Donnelley Financial Solutions, Inc. Q3 FY2025 Earnings Call

Thank you for waiting. My name is Kathleen, and I will be your conference operator today. I would like to welcome everyone to the Donnelley Financial Solutions Third Quarter Earnings Conference Call. I will now turn 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 Third Quarter 2025 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules 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 and adjusted EBITDA margin. 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, and other members of management. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. Our third quarter results offered further validation of our strategy, including the continued shift toward a favorable sales mix driven by double-digit growth in our SaaS offerings, strong year-over-year growth in adjusted EBITDA, and adjusted EBITDA margin expansion. In addition, we continue to make great progress in modernizing and expanding the adoption of our offerings in the marketplace, highlighted by the launch of our new Venue Virtual Data Room product. Against the backdrop of an improving but still soft capital markets transactional environment, which resulted in an 8% reduction in our event-driven transactional revenue, we delivered solid results, which once again demonstrated the resiliency of our operating model across various market conditions and the sustainability of our performance as our business mix continues to transform. Specific to our third quarter performance, I am pleased with the continued strong demand for our software offerings, where we delivered year-over-year net sales growth of 10.3%, an improvement compared to the growth rate we achieved in the first half of the year. Software Solutions sales represented approximately 52% of total sales in the quarter, a positive proof point of our transformation into a software-centric company. On a trailing 4-quarter basis, Software Solutions sales reached approximately $350 million, growing 8.5% from the third quarter 2024 trailing 4 quarters and accounted for 46.5% of trailing 4-quarter sales, an increase of approximately 640 basis points from the third quarter 2024 trailing 4-quarter sales. This continued positive mix shift positions us well to achieve our long-term target of driving approximately 60% of total sales from Software Solutions by 2028. A major driver of the third quarter software growth was the performance of our recurring Compliance software products. ActiveDisclosure and Arc Suite posted approximately 16% sales growth in aggregate, marking the third consecutive quarter of double-digit sales growth across these two products. The growth in our recurring Compliance software offerings is led by ActiveDisclosure, which delivered third quarter net sales growth of approximately 26%, an acceleration in growth compared to recent trends. We are encouraged by the continued growth in ActiveDisclosure subscription service packages. In addition, as I discussed previously, we are serving additional use cases via a hybrid model that combines our software solution with an unmatched service offering. Within this context, ActiveDisclosure has been increasingly chosen by our clients for their IPO registration and proxy statement needs, which historically were managed in a traditional model. In the third quarter, we saw higher ActiveDisclosure sales associated with IPO registrations being completed on the platform compared to last year's third quarter. In the case of Arc Suite, the growth rate in the third quarter, approximately 10% was more modest than past few quarters as we overlap the benefit associated with the tailored shareholder report solution, which was introduced in July of 2024. As I commented previously, we expect the growth profile of Arc Suite to be more modest during periods outside of regulatory changes while over the longer term, still exhibiting the double-digit growth we have delivered historically based in part on a dynamic and evolving regulatory environment. For the fourth quarter, on a year-over-year basis, in addition to overlapping the TSR uplift, we will also overlap a contract renewal with a strategic client during last year's fourth quarter that produced favorable economics since the renewal. These factors combined to create a tough comparison versus the fourth quarter of last year when Arc Suite grew 23% year-over-year. I am encouraged by the continued adoption of Arc Suite among investment company clients as we build on the sales momentum and positive market response since launching our TSR solution. As it relates to Venue, we delivered improved year-over-year sales performance in the third quarter, increasing by approximately 3% compared to the third quarter of last year. We remain encouraged by Venue's performance, which benefits from stable demand from both announced and unannounced deals across public and private companies alike. To further solidify Venue's market position as a leading virtual data room for M&A due diligence, we launched a new version of Venue during the third quarter following a comprehensive rebuild. The redesigned Venue delivers a highly intuitive user experience, empowers clients to manage complex transactions more efficiently, streamline collaboration within deal teams, and safeguard sensitive information throughout the deal life cycle. Following the rollout, we have received very positive client feedback. Venue's modern architecture positions us well to efficiently add further capabilities as needed. We expect the new product launch will strengthen Venue as the data room of choice for corporate transactions. In addition to introducing new Venue, which serves our capital markets clients, during the third quarter, we released for broad adoption ArcFlex, the newest module within Arc suite, designed specifically to meet the needs of investment companies focused on alternative investments. ArcFlex is a purpose-built financial and regulatory offering tailored for a wide range of private investment institutions, including hedge funds, private equity, and business development companies. By leveraging the foundational capabilities within the DFIN platform, ArcFlex builds on existing services to provide enhanced solutions customized for private fund clients. Coupled with DFIN's deep domain and service expertise, ArcFlex is well-positioned as the leading end-to-end financial and regulatory reporting solution serving the growing private funds market. New Venue and ArcFlex are the latest in a series of new software introductions made possible by our focused investments to accelerate the modernization, innovation, and growth of our software portfolio. Over the past several years, these investments have enabled us to launch or modernize a majority of our software products. Our investments have enabled us to increase development velocity, bring new solutions to market more efficiently by leveraging the platform capabilities of our single compliance platform, and empower our clients to adapt quickly to an evolving regulatory environment, all while incorporating the most modern technology. Before turning the call over to Dave, I'd like to comment on the U.S. government shutdown and the related impact on our outlook for Capital Markets deal activity. Since the shutdown began on October 1, the SEC's Division of Corporation Finance has been unable to review or accelerate registration statements, issue comment letters, or provide interpretive guidance. As a result, the SEC's ability to declare registration statements effective has been curtailed, impacting IPO activity as well as other capital markets transactions so far in the fourth quarter. While some transactions, including select IPO pricings, are taking place within a limited window without SEC comment, most of the planned transactional activity has been paused. Overall, the shutdown has delayed the positive momentum in capital markets deal activity over the last two quarters. Based on what we experienced during the previous government shutdown, the shutdown represents a shift in the timing of when transactions complete, as most deals that were paused during the previous shutdown were reactivated when the SEC reopened. While the duration of the shutdown remains uncertain, we continue to support our clients in preparing transactions so they remain ready to move quickly when regulatory operations at the SEC resume. DFIN's strong client relationships and market leadership position us well to capture the latent demand when activity levels normalize. 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. Before I discuss our third quarter operating performance, I'd like to recap one housekeeping item. As detailed in our press release issued on October 23, during the third quarter, we successfully completed the termination of our primary defined benefit pension plan, which had been frozen and closed since 2011. As part of this transaction, we made a $12.5 million cash contribution in the third quarter to fully fund the plan, which was recorded as a use of cash within the operating activities section of the statement of cash flows and settled the plan obligations through a combination of lump sum payments to certain plan participants and the purchase of a group annuity contract from a third-party insurer. In addition, as a result of the planned settlement, we remeasured the plan's assets and obligations and recognized a noncash pretax settlement charge of $82.8 million, or $60.3 million on an after-tax basis, resulting in a negative EPS impact of $2.20 per diluted share due to the recognition of unrealized accumulated planned losses previously reported within accumulated other comprehensive loss on the balance sheet. Finally, the settlement of the plan resulted in the removal of approximately $10 million of net liability from our balance sheet, comprised of approximately $200 million of plan obligations and approximately $190 million of plan assets. We are pleased with this outcome, which will further enhance our financial flexibility and reduce future administrative and financial volatility associated with the legacy pension plan. Now turning to our third quarter operating performance. As Dan noted, we delivered strong results within the backdrop of an improved operating environment, highlighted by an acceleration in Software Solutions growth and year-over-year increases in adjusted EBITDA and adjusted EBITDA margin. We posted approximately 10% growth in our Software Solutions net sales, including approximately 16% sales growth in our recurring compliance software products, all while continuing to drive operating efficiencies and expanding adjusted EBITDA margin to 28.2%. On a consolidated basis, total net sales for the third quarter of 2025 were $175.3 million, a decrease of $4.2 million, or 2.3%, from the third quarter of 2024. Third quarter net sales were at the high end of our guidance range driven by lower volume in our Compliance and Communications Management segments, which declined $12.7 million in aggregate, with Compliance revenue across the capital markets and investment companies businesses accounting for $8.3 million of the decline. The reduction in Compliance revenue was mostly reflected in lower print and distribution volume related to both the ongoing decline in this area, consistent with recent trends, as well as the timing impact of certain investment companies print volume that shifted from the third quarter into the fourth quarter this year. In addition, total event-driven transactional revenue declined by $4.4 million year-over-year primarily as a result of the lower volume for foreign issuer transactions on U.S. exchanges, partially offset by stronger U.S. IPO volume. These declines were partially offset by growth in Software Solutions net sales, which increased $8.5 million, or 10.3%, compared to the third quarter of last year. Third quarter adjusted non-GAAP gross margin was 62.7%, approximately 100 basis points higher than the third quarter of 2024, primarily driven by higher Software Solutions net sales, the impact of cost control initiatives, and price uplifts, partially offset by lower capital markets transactional volume. Adjusted non-GAAP SG&A expense in the quarter was $60.5 million, a $7.1 million decrease from the third quarter of 2024. As a percentage of net sales, adjusted non-GAAP SG&A was 34.5%, a decrease of approximately 320 basis points from the third quarter of 2024. The decrease in adjusted non-GAAP SG&A expense was primarily driven by the impact of cost control initiatives, a reduction in selling expense related to lower sales in certain areas, and lower bad debt expense, which continued to normalize in the third quarter, partially offset by higher healthcare expense. Our third quarter adjusted EBITDA was $49.5 million, an increase of $6.3 million, or 14.6%, from the third quarter of 2024. Third quarter adjusted EBITDA margin was 28.2%, an increase of approximately 410 basis points from the third quarter of 2024, primarily driven by higher Software Solutions net sales, cost control initiatives, and lower selling expense as a result of the decrease in sales volume, partially offset by lower capital markets transactional volume and higher healthcare expense. Turning now to our third quarter segment results. Net sales in our Capital Markets - Software Solutions segment were $59 million, an increase of $5.7 million, or 10.7%, from the third quarter of last year, primarily driven by ActiveDisclosure, which was up $4.7 million year-over-year. During the third quarter, ActiveDisclosure sales grew approximately 26%, an acceleration of the stronger growth trend we experienced over the last three quarters, primarily driven by the continued adoption of ActiveDisclosure subscription service packages and the ongoing migration of certain activities historically performed on our traditional services platform. The migration to a hybrid model enables clients to leverage the combination of ActiveDisclosure and the DFIN service model. Specific to the shift of traditional activities to ActiveDisclosure, during the quarter, we experienced an increase in the volume of IPO activity taking advantage of the hybrid offering with clients using ActiveDisclosure for the drafting and filing of S-1 documents, resulting in higher usage of ActiveDisclosure for certain IPO transactions. We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth, part of which will be influenced by the amount of event-driven transactional activity that takes place on the platform. Net sales of Venue increased approximately $1 million, or 3%, compared to the third quarter of last year when Venue grew approximately 27% year-over-year. A resilient level of underlying activity taking place on the platform, coupled with our recent launch of a new venue creates a strong foundation for future sales growth. Adjusted EBITDA margin for the segment was 34.9%, an increase of approximately 1,010 basis points from the third quarter of 2024, primarily due to the increased sales, cost control initiatives, and lower bad debt expense. Net sales in our Capital Markets - Compliance & Communications Management segment were $57.2 million, a decrease of $6.3 million, or 9.9%, from the third quarter of 2024, driven by lower transactional revenue as well as a reduction in compliance volume, part of which was related to lower print and distribution sales consistent with recent trends. In the third quarter, we recorded $41.8 million of capital markets transactional revenue, which exceeded the high end of our expectations, yet was down $3.5 million from last year's third quarter. Following the second quarter, when we experienced sequential improvement in transactional revenue as the quarter progressed, the uptick in the level of capital markets deal activity, especially in the market for new equity issuances in the U.S., strengthened in the third quarter with the number of regular way IPO transactions that raised over $100 million, exceeding last year's levels. As such, we realized approximately a 25% year-over-year increase in our transactional revenue related to U.S. IPO activity. However, the improvement in U.S. IPO activity was more than offset by the soft market for foreign issuance transactions and large public company M&A deals, which remained a headwind on a year-over-year basis and combined to more than offset the growth in IPO revenue. With the outlook for the capital markets transactional environment uncertain, in part due to the impact of the government shutdown, DFIN remains very well positioned to capture future demand for transactional-related products and services when market activity resumes. Capital Markets Compliance revenue decreased by $2.8 million, or 15.4%, compared to the third quarter of 2024, driven primarily by lower volume of compliance work, including the related printing and distribution, consistent with the trend from the first half of the year. In addition, we continue to experience lower market demand for certain event-driven filings such as 8-K and special proxies associated with corporate transactions. Adjusted EBITDA margin for the segment was 34.3%, an increase of approximately 260 basis points from the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to cost control initiatives, lower selling expense as a result of lower sales volume, and lower bad debt expense, partially offset by lower sales volume. Net sales in our Investment Companies - Software Solutions segment were $31.7 million, an increase of $2.8 million, or 9.7%, versus the third quarter of 2024, driven by growth in subscription revenue. As expected, the growth rate in the third quarter was more modest compared to the levels we delivered in the last several quarters as we started to overlap the uplift in software revenue as a result of the tailored shareholder reports regulation, which became effective in July of last year. As Dan stated earlier, we expect a tough comparison against last year's fourth quarter as we overlap uplifts associated with both TSR and the strategic contract renewal, which benefited our performance last year. Adjusted EBITDA margin for the segment was 36.6%, an increase of approximately 580 basis points from the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in net sales, price uplifts, and cost control initiatives, partially offset by higher service-related costs associated with the tailored shareholder reports offering. Net sales in our Investment Companies - Compliance & Communications Management segment were $27.4 million, a decrease of $6.4 million, or 18.9%, from the third quarter of 2024, primarily driven by lower print and distribution volume, which accounted for $4.1 million of the year-over-year decline, and lower compliance revenue. Third quarter print and distribution revenue within this segment was impacted by the timing shift of certain volume related to tailored shareholder reports for the variable annuity market from the third quarter into the fourth quarter of this year, as well as the ongoing impact of lower page counts related to tailored shareholder reports for the mutual fund industry. Going forward, we expect a broader secular decline in the demand for printed products, which we expect in the range of 5% to 6%, will continue to result in lower print and distribution revenue within this segment in addition to any future regulatory change-driven impacts. Adjusted EBITDA margin for the segment was 34.7%, approximately 450 basis points higher than the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to lower selling expense and cost control initiatives, partially offset by the impact of lower sales volume. Non-GAAP unallocated corporate expenses were $11.8 million in the quarter, an increase of $2.6 million from the third quarter of 2024, primarily due to higher healthcare expense, partially offset by cost control initiatives. As it relates to the increase in healthcare expense, the variance was driven by a single outsized claim, a portion of which is eligible for reimbursement through a stop-loss insurance policy. The company received a $2.8 million reimbursement this week in accordance with that policy. And as such, we will record the $2.8 million recovery in our fourth quarter results. Free cash flow in the quarter was $59.2 million, $8.1 million lower than the third quarter of 2024. The year-over-year decline in free cash flow was primarily driven by unfavorable working capital and the one-time cash contribution related to the pension plan settlement, partially offset by lower cash tax payments, higher adjusted EBITDA, and lower capital expenditures. We ended the quarter with $154.7 million of total debt and $132 million of non-GAAP net debt, including $43 million drawn on our revolver. As of September 30, 2025, our non-GAAP net leverage ratio was 0.6x. Regarding capital deployment, we repurchased approximately 659,000 shares of common stock during the third quarter for $35.5 million at an average price of $53.79 per share. Year-to-date through September 30, we've repurchased approximately 2.3 million shares for $111.6 million at an average price of $48.35 per share. As of September 30, 2025, we had $114.5 million remaining on our current $150 million stock repurchase authorization. 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 fourth quarter of 2025, we expect consolidated fourth quarter net sales in the range of $150 million to $160 million and adjusted EBITDA margin in the range of 22% to 24%, which at the midpoint represents an increase of approximately 300 basis points compared to last year's fourth quarter, where we posted adjusted EBITDA margin of approximately 20%. Our fourth quarter adjusted EBITDA guidance reflects the stop-loss reimbursement of approximately $2.8 million received this week, as I noted earlier. In terms of our revenue guidance, the midpoint of $155 million implies a reduction of approximately 1% compared to the fourth quarter of last year as lower print and distribution sales and lower capital markets transactional sales are expected to more than offset growth in Software Solutions. I'll also provide a bit more color on our assumptions for the capital markets transactional sales. Due to the impacts of the government shutdown and the resulting increase in uncertainty around the timing of deal completions, our expectations for capital markets transactional revenue reflect a temporary softening relative to the recent trajectory. Our estimates assume capital markets transactional net sales in the range of $30 million to $40 million, which at the midpoint is down approximately $2.7 million from last year's fourth quarter and represents a sequential decline of approximately $7 million from the third quarter of this year, solely due to the government shutdown. This guidance assumes transactions that were approved before the shutdown will proceed in the normal course of business. As it relates to new transactions, in line with what we have seen thus far in October, we expect some deals such as IPOs currently in the pipeline to be completed during the fourth quarter based on guidance provided by the SEC, though we expect most in-process deals will be delayed. Conversely, our guidance assumes a continuation of the year-over-year growth trend we've seen in Venue driven by the new product release and further supported by an improvement in underlying market activity.

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. Our solid financial profile provides us with the foundation to continue to execute our strategic transformation. While the government shutdown has injected uncertainty into the capital markets transactional environment, the combination of our strong market position and deep domain expertise positioned DFIN well to capitalize on the return to a more normalized level of activity. We are in the midst of preparing our 2026 operating plan and extending our long-range plan through 2030. In 2026, we expect to build on the positive momentum in growing our software solutions portfolio, including accelerating the shift of our traditional compliance activities to SaaS, continued operational transformation, and the execution of our strategy. Through the planning period, we expect continued progress in delivering higher value for our clients, our employees, and our shareholders. Consistent with past practice, we expect to provide an update on 2026 and our long-range projections in February. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world. Now with that, operator, we're ready for questions.

And your first question comes from Charles Strauzer of CJS Securities.

Can you provide any insights on how the government shutdown may affect margins in Q4, along with the revenue guidance you mentioned?

Yes, Charlie, I'll address that. We have considered the margin effect of reduced transactional revenue within our guidance range. As we previously mentioned, for the fourth quarter, even at the midpoint of 23%, we anticipate an increase of about 300 basis points compared to last year. This aligns with the margin growth we've experienced this year. While there is some negative impact expected in Q4, we also noted the positive aspect of significant healthcare recovery, which we are set to realize in Q4, and we have already received the related cash. When you examine the 300 basis points of margin expansion, about half is due to this healthcare recovery, while the other half aligns with our ongoing margin growth. As we saw this quarter, if capital markets transactional revenue exceeds expectations, we would likely outperform, similar to our performance in Q3. This will be a key factor in any quarter, especially with the potential government shutdown looming in Q4.

Yes. And then just to add, and maybe Craig can also provide some context to past shutdowns and impact. But the impact of the shutdown, as we said, is primarily in our capital markets transactions area, all of the compliance activities that run through the SEC continue during the shutdown other than those that are associated with transactions, but minimal impact to venue, and Craig can speak to both venue and then what we've seen from past shutdowns.

Yes, Charlie, to expand on Dave and Dan's comments, the SEC has issued guidance that clarifies how companies can proceed with IPOs. Unlike previous shutdowns, the IPO market is largely stalled, although there are exceptions. The SEC cannot approve a registration statement but has advised companies to submit a completed statement and then wait 20 days. Some companies are moving forward. In October, we have seen five listings completed, four of which are traditional IPOs exceeding $100 million, including two DFIN transactions. Additionally, we successfully completed a significant direct listing this month with Obook, which saw an increase of 480%, also a DFIN deal. Looking ahead, Renaissance Capital indicates that six companies plan to price soon following the SEC's 20-day guidance, with DFIN partnering with five of those. In total, including these six, there are 13 publicly filed companies with a placeholder of $50 million or more that have not yet priced. A recent DFIN-supported deal, Medline, could become the year's largest IPO, demonstrating that despite the shutdown, the IPO market is still progressing. DFIN's involvement in these 13 deals is at 69%. We have a strong pipeline of companies filing confidentially and an IPO pipeline of requests for proposals. This situation has definitely impacted activities. While things have slowed down, they haven't completely halted due to the 20-day rule. Additionally, in relation to the M&A comments made by Dan, DFIN is well-positioned to offer M&A support from initial deal concepts through to public announcement processes. Venue presents a positive outlook, as indicated by our Q3 results showing an uptick in activity, and the launch of a new product has been well-received by clients. Venue’s framework will provide significant leverage in the future, and we anticipate that the product launch will reinforce Venue as the preferred data room, with achievements expected in upcoming quarters. However, M&A on the traditional front has been affected. The already complex regulatory landscape has been made more challenging by the government shutdown. Accordingly, we expect transactions originally scheduled to close in Q4 to be postponed until 2026 due to regulatory delays. While we are confident that the government will eventually reopen, we cannot predict when. We have experienced similar situations previously. These postponed transactions will eventually be completed, but it may push into 2026, and there will be a backlog to address once the government resumes operations. Additionally, we are approaching the holiday season in November and December. Despite these challenges, underlying activity remains strong, and DFIN is prepared.

Great. Shifting gears a little bit to the talk about SEC reporting frequency from quarterly to potentially semiannual. How are you thinking about that? And any knowledge you could share with us?

Yes, that's a great question. We are actively monitoring the situation regarding the proposal to reduce the frequency of corporate reporting. Currently, there are many questions that remain unanswered. For instance, will the proposal necessitate more disclosure in a semiannual report compared to a current 10-Q? What will the requirements for XBRL tagging be? Additionally, the SEC might decide to maintain the requirement for quarterly earnings 8-Ks, which could potentially be more extensive. We are also looking into what transpired in Europe, where companies generally opted not to reduce their reporting frequency when given the choice. Therefore, we are uncertain about the adoption rate in the U.S. Considering these uncertainties, we are continuing to develop models and monitor the situation. It's important to highlight that the majority of our 10-Qs are on ActiveDisclosure, a subscription-based service that operates under long-term contracts. This subscription model protects DFIN from most public changes that might arise from this situation, as it's based on software delivery rather than a per-filing fee. Thus, while we are keeping a close watch, we have some protection against potential impacts.

I wanted to follow up on this resurgence of SPAC IPOs that we've seen. Over the last, what, 4 to 6 quarters, when we think about DFIN's participation there, I guess, how much of DFIN not getting retained on some of these deals is the company's choice and worries about potentially those deals not getting done? And how much of it is just a more competitive set of competitors kind of on these lower-end IPOs?

Yes. DFIN is selective in our SPAC go-to-market. And as you're familiar with the reasons why risk of liquidation, delisting, merger terminations, there is an increase in the quantity and there are a few quality deals, and those are the ones that we play at. Our share in this increased market has declined, but it's declined because 58% of the year-to-date deals are nano microcap companies, 25% are trading below $5 per share, 33% are international. Most of those have an international provider. And 50% of the SPACs have been public for over 3 years, so they're struggling to find a target. So we continue to be selective due to these reasons. We're aware of the activity levels and remain really diligent on reviewing the opportunities. We are participating in quality SPAC and de-SPAC deals with Tier 1 deal teams. And the issuers that use a competitor for a SPAC merger and have completed it, we're attacking those clients and winning their future '34 Act reporting on ActiveDisclosure, so contracted revenue. So some of these companies, when they get through, we're able to upgrade them from the lower-end providers.

That's helpful. Regarding the Venue in October, I'm curious if you can share any insights. We've noticed an increase in larger M&A deals in the banking sector and other sectors. Are you experiencing the benefits of that? If there's a slowdown in government reviews affecting the M&A process toward closing, do you anticipate seeing that in October and November? What are your thoughts on the timing? Additionally, in past shutdowns, how quickly does the catch-up happen?

Go ahead, Dave.

Certainly, the momentum we observed in Venue during the third quarter is reflected in our guidance for the fourth quarter as well. The underlying activity remains strong, and despite the shutdown and pending deals, we are optimistic. If we look at the market by the number of completed deals, the perspective may differ from the activity happening below the surface. We are confident in our position with Venue, particularly with the new product introduced to the market and the positive reception so far.

To build on that, Dave, thank you. We're playing in the formal process of deals coming to market. So before they're announced, certainly before they close. So as Dave said, excited by that opportunity. We have pitches that are up, opportunity creation that is up, so all moving in the right direction as we see what you see. Given that we have this broad application serving both announced and unannounced, we have a lot of activity there, but certainly, the government shutdown is worsening an already complex regulatory landscape. So I think you're probably referencing the antitrust. You have health care technology and energy deals that are delayed. They already were delayed given the HSR Act updates, which has added time and complexity to the process. The government shutdown exacerbated this. So again, likely to see these deals that had anticipated to close, close later potentially in 2026. So what we expect to see is a government that opens. It will take a while to get moving again. One of the things that's been eliminated during the shutdown is the Trump administration have been able to terminate the waiting period. But with the shutdown, they don't have the staff to do it. So we would anticipate a build. It likely will be in 2026.

I wanted to start off, the tax rate this quarter. It looks like you guys had a pretty big kind of one-time benefit. Is that related to the pension plan settlement and everything like that? Or were there any discrete items or anything that skewed the tax rate around this quarter that we should be mindful of?

Yes, Kyle, I think we talked about the pretax pension charge of just over $80 million, the post-tax at $60 million. So certainly, the pension tax component of that weighed on the GAAP tax rate. I think in the non-GAAP tax rate, a little bit different story there where we exclude it but some small dollars of adjustments there related to different tax legislation, etc., can impact that rate.

Okay. That's helpful. So even though you guys settled the pension formally in the fourth quarter, it was a tax noise item in the third quarter.

So, Kyle, just to be clear, we settled in the third quarter.

You announced it in the fourth quarter, but that's super helpful. I wanted to follow up on Venue, and I understand it might be a bit challenging to answer. Is there any way you could share some insights or detail the momentum you are seeing in Venue? For example, can you distinguish between the benefits from the redesigned product and the potential increase in activity? What do you believe has been the main driver of the improved performance? Additionally, how should we consider the timeframe for gaining traction based on past product refreshes? That would be helpful.

Yes. I'll start and then, Craig, if you want to jump in. I think when you look at Venue, obviously, we showed the growth this quarter. But if you take a longer-term view of Venue, we grew in the mid-20% range last year. We were overlapping a quarter in Q3 that was right along those growth rates. So I would say sales execution has been the key component to driving the growth that we've seen. That team has done a really nice job in terms of, as Craig talked about, generating new opportunities and converting those opportunities. With respect to the new product, I would say it had a very, very modest impact in Q3. We would expect more of an impact in Q4 and then certainly, the bulk of the impact of the new product to start to hit in 2026. So I think the impact of the new product, the better days due to that product are on the horizon here for us. Craig?

I will elaborate on the Horizon aspect. Our results so far are attributed to our execution. The earlier results this year were influenced by Liberation Day, which temporarily stalled the market. Currently, we have absorbed that situation and the mergers and acquisitions opportunities have certainly increased. We introduced the new version of Venue in the first weeks of October, and these launch events are still ongoing. Therefore, what you are observing is mainly a result of our execution before the launch. We believe we have a product that is the most purpose-built based on decades of experience, and our clients are very pleased with it. We anticipate that this new product launch will reinforce our position as the preferred data room provider in the coming quarters. Our Venue team will continue to deliver excellence, and we will maintain our focus on sales execution, gaining market share, and pricing, now bolstered by this outstanding new product.

Okay. That's super helpful. And then if I could squeeze one last one in here. Are you guys thinking about capital allocation at this point, you guys have taken a lot of the uncertainty or volatility out of the pension liability at this point. Cash flow continues to improve, at least the market doesn't seem to be giving guys credit for at least like a strong pipeline and whenever the shutdown gets resolved, we'll have a resurgence in activity. But I guess, like how are you guys kind of thinking and kind of rank to order like uses of excess cash flow between buybacks and other uses? Any color there, I think, would be helpful for everyone on the call.

Yes, thank you, Kyle. There has been no change from our historical approach. Our top priority remains having the financial flexibility to carry out our transformation and strategy. We have considerable financial flexibility and capacity. As demonstrated in the last quarter and back in April, we have been proactive in buying back shares at the right moments. When we consider priorities, we focus on our strategy, maintaining financial flexibility, seizing opportunities for share repurchases, and being disciplined. We are also exploring options to accelerate investments in the business, whether organically or inorganically, but only if it aligns with our strategy.

And there are no questions at this time. I will now turn the conference back over to Dan Leib for closing remarks.

Great. Thank you, and thank you, everyone, for joining, and we look forward to speaking with you soon. Thanks.

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