Donnelley Financial Solutions, Inc. Q3 FY2023 Earnings Call

Thanks for standing by, and welcome to the Donnelley Financial Solutions Third Quarter 2023 Earnings Conference Call. I would now like to welcome Mike Zhao, Head of Investor Relations, to begin the call. Mike, over to you.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions' third quarter 2023 results conference call. This morning we have 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 will 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 delivered strong consolidated third quarter results, given the economic backdrop, with net sales of $180 million, adjusted EBITDA of $49.4 million, and an adjusted EBITDA margin of 27.4%. During the third quarter, we navigated a transactions market that, despite some signs of improvement, remained weak. As a result of strong execution, we increased our third quarter adjusted EBITDA by $4.1 million or 9.1% year-over-year, and expanded our adjusted EBITDA margin by 340 basis points from the third quarter of 2022. Continued strong performance through an extended weak transactions market is an important accomplishment that demonstrates the underlying characteristics of our business and is proof of our broader strategy, namely continuing to evolve toward a profitable recurring sales mix, aggressively managing our cost structure, and being disciplined stewards of capital. Consistent with our performance last quarter, our software offerings delivered another quarter of higher sales growth compared to recent trends. Total Software Solutions net sales grew approximately 7% on an organic basis versus the third quarter of 2022. Third quarter Software Solutions net sales growth was led by Arc Suite and Venue, which grew approximately 13% and 9%, respectively. Software Solutions made up 40.7% of total third quarter net sales, an increase of approximately 390 basis points from last year's third quarter. On a trailing four-quarter basis, Software Solutions net sales of approximately $288 million represented 36.5% of total net sales, an increase of approximately 480 basis points from the third quarter 2022 trailing four-quarter period. Our third quarter performance reflects the strength of our recurring regulatory and compliance offerings. These offerings, which span across both Software Solutions and tech-enabled services, serve the compliance needs of corporations and investment companies. As we continue to invest in our recurring compliance products, we will shift DFIN toward a higher mix of profitable recurring revenue and, more importantly, benefit from the financial profile associated with such a recurring revenue model. One key component of our recurring revenue base is our compliance and regulatory-driven software products, which include active disclosure and Arc Suite, each possessing the characteristics of traditional enterprise software offerings, with a high component of recurring subscription revenue as well as long-term contracts. During the third quarter, these recurring compliance software offerings grew 8% in aggregate versus the third quarter of last year and accounted for approximately 60% of total Software Solutions net sales. As discussed previously, we are building a cloud-native unified compliance platform that enables shared features across active disclosure and Arc Suite, providing foundational capabilities such as composition, tagging, filing, and regulatory and financial reporting into a single solution, while also maintaining market-specific capabilities within the individual products. This platform, in conjunction with our deep domain expertise, allows us to better serve recurring regulatory and compliance use cases under current and future regulations and also provides us the ability to expand the current SEC-oriented addressable market into adjacent markets and use cases not served by us, facilitating future recurring revenue growth. As it relates to Venue, historical demand in the data room market has been relatively stable though can fluctuate based on underlying diligence activity taking place related not only to announced deals but also to those unannounced, both public and private alike. In addition to this market's resilient demand, product enhancement and strong sales execution have also contributed to Venue's steady performance, all of which promote more consistent top and bottom-line performance for DFIN. DFIN remains focused on driving profitable recurring revenue growth; a key source of the growth will come from regulatory and compliance opportunities that have a recurring demand profile, such as the tailored shareholder reports regulation that will come into effect in July 2024. We continue to make great progress in our technology development and go-to-market plans. In mid-October, we achieved an important milestone in our readiness by launching the alpha release of our tailored shareholder reports module that integrates with the financial reporting functionalities of our ArcReporting SaaS offering. This newly introduced SaaS capability is just one component of our end-to-end solution, which also features our industry-leading tech-enabled services and print and distribution offerings. Our full platform solution enables DFIN to adapt to the way our clients wish to work, from self-service, full service, or a combination of both. We are encouraged by the positive market response to our solution and have started onboarding clients onto the platform. We expect tailored shareholder reports will benefit each of our Software, Tech-enabled services, and Print and Distribution offerings. We are currently working to refine the estimated benefits and look forward to providing further details on our February earnings call. As the global regulatory and compliance landscape continues to evolve, DFIN is well-positioned to serve an increasing number of recurring compliance use cases, including ESG reporting. With the momentum building globally to adopt ESG measures, the increased level of recurring reporting and disclosure requirements is well-suited for our active disclosure product. In the U.S., we are encouraged by the passing of two California state bills in September, which will require private and public companies operating in California to publicly disclose greenhouse gas emissions by 2026. California is the first state to mandate a robust ESG data collection and disclosure framework. We expect the SEC to follow suit with broader national level ESG regulations in the near future. In the EU, ESG reporting will become mandatory in 2025, as part of the corporate sustainability reporting directive adopted by the European Commission. By leveraging the functionalities of our active disclosure platform and integrating capabilities from our ecosystem of leading ESG data partners, DFIN offers a robust ESG solution, ready to fulfill upcoming U.S. and EU specific ESG regulations. We look forward to further expanding our recurring revenue growth with this solution. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our third quarter results and our outlook for the fourth quarter. Dave?

Thanks, Dan, and good morning, everyone. As Dan noted, we delivered solid third quarter results in a challenging environment, including strong year-over-year increases in adjusted EBITDA and adjusted EBITDA margin. We posted approximately 7% organic growth in our Software Solutions net sales, including approximately 8% sales growth in our recurring compliance software products, all while continuing to drive operating efficiencies and expanding adjusted EBITDA margin to 27.4%. On a consolidated basis, total net sales for the third quarter of 2023 were $180 million, a decrease of $8.7 million or 4.6% on a reported basis and 4.2% on an organic basis from the third quarter of 2022. Despite a modest sequential improvement in the level of capital markets transactional activity in the third quarter, the overall transactional environment remained weak. In the third quarter, the Capital Markets Transactional business, which was down $8.8 million or 15% versus the third quarter of 2022, once again accounted for more than all of the year-over-year sales decline. The decline in Capital Markets transactional sales, as well as lower sales related to capital markets compliance activities, were partially offset by growth in Software Solution sales, which increased $3.7 million or 5.3% on a reported basis, and 6.8% on an organic basis compared to the third quarter of last year. Third quarter adjusted non-GAAP gross margin was 60.6%, approximately 510 basis points higher than the third quarter of 2022, primarily driven by the impact of cost control initiatives and the growth in Software Solution sales, 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 $59.7 million, a $0.2 million increase from the third quarter of 2022. As a percentage of net sales, adjusted non-GAAP SG&A was 33.2%, an increase of approximately 160 basis points from the third quarter of 2022. The increase in adjusted non-GAAP SG&A was primarily driven by incremental transformation-related investments and higher bad debt expense, partially offset by the impact of cost control initiatives and a reduction in selling expenses as a result of lower transactional sales volumes. Our third quarter adjusted EBITDA was $49.4 million, an increase of $4.1 million or 9.1% from the third quarter of 2022. Third quarter adjusted EBITDA margin was 27.4%, an increase of approximately 340 basis points from the third quarter of 2022, primarily driven by the impact of cost control initiatives, partially offset by lower capital markets transactional sales and incremental investments to accelerate the company's transformation. Turning now to our third quarter segment results. Net sales in our Capital Markets Software Solutions segment were $46.5 million, an increase of 4.4% on an organic basis from the third quarter of last year. Net sales of our recurring compliance product active disclosure grew approximately 4% in the third quarter. During the quarter, we made continued progress to expand the adoption of active disclosure. With the decommissioning of the Legacy 83 platform and associated customer churn behind us, we achieved an increase in net client count for the first time this year during the third quarter. Our efforts to increase the value of the active disclosure platform has generated nearly $130 million of cumulative subscription contract value sold on new AD. More importantly, this increased value has resulted in our average subscription value per client increasing by approximately 13% from the third quarter of 2022 and is up over 40% from the second quarter of 2020 prior to the launch of new AD. Net sales of our virtual data room offering Venue were up $2.2 million or 8.7% compared to the third quarter of last year, driven by increased room activity and higher pricing. As Dan noted earlier, Venue's performance has remained stable, which is a testament to the strong recurring demand for our virtual data room platform, as well as our sales execution. Adjusted EBITDA margin for the segment was 25.6%, an increase of approximately 310 basis points from the third quarter of 2022, primarily due to higher sales and cost control initiatives, partially offset by incremental investments in technology development. Net sales in our Capital Markets Compliance and Communications Management segment were $70.1 million, a decrease of 16% on an organic basis from the third quarter of 2022, primarily driven by lower capital markets transactional activity. As we anticipated, the level of capital markets transactional activity in the third quarter improved modestly from the second quarter and remains well below last year's level, albeit at a lower rate of decline than we experienced in the first half of the year. While the outlook for the capital markets transactional environment is uncertain, including negative impacts stemming from a potential government shutdown, DFIN remains very well-positioned to capture a significant share of future demand for transaction-related products and services when market activity picks up. Capital Markets Compliance revenue was down $4.4 million or approximately 17% versus the third quarter of 2022. While our Capital Markets Compliance offering, which supports our corporate clients with their ongoing compliance needs, is mostly recurring in nature, a component of it is event-driven, including certain 8-K filings and special proxies which can fluctuate from period-to-period. This year's third quarter net sales decline was driven by a lower volume of event-driven special proxies as well as timing shifts of certain client filings, which were completed and recognized in the third quarter last year but were completed and recognized in the second quarter this year. Adjusted EBITDA margin for the segment was 37.9%, an increase of approximately 730 basis points from the third quarter of 2022. The increase in adjusted EBITDA margin was primarily due to cost control initiatives, partially offset by lower sales volumes and higher bad debt expense. Net sales in our Investment Company Software Solutions segment were $26.7 million, an increase of 12.7% or 11.4% on an organic basis versus the third quarter of 2022, primarily driven by growth in subscription revenue as a result of the continued strong adoption of Arc Suite within investment companies. In addition to the subscription revenue growth, we realized higher services and support revenue in the third quarter related to a regulatory-driven filing in the EU that was one-time in nature. We expect a more normalized growth rate in the fourth quarter. We are encouraged by the performance of Arc Suite in the third quarter and remain well-positioned to capture opportunities from regulations such as tailored shareholder reports to drive future recurring revenue growth. Adjusted EBITDA margin for the segment was 37.1%, an increase of approximately 760 basis points from the third quarter of 2022. The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in sales and cost control initiatives, partially offset by higher product development and technology investments in support of growth opportunities. Net sales in our Investment Company Compliance and Communications Management segment were $36.7 million, an increase of 2.2% from the third quarter of 2022, driven by higher transactional revenue, primarily related to a large mutual fund special proxy project. Adjusted EBITDA margin for the segment was 34.1%, approximately 40 basis points higher than the third quarter of 2022. The increase in adjusted EBITDA margin was primarily due to the impact of cost control initiatives, including continued synergies from our Print platform consolidation and higher sales volumes. Non-GAAP unallocated corporate expenses were $11.5 million in the quarter, an increase of $1.9 million from the third 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 $61.3 million, a decrease of $7.4 million compared to the third quarter of 2022. A year-over-year decline in free cash flow is driven by higher capital expenditures related to investments in our software products and underlying technology to support them, and higher restructuring and interest payments, partially offset by an increase in adjusted EBITDA. We ended the quarter with $165.9 million of total debt and $154.2 million of non-GAAP net debt, including $41.5 million drawn on a revolver, down from $95.5 million drawn at the end of the second quarter. From a liquidity perspective, we had access to the remaining $257.5 million of our revolver as well as $11.7 million of cash on hand. As of September 30, 2023, our non-GAAP net leverage ratio was 0.8x. As a reminder, our cash flow is historically seasonal, generating more than all of our free cash flow in the second half of the year. Regarding capital deployment, we have repurchased approximately 310,000 shares of common stock during the quarter for $14.8 million at an average price of $47.77 per share. Year-to-date through September 30, we have repurchased approximately 387,000 shares for $18 million at an average price of $46.53 per share. As of September 30, 2023, we had $106.3 million remaining on our $150 million stock repurchase authorization. Going forward, we will continue to take a balanced approach toward 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 will remain disciplined in this area. As it relates to our outlook for the fourth quarter of 2023, we expect continued softness in the capital markets transactions environment, due to macroeconomic headwinds and geopolitical factors. We expect consolidated fourth quarter net sales in the range of $160 million to $180 million, with an adjusted EBITDA margin in the mid-20% range. Compared to the fourth quarter of last year, the midpoint of our consolidated revenue guidance of $170 million implies a very modest year-over-year increase in net sales. I will also provide a bit more color on our assumptions for the Capital Markets Compliance and Communications Management segment. At the midpoint of our sales range, we assume transactional sales of approximately $50 million. In addition, and related to my earlier comments regarding the impact of the transactional environment on certain compliance filings, most notably special proxies and 8-Ks, our fourth quarter estimate assumes a modest year-over-year decline in our compliance-based sales within this segment. With that, I will now pass it back to Dan.

Thanks, Dave. The execution of our strategy continues to deliver positive results and further demonstrates DFIN's ability to perform well in varying market conditions. While the outlook for the capital markets transactions market remains uncertain, our solid financial profile provides us with the foundation to continue to execute our strategic transformation. Our focus remains on accelerating our business mix shift by continuing to grow our recurring revenue base while maintaining market share elsewhere. We will continue to invest in our Compliance Software platform and capitalize on regulatory tailwinds created by regulations such as tailored shareholder reports, ESG, and the Financial Data Transparency Act. In addition, we will continue to aggressively manage our costs and drive operational efficiencies while maintaining our historical discipline in the allocation of capital. We are in the midst of preparing our 2024 operating plan and extending our long-range plan through 2028. In 2024, we expect to realize additional benefits from new regulations, continued operational transformation, and the execution of our strategy, yet expect continued uncertainty in the capital markets transactional environment, driven by broader macroeconomic headwinds. Through the planning period, we expect continued progress in delivering higher value for our clients, employees, and shareholders. Consistent with past practice, we expect to provide an update on 2024 and our long-range projections in February. Before we open it up for Q&A, I would 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 are ready for questions.

Our first question comes from Charlie Strauzer with CJS Securities Inc.

Just a lot of talk about boosting recurring revenue, and I really appreciate that avenue. If you will, maybe we can talk a little bit more and provide a little bit more color about the efforts to drive your sales mix toward more recurring revenue.

Let me start, and then Dave can add any additional comments. The nature of the business and the markets we serve are characterized by recurring demand. And that's in both Software offerings as well as tech-enabled solutions. The recurring demand obviously drives performance predictability. Additionally, we also serve the corporate transactions market, which, of course, is event-driven but really attractive financially and an important offering to serve our clients. Venue sits in the middle, where its performance has been more predictable or consistent than our transactional business due to the breadth of the markets it serves and the diligence process that it supports. So if we look back, really since the spin, our investment and planning have been geared towards expanding the recurring predictable offerings, and that includes serving new regulations, new disclosures, and looking for new use cases to support our clients' compliance needs. We do have some areas of our business, at least in our reporting, that include a mix of predictable, as well as more event-driven demand. Dave can delve into some of that. Over time, we will have more disclosure in splitting that out to help get a clearer view of their various pieces.

As Dan noted, we provide the detailed breakout of our sales by product in the investor presentation. From that data, you can get a pretty good sense; the vast majority of what we call compliance sales in both the Compliance and Communication Management segment would fit that bucket, along with the vast majority, I should say, of the investment company software. Then when you go to the capital market software, things like active disclosure and File 16 are all recurring in nature. We touched on it in the prepared remarks, and Dan had commented on it here. When you look at something like Venue, while its primary use case is M&A, Venue tends to be much more consistent than certainly M&A deals getting completed or the broader M&A market. I think when you examine the underlying diligence activity, it tends to be much more stable regardless of whether deals are getting completed or not.

And just a follow-up there. What does the competitive environment look like today versus maybe pre-pandemic in those recurring software revenues?

I think we have made a lot of improvement over time in our offerings, and I think the expansive nature of our offerings, being able to bridge from software into the service area has been a real differentiator for us, including into distribution. If you look at something like tailored shareholder reports, that's going to expand across all three of those offerings. I think a combination of what we've been doing internally as well as just the breadth of our offering is helpful. That said, competitors aren't standing still either; the markets remain competitive as they have always been. But we feel really good about the progress that we've made.

Our next question comes from the line of Pete Heckmann with D. A. Davidson.

I missed some of the call, having some overlapping activity this morning. One thing I wanted to follow up on is, talking about the competitive dynamics within the compliance piece of the business. Are you seeing much? It seems there is one strong player on the software side and then a lot of fragmentation of smaller players. How do you see that shaking out over the intermediate term? Do you see some of those sub-scale players shaking out and not being able to compete, or maybe the proprietors aging out of the business? More importantly, how do you see yourself competing on the tech side with software feature functionality?

Sure. Let me start and others can jump in. It's going to vary by product and offer. I think for us, we're number 1, 2 or 3 in each of the offerings that we have, and if you look at leadership, economics generally flow to number 1, 2 or 3. That said, there are formidable competitors, but we're happy with the progress that we're making, and we'll continue to invest behind it to make more. Specifically, to your question on folks going out or owners passing the torch, we're not seeing a lot of different behavior recently. With rising interest rates and financing having a cost applied to it, there has been a re-evaluation of businesses both public and private. However, we are very comfortable with our strategy and focused on executing against it. I think the differentiators I mentioned last question are that we've got both the software side of it and can work with our clients the way they want to work, while sometimes being pushed toward more software orientation. Our ability to play in both areas is really helpful for us.

Dan, maybe to build on that with the compliance software. The progress we're making in active disclosure isn't necessarily reflected this quarter. The increase in net client count in Q3, which is the first time we've had a higher client count, is encouraging. We're excited about what we see with the active disclosure platform because it's the newest fit-for-purpose disclosure tool in the market. I'd rather be us than anyone else. Our clients are using active disclosure for their most important compliance needs. It's delivering, and we're building it based on decades of SEC client success. Very purpose-driven price remains a strategic opportunity for us. We’ve been able to achieve higher prices, built-in renewals, and longer contracts. Our clients recognize the value of this better product and are signing up for multi-year contracts. Our cumulative average contract length is now 30 months. We are able to price at or below the market, giving us an edge relative to competition, which charges expensive add-ons for additional modules that accomplish what active disclosure does.

Our next question comes from the line of Sam Salvas with Needham & Company.

I'm on for Kyle today. Thanks for taking the questions here. Can you guys just talk a bit more about what you're seeing in terms of capital markets trends and how those progressed throughout the quarter?

Sure. This is Craig. Thank you for the question. Looking at the IPO market first, I said last time that the IPO market recovery is not going to be a straight line, and we certainly saw that in Q3, which continues to October. We had some big IPOs in Q3, including ARM, which raised 63% of the quarterly proceeds. We also had Instacart and Klaviyo, which haven’t always been well received in the marketplace. From a filing perspective, in the quarter, we had 12 filings greater than $50 million, while the remaining 42 were nano, microchip, or micro-cap companies. This suggests new ways in the IPO market, including really small deals that are out there. We had 10 IPOs that priced in the quarter, raising more than $50 million. Six of those took place in the last couple weeks of the quarter. Two of the seven companies that raised $100 million are trading above their IPO price. The pipeline for companies filed publicly remains positive; we had 22 in the market, publicly filed, and are working with 14 of those. It doesn’t include companies that have filed confidentially. We’ve seen a bit of dampened enthusiasm, and the resurgence in IPOs will depend on how these IPOs perform. However, we still believe there’s a solid pipeline of companies waiting for the late first quarter or second quarter of 2024, assuming some stability in interest rates and the economy overall.

I think I would just say, relative to 2021, where the transactional business was just north of $400 million in sales, when you look on a trailing four-quarter basis now, we are well under half of that, about a $190 million or so. To Craig's point, if you consider how this year has started to slowly recover and review it quarter-by-quarter, from $41 million in Q1 to $46 million in Q2 to $49 million this quarter, and with our guidance assuming $50 million for Q4, we're still in the $180 million range for the year, which is way off the high watermark we saw in 2021.

And then just wanted to touch on the gross margin strength this quarter. Those came in really impressive. Could you guys just talk about some of the drivers behind the expansion there, and how we should think about those going forward?

I think it is more of the same, right? As we continue to shift the mix towards software, the incremental margins—the operating leverage you get on that offering is very high. It's part of our DNA; since the spin, we've done a tremendous job of managing the cost structure. In some product offerings, we are recognizing price increases, etc. All those factors contribute to the high gross margin, with EBITDA margin at 27% in the quarter being really strong, especially in the soft capital markets transactional environment.

Our next question comes from the line of Raj Sharma with B. Riley.

Thank you for taking my questions. Solid quarter. I just had a couple of questions on the compliance transactions being lower in Q3. Is the decline all due to seasonality? I see that there were one-off proxies. Is that impact set to continue? Could you add more color to that, please?

Yes, Raj. And we noted it in the prepared remarks, correct? I assume you are about the Capital Markets Compliance and Communications Management segment and the revenue we call compliance there. There’s absolutely part of it that is seasonal, so you would see the normal seasonality with Q2 typically being the peak. We noted in the prepared remarks that when you look at the comparisons on a year-over-year basis, the seasonality is similar between years. Other factors contributed to it—there were a few proxies and recurring proxy work filed in Q3 of 2022, and those same companies filed in Q2 of 2023. We did get a pickup in Q2, which flipped back the other way in Q3. Additionally, there are also some special proxies that are more event-driven, and we didn’t see the same level of activity associated with that in Q3 this year.

And then just a question on the tailored shareholder reports. The impact or need for the services going forward in terms of the need for print output seems different from the 33 requirements. If more print output is needed for TSR, does that raise costs and reduce margins, or how do you handle that now that a lot of the print has been rationalized and outsourced?

It's a great question, Raj, and I'll comment and Eric will jump in with more details. You're right that the way the regulation is currently structured means that output will be required and will form part of our revenue stream there. We've discussed before that we expect to see both print as well as traditional services and software. Regarding the cost structure and how it affects us: We have done an exceptional job; regarding the earlier question on gross margin, we consolidated our manufacturing facility down to a single digital print location. We outsource all of our offset printing. So when you consider those two components, the offset printing is effectively a fully variable model. Hence, no impact on our cost structure beyond outsourcing that work when we have the revenue and the work needed to produce it. On the digital equipment, it’s a different model. Our margins have increased over time due to the mix and how we're managing both the digital print platform as well as outsourcing. Therefore, the short answer is no change to the cost structure. There are some variable costs associated with the additional revenue, but we feel really good about the dynamics and how we are positioned to serve that market and drive solid margins regardless of whether it's digital or offset print.

Thanks, Dave. And Raj, to build on Dave's comments, if you consider an annual report, which is a much larger document, the tailored shareholder report is much smaller in page count. Therefore, it's a great fit for our digital platform. As the number of share classes increases, the number of pages actually distributed decreases. Key to your question, this regulation comprises a broad spectrum of services that fit deep into our offerings. There's significant discussion around tagging in the iXBRL, that includes the creation of share class reports, which can be accomplished in our software as well as our tech-enabled solutions. The tagging and filing processes are also part of our offerings. The share class reports need to be web hosted and distributed electronically. This level of complexity adds value to our platform, and drives higher activity from both the mutual funds in the regulatory area we discussed and the insurance investment side of the business. Therefore, there's a big impact, and our clients are coming to DFIN to manage that. As Dan mentioned earlier, we had a press release in October to announce our alpha release, which I think is essential to note. Our solution features a straight-through processing element, enabling the financial report and the TSR to be strongly linked, thus eliminating any need for post-production reconciliation. Our dynamic output templates allow for a great deal of flexibility in output, ultimately enhancing distribution. Each of these aspects provides our clients with a comprehensive view of where their TSRs stand, from production to distribution.

And then just one last question regarding the tailored shareholder reports and the SEC requirements that are coming. They will drive higher revenues for software revenue growth, but when you talk about doubling by fiscal 2026, that seems a pretty significant jump from where software has grown in the last year? Can you clarify that and talk about the understanding of that jump in growth rates going forward?

Raj, I'm happy to take that one. Indeed, when you examine historical growth rates, and if you simply project them forward, you might arrive at a different conclusion. When we consider new regulations entering play, such as TSR, we've discussed our unified compliance platform's potential to address new regulations. We also believe certain parts of the business, which we currently manage via traditional services, will gradually shift towards a software offering or a hybrid model. We've begun a process of extending our long-range projections, and we'll share more details in February, as is our custom. These are just some highlights of how we envision the revenue mix evolving in the future.

There are no further questions at this time. I would now like to turn the call over to Dan Leib for closing remarks.

Thank you, everyone, for joining us. We look forward to speaking again on our Q4 call in February and prior to that at some investor conferences. Thank you again.

I would like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's call, and you may now disconnect.