Donnelley Financial Solutions, Inc. Q1 FY2024 Earnings Call

Thank you for your patience. My name is Kath, and I will be your conference operator today. I would like to welcome everyone to the Donnelley Financial Solutions First Quarter 2024 Earnings Conference Call. I will now hand the call over to Mike Zhao, Head of Investor Relations. Please proceed.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions First Quarter 2024 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 detailed 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'm 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 started 2024 by building on the positive momentum in our performance from last year, delivering consolidated organic net sales growth with an improved sales mix, strong year-over-year growth in adjusted EBITDA, adjusted EBITDA margin expansion, and improvements in both operating cash flow and free cash flow. We delivered first quarter net sales of $203.4 million, which increased 2.8% on an organic basis compared to the first quarter of 2023. I am encouraged by the composition of our organic net sales growth, with software solutions net sales increasing 16%, tech-enabled services net sales increasing nearly 6%, and print and distribution net sales declining approximately 20% as we continue to balance our revenue profile to drive improved profitability. The combination of the improved revenue profile, modest consolidated net sales growth, and cost management yielded first quarter adjusted EBITDA of $55.2 million and adjusted EBITDA margin of 27.1%, both of which are above last year's first quarter and once again significantly stronger than historical periods with similar revenue profiles. Our first quarter performance highlights the continued progress we are making in our transformation and positions us well to achieve our updated long-term financial targets. A key driver of our first quarter results is the performance of our software solutions portfolio, which reached $80.3 million in net sales, a new quarterly record. Software solutions net sales growth accelerated in the first quarter to 16% on an organic basis versus the first quarter of 2023, an increase from the growth trends over the last few quarters. The growth in software solutions net sales was led by the performance of Venue, our virtual data room product, which posted 43% sales growth. We are encouraged by Venue's strong performance, which reflects strong sales execution across Venue's broad application within the M&A ecosystem that serves both announced and unannounced deals, as well as across public and private companies alike. This results in more resilient, stable demand than our transactional offerings. As a further demonstration of the momentum in our software solutions net sales, the growth trends of our recurring compliance software products, ActiveDisclosure and Arc Suite, both improved in the first quarter, with each product delivering stronger year-over-year growth on a sequential basis compared to the fourth quarter of 2023. Software solutions made up 39.5% of total first-quarter net sales, up approximately 420 basis points from last year's first-quarter net sales mix. On a trailing four-quarter basis, software solutions net sales are now in excess of $300 million and represent 37.8% of total net sales, an increase of approximately 370 basis points from the first quarter 2023 trailing four-quarter period. Looking ahead, we expect the growth rates for ActiveDisclosure and Arc Suite each to improve further in the second half of this year. For ActiveDisclosure, this improvement is driven by recent wins, combined with overlapping last year's platform transition. In the case of Arc Suite, the improved growth rate is primarily driven by the tailwind from the Tailored Shareholder Reports regulation. As we continue to evolve toward a higher sales mix of software solutions during the first quarter, that mix shift was accelerated by a reduction in print and distribution revenue, which declined by approximately $10 million or 20% compared to the first quarter of 2023. This reduction was evident mostly in the printing and distribution of annual reports and proxy statements aligned with our strategy to manage our sales mix toward a proportionately heavier mix of higher-margin tech-enabled services and software solutions net sales while benefiting from the financial profile associated with such a sales mix. Dave will cover our results in more detail. But first, I'd like to provide an update on our readiness for the Tailored Shareholder Reports regulation ahead of its July 2024 compliance date. As I've shared previously, we are making great progress in our technology development and go-to-market plans aimed to help our mutual fund and exchange-traded funds clients operationalize the reporting to comply with this regulation, including being the first to market with the initial release of our TSR SaaS solution during the fourth quarter of last year. As we continue to mature and scale our TSR offerings, I'm excited by the end-to-end compliance solutions we have created for the regulation, giving DFIN an unmatched ability to serve clients the way they wish to work via either SaaS-based solutions or traditional services. All in a one-stop shop that eliminates handoffs in the compliance process. In a further demonstration of our software product readiness, last week, we announced DFIN successfully test-filed a full Form N-CSR, including an iXBRL-tagged TSR to the SEC on behalf of a large asset manager. The test filing was completed via our ArcReporting SaaS product, the leading financial close software for investment companies and a component of our Arc Suite offering. The ArcReporting solution offers clients the ability to execute financial calculations, report generation at the fund and share class level, iXBRL tagging, reviewing, and filing all through a single solution. Further, integrated data flow within ArcReporting eliminates the need for post-production reconciliation and guarantees consistency with the fund's financial results at the share class level. This successful test filing demonstrates the dynamic end-to-end straight-through processing that Arc Suite offers our clients, enabling them to create, file, web host, and distribute complex financial reports all from a single platform. In addition to the functionality offered by ArcReporting, DFIN is also ready to serve clients via traditional services for those who prefer that approach. In early April, we successfully completed the test filing of a full N-CSR compliance document based on the new regulatory requirements, including iXBRL tagging of a Tailored Shareholder Report by leveraging our industry-leading service capabilities. This test filing to the SEC was done on behalf of another large asset manager and highlights DFIN's deep expertise in the areas of iXBRL tagging and compliance filing. Our recent successful test filings represent an important milestone in our readiness journey and demonstrate DFIN's leadership in the industry and commitment to delivering a streamlined solution for a complex regulation. With less than 3 months to go until the July 2024 compliance date, DFIN remains very well positioned to serve our clients while capturing the recurring revenue opportunities associated with the Tailored Shareholder Reports regulation. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our first quarter results and our outlook for the second quarter. Dave?

Thank you, Dan, and good morning, everyone. Before I discuss our first quarter financial performance, I'd like to recap two housekeeping items. First, during the quarter, we completed the sale of land in Phoenix, Arizona, the site of an office, which we shut down and demolished in 2021 and was previously reflected on our consolidated balance sheet as an asset held for sale. The sale resulted in net proceeds of $13.2 million, of which $12.4 million was received in the first quarter of 2024 and $0.8 million of nonrefundable fees were received in 2023. We recognized a net pretax gain of $10.6 million related to the sale, of which $9.8 million was recorded in the first quarter of 2024 and $0.8 million was recognized in 2023. The net pretax gain was recorded within the Capital Markets - Compliance & Communications Management operating segment under the other operating income net line item. This gain is excluded from our non-GAAP results. Second, as discussed on last quarter's earnings call, we completed the sale of our eBrevia business in the fourth quarter of 2023. For full year 2024, the disposition negatively impacts the year-over-year total net sales comparison by approximately $4 million with approximately $1 million net sales impact for each quarter. The impact on our gross profit and adjusted EBITDA comparisons is de minimis. For purposes of year-over-year net sales change discussions, organic net sales change adjusts for the impacts of the eBrevia disposition, as well as changes in foreign currency exchange rates. A reconciliation of reported to organic net sales change is included in our earnings release. Now turning to our first quarter results. As Dan noted, we continue to demonstrate positive momentum in our performance during the first quarter by delivering consolidated net sales growth, a strong year-over-year increase in adjusted EBITDA, and improvements in both operating cash flow and free cash flow compared to the first quarter of 2023. By continuing our shift toward a more profitable sales mix while also driving operating efficiencies, we expanded our first quarter adjusted EBITDA margin by 580 basis points to 27.1%. On a consolidated basis, total net sales for the first quarter of 2024 were $203.4 million, an increase of $4.8 million or 2.4% on a reported basis and 2.8% on an organic basis from the first quarter of 2023. The growth in software solutions net sales, which increased $10.2 million or 16% on an organic basis, combined with higher capital markets transactional sales more than offset a year-over-year decline in capital markets and investment companies compliance revenue, with the vast majority of that decline related to print and distribution revenue that Dan highlighted earlier. Excluding print and distribution, net sales grew approximately 10%. First quarter adjusted non-GAAP gross margin was 60.6% and approximately 590 basis points higher than the first quarter of 2023, primarily driven by a favorable sales mix, including lower overall print volume and the impact of ongoing cost control initiatives, partially offset by incremental investments to accelerate our transformation. Adjusted non-GAAP SG&A expense in the quarter was $68.1 million, a $1.8 million increase from the first quarter of 2023. As a percentage of net sales, adjusted non-GAAP SG&A was 33.5%, an increase of approximately 10 basis points from the first quarter of 2023. The increase in adjusted non-GAAP SG&A was primarily driven by an increase in selling expenses as a result of higher sales, higher bad debt expense, and higher incentive compensation expense, partially offset by lower third-party expenses and the impact of cost control initiatives. Our first quarter adjusted EBITDA was $55.2 million, an increase of $12.8 million or 30.2% from the first quarter of 2023. First quarter adjusted EBITDA margin was 27.1%, an increase of approximately 580 basis points from the first quarter of 2023, primarily driven by a favorable sales mix, higher overall sales, and cost control initiatives, partially offset by higher incentive compensation expense. Turning now to our first quarter segment results. Net sales in our Capital Markets - Software Solutions segment were $53 million, an increase of 23.8% on an organic basis from the first quarter of last year driven by the strong growth in Venue, our virtual data room product, which was up $10.2 million or 43.4% year-over-year and achieved record quarterly sales. Consistent with the recent trend, during the first quarter, Venue continued to benefit from an increase in page volume on the platform and higher pricing. In addition, our strong sales execution resulted in several large client wins in the quarter, with those projects combined accounting for approximately half of Venue's first quarter net sales growth. As Dan noted earlier, Venue's consistent level of performance is a testament to the strong recurring demand for our virtual data room platform as well as through our sales execution. Going forward, we expect Venue to continue to deliver solid year-over-year growth, albeit at a more moderate pace compared to the robust growth rate we achieved in the first quarter of this year given the outsized impact of the large projects. In addition to overlapping Venue's accelerated growth, which started during the second quarter of 2023. Net sales of our recurring compliance product ActiveDisclosure, including File 16, increased approximately 2% in the first quarter, driven primarily by growth in ActiveDisclosure service revenue, partially offset by lower Section 16 filing activity. The demand for beneficial ownership filings continues to be impacted by a weak IPO market, as well as elevated client churn as we transition to a subscription-based model, a trend which we expect to continue in the near term. Following a modest year-over-year decline in ActiveDisclosure subscription revenue in the fourth quarter, first quarter subscription revenue increased 4% sequentially and was flat versus the first quarter of last year. During the first quarter, we made continued progress to expand the adoption of ActiveDisclosure, resulting in the third consecutive quarter of net client count growth. The improvement in client count, combined with higher average price per client is generating a solid foundation for future ActiveDisclosure revenue. To illustrate this in greater detail, ActiveDisclosure's ACV from new logos during the first quarter is approximately double the level we achieved in the first quarter of 2023. The momentum in client count growth, coupled with product enhancements, creates a strong foundation for future sales growth. As we have stated previously, we expect ActiveDisclosure's growth rate in the second half of 2024 to be stronger than in the first half as some of the headwinds we experienced in 2023 continued to play out in the first half of 2024. Adjusted EBITDA margin for the segment was 29.8%, an increase of approximately 1,290 basis points in the first quarter of 2023, primarily due to higher sales and a favorable sales mix from the growth in our high-margin Venue data room offering and cost control initiatives, partially offset by incremental investments in sales and marketing. Net sales in our Capital Markets - Compliance & Communications Management segment were $91.1 million, a decrease of $3 million or 3.2% from the first quarter of 2023, driven by lower capital markets compliance revenue, predominantly in lower-margin print and distribution that Dan and I noted earlier, partially offset by higher transactional revenue. In the first quarter, we recorded $48 million of capital market transactional revenue, an increase of approximately $7 million or 17% compared to last year's first quarter and represents the first quarter of year-over-year revenue growth in this offering following 2 years of decline. We are encouraged by the year-over-year improvement in market activity during the first quarter, which resulted in increased deal volume across both IPOs and debt offerings compared to the first quarter of 2023. M&A activity was down on a year-over-year basis. In short, the deal environment remains soft compared to historical averages. 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. Adjusted EBITDA margin for the segment was 34.5%, an increase of approximately 590 basis points from the first quarter of 2023. The increase in adjusted EBITDA margin was primarily due to a favorable sales mix featuring growth in high-margin capital markets transactional sales and lower print and distribution revenue, as well as the impact of cost control initiatives, partially offset by higher incentive compensation expense and higher bad debt expense. Net sales in our Investment Company - Software Solutions segment were $27.3 million, an increase of 3.4% versus the first quarter of 2023, driven by growth in Arc Suite subscription revenue, which increased by approximately 9%, partially offset by lower services revenue compared to the first quarter of 2023, which benefited from higher one-time implementation revenue. As we have stated previously, based on the incremental revenue from Tailored Shareholder Reports, we expect stronger Arc Suite revenue growth starting in the second half of 2024. We remain well positioned to capture opportunities from regulatory changes to drive future recurring revenue growth. Adjusted EBITDA margin for the segment was 29.3%, a decrease of approximately 180 basis points from the first quarter of 2023. The decrease in adjusted EBITDA margin was primarily due to higher product development and technology investments in support of growth opportunities such as Tailored Shareholder Reports, partially offset by cost control initiatives and higher sales. Net sales in our Investment Companies - Compliance & Communications Management segment were $32 million, a decrease of $2.4 million or 7% from the first quarter of 2023, driven primarily by a reduction in print and distribution revenue related to the long-term secular decline in the demand for printed materials. Adjusted EBITDA margin for the segment was 25.6%, approximately 170 basis points lower than the first quarter of 2023. The decrease in adjusted EBITDA margin was primarily due to lower sales, partially offset by the impact of cost control initiatives. Non-GAAP unallocated corporate expenses were $8.2 million in the quarter, a decrease of $1.3 million from the first quarter of 2023, primarily driven by lower third-party expenses and the impact of cost control initiatives, partly offset by an increase in expenses aimed at accelerating our transformation and higher health care costs. Free cash flow in the quarter was negative $40.2 million, an improvement of $21.9 million compared to the first quarter of 2023. The year-over-year improvement in free cash flow is primarily driven by an increase in adjusted EBITDA and favorable working capital, partially offset by higher capital expenditures related to investments in our software products and the underlying technology to support them. We ended the quarter with $204.5 million of total debt and $160.8 million of non-GAAP net debt, including $80 million drawn on our revolver. From a liquidity perspective, we had access to the remaining $219 million of our revolver, as well as $43.7 million of cash on hand. As of March 31, 2024, our non-GAAP net leverage ratio was 0.7x. As a reminder, our cash flow is historically seasonal. We are a user of cash in the first quarter, closer to breakeven in the second quarter, and generate more than 100% of our free cash flow in the second half of the year. Regarding capital deployment, we repurchased approximately 140,000 shares of our common stock during the first quarter for $8.8 million at an average price of $62.61 per share. As of March 31, 2024, we had $141.2 million remaining on our $150 million stock repurchase authorization. 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 as key components of our capital deployment strategy and will remain disciplined in this area. As it relates to our outlook for the second quarter of 2024, we expect the reduction in print and distribution revenue we highlighted earlier to continue in the second quarter, which historically is comprised of a heavy mix of print and distribution sales. This component of our sales profile becoming less significant over time continues to improve our overall sales mix and facilitates our long-term margin expansion. With that as the backdrop, we expect consolidated second quarter net sales in the range of $235 million to $250 million and adjusted EBITDA margin in the low 30% range. Compared to the second quarter of last year, the midpoint of our consolidated revenue guidance of $242 million implies consolidated net sales approximately flat to last year's second quarter as the reduction in print and distribution sales is expected to offset growth in software solutions sales. Further, this guidance assumes capital markets transactional sales of approximately $50 million, up approximately $5 million from last year's second quarter and up $2 million from the $48 million we recorded in this year's first quarter. With that, I'll now pass it back to Dan.

Thanks, Dave. Our performance in the first quarter offers further proof 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 being disciplined stewards of capital. We are excited by the opportunities created by regulatory changes on the horizon. In the meantime, we are focused on creating best-in-class regulatory and compliance solutions to help our clients comply with those recurring regulations. 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, we're ready for questions.

Your first question comes from the line of Charlie Strauzer with CJS Securities.

Can you discuss the improvement in the EBITDA margin year-over-year and compared to our model? What factors contributed to that improvement, and do you expect them to continue into Q2 based on your guidance?

Yes, Charlie, this is Dave. I'll address your question. There are several factors contributing to the margin in Q1, particularly the favorable mix mentioned earlier. Firstly, we experienced significant growth in the Venue data room offering, which has very high incremental margins. Additionally, the 20% decline in lower-margin print revenue plays a crucial role in this margin improvement. Secondly, we are focused on maintaining a disciplined approach to our cost structure, and we plan to continue this into Q2 and beyond, despite facing tougher comparisons. In terms of our product mix, we anticipate steady growth in software, especially for ActiveDisclosure and Arc Suite, with more substantial increases expected in the latter half of the year. In Q2, we will likely face challenges due to tougher comparisons in Venue, as some of our large data rooms that contributed significantly to Q1 growth will be hard to replicate. We expect print revenue to decrease. Overall, we estimate margins in Q2 to remain roughly flat compared to last year, but anticipate gradual improvements in the latter half of the year with additional software growth.

Got it. And just if you look at kind of the improving IPO market, obviously, there's a handful of good deals, good aftermarket performance, and that could lead to obviously more transactions coming out of the pipeline. When you talk to your clients out there in the legal and banking side, what's the tone there about IPOs?

It's Craig Clay, and I'll address that. To start, I'll highlight a key indicator on the transactional market. After several quarters of decline, investment banks experienced a rise in fees from new issuances, debt, and M&A this quarter, up by 27%. This marks the highest increase since Q1 of '22, when the Fed began raising rates. In this quarter, there was a notable improvement in IPOs. It’s encouraging to see some progress. Sixteen companies raised over $50 million, totaling $8 billion for the quarter, with 57% coming from the healthcare sector, which is great to see. DFIN is pleased to have supported 75% of the Q1 IPO filings, featuring notable names like BBB Foods and BrightSpring. Nine of those 16 are trading significantly above their IPO price, which is a positive sign for the IPO market. Our clients are excited as they look ahead. In April, we saw 18 IPOs that raised a combined $5.3 billion, slightly above the 10-year historical average in terms of deal count and proceeds, and the market is likely to embrace this. It was the busiest month for new issuances over $100 million since November 2021, with nine deals in that range, of which we handled 67%. We were pleased to support the $1 billion offering of Viking, which began trading during this call after pricing at the top of the range and increasing the number of shares several times. The large DC tech sector is showing signs of recovery, highlighted by Rubrik. In April, there were also eight new filings exceeding $100 million, a slight rise from six the previous month. As we mentioned earlier, we remain optimistic as our clients are encouraged by ongoing deals and the pent-up demand. We are engaged with several prominent deals that are publicly filed, along with some still under confidentiality. Given the measures our clients are taking to either stay public or go public, we believe they will respond positively when the market shows readiness. The Wall Street Journal noted recently that the current success might encourage companies to expedite their IPOs. While we haven’t seen that publicly, we are optimistic about the positive reception of the IPOs that have launched and believe the IPO market is set to continue its normalization through the summer.

We had noticed that ourselves. I think we accounted 73% of the top maybe 15, I think you said 75% of the top 16. But what do you attribute that to? Just better competitive solutions from DFIN? Or are there some competitors that have fallen off? Or just kind of a fortunate mix of a high retention rate among the IPOs that were going out?

Yes. Thanks for the question. I think it's a number of factors. I think our industry-leading portfolio of solutions. We're dedicated to our clients' private to public journey. So we have a rich history in this space. I think when the market gets busy, we play an important part of serving on their deal team, helping them project manage, and providing, most importantly, the software to make that happen. So I think it's about our clients in their moment of need turning to somebody who can provide the best solution for them. I think the exciting thing is that these are event-driven transactions, but it's providing this pipeline for recurring software subscriptions that support our clients' ongoing compliance, so the DFIN compliance platform. But also, as you heard in the Venue results, that's a leading indicator. And it also supports the IPO market; almost every one of these deals has a VDR associated with it as their dual track. I think what they're getting, what our clients are getting when they come here is the trust that clients have in DFIN to get their deal done. And then the support, the services, and the software, whether it's ActiveDisclosure or Venue, that helps them do the work that they do.

Okay. That's helpful. And then how about on Tailored Shareholder Report as we get one quarter closer to the go live? Any change in the thought process around the potential incremental benefit to DFIN or any higher confidence in that number?

Yes, this is Dan. I'll begin, and then Dave and Eric may have some comments. With the new regulation, the Tailored Shareholder Report is now a financial report. We're looking at it from the software perspective, and we hold a strong position with our ArcReporting financial reporting tool within Arc Suite. TSR is a new module that's part of ArcReporting. For those utilizing ArcReporting, it enhances the existing data flows, generates the base TSR, develops the data model, creates the TSR itself, and then we package the TSR into the N-CSR for filing with the SEC. We have been working on onboarding and configuring clients to the TSR module and have observed good progress. There is not much more to see in the marketplace, though we are noticing some activity. On the distribution side, the current requirement is that the documents need to be printed and distributed. There is still some printing activity in the market. As noted in the last call, we are experiencing increased price pressure in the printing sector.

Thank you, Dan, and thank you for the question, Pete. Building on Dan's comments, I'd like to highlight our two recent press releases, where we successfully test-filed two full Form N-CSR and iXBRL-tagged TSRs. This demonstrates our capability to assist our clients in the way they prefer, whether through traditional services or our SaaS solution, ArcReporting. Our product team has done an excellent job completing this type of test filing well ahead of the July deadline, and I am very pleased with the progress in that area. Our revenue mix is shifting towards software, which reflects DFIN's leadership in regulatory and reporting software for investment companies. This trend has been consistent. As Dan noted, we have adhered to our operating plan over the past few years by continuing to move away from low-margin print. Regarding TSR printing, we maintain the same discipline. We will take on projects that bring value to our clients through end-to-end efficiency, but we will remain committed to our operating plan of reducing low-margin print wherever necessary.

I would like to add to what Dan and Eric mentioned regarding our approach to print and its alignment with our overall strategy and pricing discipline. Looking at our historical gross margins for print and distribution, there is a notable positive trend. In 2019, we recorded sales exceeding $300 million, specifically $321 million, with a gross margin of 20%, resulting in $63 million in gross profit. In contrast, our recent trailing four-quarter figures show sales of $158 million with a gross margin of 43%, leading to gross profit dollars of $67 million. We have significantly reduced our print revenue by more than half in the last four to five years, eliminating over $160 million in sales while actually increasing our gross profit by several million dollars. Our operating model has proven effective; we have outsourced all of our offset printing, and we have made our cost structure more variable. Our disciplined pricing approach has played a key role in this trend. It’s important to remember that not all revenue is created equal, and even within print and distribution, revenue differs in quality. We will continue to focus on the underlying profitability at both the offering and customer levels to enhance our financial performance.

Okay. I mean while I've got you here, if I can just sneak in one more. But I didn't hear it, but in terms of just to give that second quarter numbers. Would you think that print would be down by about the same magnitude as the first quarter?

Yes. The second quarter is typically a heavy print quarter, so we expect it to be roughly the same as what we experienced in the first quarter.

Great. I wanted to discuss Venue a little bit more. The growth was really impressive. I appreciate the insights on your new clients. However, I would like to understand better, aside from the new client wins, the impact of factors such as pricing versus usage or volume. That would be really helpful.

Sure. This is Craig. Thanks for the question. As you saw, and Dave mentioned, we had impressive growth of 43%, which will slightly affect our results. It was a 10% increase from Q4, marking record high revenue driven by three factors. We're comparing with Q1, which was the lowest quarter of 2023, so we expect tougher comparisons as we head into the second half of 2024. This increase is based on more page count activity, including higher usage of existing and new rooms, along with increased pricing. These rooms are remaining open longer, reinforcing Venue’s stability. The underlying demand appears to be less volatile than M&A, indicating that the demand we are seeing is becoming more recurring, contributing to a more stable revenue stream instead of being tied to event-driven projects. Even when excluding the large projects, we experienced nice growth. Our clients indicate that deal-making is improving, with Venue serving as a precursor to that. Companies are no longer waiting on the Federal Reserve. The current interest rate levels have not hindered deal-making, as seen in previous peaks of U.S. M&A volume when the average fund rate was about 5%. There is still strong demand for high-quality assets, with substantial capital seeking investment opportunities. We are happy with our pipeline and our effective execution. Venue's versatility in various ecosystems, whether public or private, remains robust. We will continue to focus on the fundamentals that have brought us success, which include effective sales execution, expanding our market share, providing an excellent product, and serving our clients well.

That's really helpful. And maybe if I could just get a follow-up on capital allocation here. It seems like you guys were able to sell some land, and I know you guys have divested some assets over time. But I just wanted to pick your brain on kind of how you guys are thinking about putting the proceeds from some of that capital to work and how you guys are thinking about balancing, whether it's potential M&A or for the buybacks or debt pay down?

Yes, I'll begin, and if Dave has anything to add, he can. It's essentially more of the same. We aim to ensure we have the financial flexibility necessary to implement our strategy. We have established significant financial flexibility, as evidenced by our ongoing share buybacks and debt repayment. These two efforts, alongside our commitment to organic investments and accelerating our transformation, remain our top priorities. This will continue moving forward. The funds from the sale of the building or land will be directed towards these three priorities. There are no changes to our capital priorities; we are maintaining a high level of discipline in all areas of capital deployment.

Yes. Dan, I would just reiterate, Kyle, you specifically asked about M&A. As Dan pointed out, our view the best use of capital to drive returns is the organic investment. And certainly from a shareholder return perspective, the share repurchases. I think when we look at M&A opportunities, especially for those that are purely aligned with our strategy, we think that valuations are still pretty rich, certainly weighed against the opportunities we have from an organic perspective. And so we keep that on the radar, but stay very, very disciplined on driving the best returns.

Yes. Congratulations on the good cost cutting and the margins. I have a couple of questions. One, the revenue contribution from the TSRs view have a reasonable idea of what that could be this year and next year? And also, does that push up the gross margin profile of your software business?

Yes, Raj. Last quarter, we indicated that we expect an annualized contribution from TSR of $20 million to $25 million, with about half of that anticipated to come in 2024. As we mentioned earlier regarding the print side, much of that remains on track, and we are pleased with our position in software, which, as you pointed out, generates higher margins and significantly greater incremental margins. Moving forward, this is indeed part of our margin expansion, as we see a shift towards a higher proportion of software and a lower proportion of print. Additionally, we are still making substantial investments in TSR, so we expect to see more margin expansion related to TSR starting in 2025 and beyond, after we move past the initial product development investments.

Got it. On the ActiveDisclosure side, could you help me recap what's been happening? Last year, there were some challenges, and there was a move to the digital version. What growth rate can we expect from ActiveDisclosure going forward? I know you've mentioned a pickup in the second half. What caused the weakness in the first quarter? Additionally, how is that transition progressing?

Raj, it's Craig. Thanks for the question. So yes, as you mentioned, AD grew 2% in the quarter. So compared to the recent trend, it declined 2% in Q4. It grew 1% in Q3. It was up 6% in Q2 and 2% in Q1. So we're continuing to make progress toward the future growth of the platform. It's our third consecutive quarter of net client growth. Within what drove Q1 results, one of the items mentioned, we're excited to have built a leading Section 16 filing platform within ActiveDisclosure. So Section 16, beneficial owners publicly disclosing. But within the quarter, there was lower Section 16 filing activity driven from the transition to a subscription model in the new product, as well as driven by fewer IPOs. So we've covered that topic. We're also up against a lower customer count as a result of the AD3 churn that was associated in the first half of last year. The continued lack of IPOs we're not able to keep our own client, also negatively impacting SPAC liquidations. Now we're offsetting that with price increases in service revenue. So to your question, what to expect in Q2 and in the second half of '24. We're excited by what we see, but the progress we've been making to expand the adoption of AD is slowly being reflected in this quarter's result. We have some prospective metrics that are favorable. So some of them are mentioned. So Q1 '24, our third consecutive quarter of net client growth, which is exciting. It's much better than we've seen in past quarters. I mentioned our average price up in the mid-teens versus ActiveDisclosure 3, which we have again migrated off of. As Dave stated, we had net new logo ACV, which is approximately double Q1 of '23. Again, what's moving on to the platform will start to show in future quarters. So we expect the AD growth in the second half of '24 to be stronger. We're going to overlap the platform transition and related churn. And the excitement by what we see is we have the newest fit-for-purpose product in the market. And the market wants what we build. We're able to price it accordingly. It's an opportunity for us, for DFIN. It's also an opportunity for our clients because our clients can pay less than the leading competitor. So our clients are recognizing the value of this better product. They want a choice. They get to have the newest product in the market with product improvements, such as our editor or track changes. It's all driven by our decades in the market and serving SEC clients. So our current clients are using AD for their most important reporting needs, and our pipeline is strong because our future clients see DFIN and ActiveDisclosure as the compliance leader.

Yes, that's very helpful. Lastly, the print declines were more than expected. Can you help me understand that? I know you mentioned they would be flat, and the second quarter is typically a print-heavy quarter. Have the print declines reached their lowest point? We had anticipated a 5% ongoing decline in the market. Is that still on track? Can you provide a bit more detail on that?

Yes, Raj, thank you for following up. I would like to highlight a couple of things. First, the 5% decline we are addressing is part of the ongoing trend of shrinking print volume over time. As you mentioned, we have effectively managed both the costs associated with print and the overall volume. In 2021, we experienced a decrease in print volume due to changes in distribution from print to digital, as noted with rule 30e-3 and 498A. We used that opportunity to move away from lower margin print work and adjust our cost structure, which has proven to be a successful strategy for us. Our gross margin in print has improved from 20% to over 40%. We are continually reviewing the economics of specific print jobs and clients to determine if print remains viable for us. In the first quarter, we saw minimal revenue change but a significant increase in profits, primarily driven by a shift towards more software sales and reduced print work enhancing profit margins. This trend will likely persist in Q2, although we expect it to moderate in the latter half of the year. We will keep monitoring the overall mix and the economics of the various components of our offerings, as well as the overall customer economics.

That concludes our Q&A session. I will now turn the conference back to Dan Leib for closing remarks.

Okay. Thank you, and thank you, everyone, for joining. We look forward to speaking with you both on our call in a few months and in the interim. Thanks again.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.