet; the recovery is not going to be a straight line. But there are reasons to be upbeat as we've talked about. The quarter we see a little bit of movement publicly in July, but a lot of it is still under the water line. The pipeline for companies to go public filed deals over $100 million now stands at 25, and we have our historic share of that, which is strong. That does not include the companies who filed confidentially. That really gets at what our clients are telling us, which is that the barriers to resurgence in the IPO market appear to be lifting. You can pick your metric, whether it's the Fed, whether it's the NASDAQ. What we're going to see is likely this backlog starting to clear in 2023 and then moving into 2024. So certainly, it's better to talk about the excitement, but it won't be a straight line as we accelerate.

Great. And then just lastly, I know in the recent past you've talked about Software Sales, you've kind of guided to the next few years, a doubling of Software Sales. Is that target we're still sticking to? And what year are we talking about that you can double software sales? By '25 or fiscal '26, or...

Yes. Let me start on that, Dave, and then you can take over. When we spun out, we had around $135 million in software revenue, and we've seen it double over several years. However, due to the nature of our product line, growth hasn’t been a smooth progression. In 2021, we experienced about a 35% increase in software sales. Looking ahead, the guidance we've provided indicates that Venue is expected to see slightly lower growth compared to our compliance offerings, which are starting to gain momentum. We’ve discussed the TSR regulation and other regulations that will positively impact both the software area and other parts of the company.

Right. So getting to the $600 million in software revenues implies a pretty strong growth rate extending to around 2025 or 2026. And that's all.

Yes, Raj. Sorry. It was top $500 million, and that's in 2026.

Yes, which is where you get to the 55% to 60%, which is the total or so.

I will now hand the call back over to Dan Leib for any closing remarks.

Great. Thank you, Regina, and thank you everyone for joining us, and we look forward to speaking in the near future. Thank you.

That will conclude today's conference. Thank you all for joining. You may now disconnect.