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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-37728

Donnelley Financial Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware

36-4829638

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

35 West Wacker Drive,

Chicago, Illinois

60601

(Address of principal executive offices)

(Zip code)

(800) 823-5304

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock (Par Value $0.01)

 

DFIN

 

NYSE

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

As of April 26, 2024, 29,315,874 shares of common stock were outstanding.

 

 

 


 

 

DONNELLEY FINANCIAL SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

 

TABLE OF CONTENTS

 

 

 

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

3

Part I

FINANCIAL INFORMATION

 

 

Item 1:

Condensed Consolidated Financial Statements (unaudited)

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023

4

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023

5

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

6

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

7

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023

 

8

 

Notes to Condensed Consolidated Financial Statements

 

9

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3:

Quantitative and Qualitative Disclosure About Market Risk

 

32

Item 4:

Controls and Procedures

 

32

 

Part II

OTHER INFORMATION

 

 

Item 1:

Legal Proceedings

 

33

Item 1A:

Risk Factors

 

33

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3:

Defaults Upon Senior Securities

 

33

Item 4:

Mine Safety Disclosures

 

33

Item 5:

Other Information

 

33

Item 6:

Exhibits

 

34

Signatures

35

 

 

 

2


 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Donnelley Financial Solutions, Inc. and subsidiaries (“DFIN” or the “Company”) has made forward-looking statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company. These statements may include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and variations of such words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are not guarantees of future performance. These forward-looking statements are subject to a number of important factors, including those factors discussed in detail in Part I, Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20, 2024 (the “Annual Report”), in addition to those discussed elsewhere in this Quarterly Report, that could cause the Company’s actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:

the volatility of the global economy and financial markets, and its impact on transactional volume;
failure to offer high quality customer support and services;
the retention of existing, and continued attraction of additional clients;
failure to maintain the confidentiality, integrity and availability of systems, software and solutions as a result of a material breach of security or other performance issues;
the growth of new technologies and changes in client demands, to which the Company may not be able to adequately adapt;
the Company’s inability to maintain client referrals;
the competitive market for the Company’s products, clients’ budgetary constraints and industry fragmentation affecting prices;
the ability to gain client acceptance of the Company’s new products and technologies;
failure of disaster recovery and business continuity plans to adequately respond to a material disruptive event;
undetected errors or failures found in the Company’s services and products could tie-up customer support resources or delay market acceptance of the Company’s services and products;
the retention of existing, and continued attraction of key employees, including management;
failure to properly use and protect client and employee information and data;
the effect of availability, quality, security or other performance issues of any of the Company’s or third-party systems or services;
factors that affect client demand, including changes in economic conditions and national or international regulations;
the Company’s ability to access debt and the capital markets due to adverse credit market conditions;
the effect of increasing costs of providing healthcare and other benefits to employees;
changes in the availability or costs of key materials (such as ink and paper);
failure to protect the Company’s proprietary technology;
ability to maintain the Company’s brands and reputation;
funding obligations arising from multiemployer pension plans obligations of the Company’s former affiliates;
the effects of operating in international markets, including fluctuations in currency exchange rates;
the effect of economic and political conditions, including global health crises and geopolitical instability, on a regional, national or international basis.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of the Quarterly Report should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. Except to the extent required by law, the Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this Quarterly Report to reflect any new events or any change in conditions or circumstances other than to the extent required by law.

3


 

 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Operations

(in millions, except per share data)

(UNAUDITED)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net sales

 

 

 

 

 

 

Tech-enabled services

 

$

82.9

 

 

$

78.4

 

Software solutions

 

 

80.3

 

 

 

70.1

 

Print and distribution

 

 

40.2

 

 

 

50.1

 

Total net sales

 

 

203.4

 

 

 

198.6

 

Cost of sales (a)

 

 

 

 

 

 

Tech-enabled services

 

 

30.6

 

 

 

33.3

 

Software solutions

 

 

27.3

 

 

 

28.4

 

Print and distribution

 

 

22.2

 

 

 

28.6

 

Total cost of sales

 

 

80.1

 

 

 

90.3

 

Selling, general and administrative expenses (a)

 

 

72.8

 

 

 

70.5

 

Depreciation and amortization

 

 

13.9

 

 

 

12.4

 

Restructuring, impairment and other charges, net

 

 

1.8

 

 

 

10.9

 

Other operating income, net

 

 

(9.8

)

 

 

(0.3

)

Income from operations

 

 

44.6

 

 

 

14.8

 

Interest expense, net

 

 

3.6

 

 

 

3.5

 

Investment and other income, net

 

 

(0.4

)

 

 

(6.9

)

Earnings before income taxes

 

 

41.4

 

 

 

18.2

 

Income tax expense

 

 

8.1

 

 

 

2.4

 

Net earnings

 

$

33.3

 

 

$

15.8

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

Basic

 

$

1.14

 

 

$

0.54

 

Diluted

 

$

1.09

 

 

$

0.52

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

29.3

 

 

 

29.2

 

Diluted

 

 

30.5

 

 

 

30.5

 

 

(a)
Exclusive of depreciation and amortization

See Notes to the Unaudited Condensed Consolidated Financial Statements

4


 

 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(UNAUDITED)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net earnings

 

$

33.3

 

 

$

15.8

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

Translation adjustments

 

 

(0.5

)

 

 

0.2

 

Adjustment for net periodic pension and other postretirement benefits plans

 

 

0.2

 

 

 

0.1

 

Other comprehensive (loss) income, net of tax

 

 

(0.3

)

 

 

0.3

 

Comprehensive income

 

$

33.0

 

 

$

16.1

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

5


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Balance Sheets

(in millions, except per share data)

(UNAUDITED)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

43.7

 

 

$

23.1

 

Receivables, less allowances for expected losses of $20.7 in 2024 (2023 - $18.9)

 

 

194.2

 

 

 

151.8

 

Prepaid expenses and other current assets

 

 

30.2

 

 

 

31.0

 

Assets held for sale

 

 

 

 

 

2.6

 

Total current assets

 

 

268.1

 

 

 

208.5

 

Property, plant and equipment, net

 

 

12.7

 

 

 

13.5

 

Operating lease right-of-use assets

 

 

14.3

 

 

 

16.4

 

Software, net

 

 

90.5

 

 

 

87.6

 

Goodwill

 

 

405.7

 

 

 

405.8

 

Deferred income taxes, net

 

 

47.0

 

 

 

45.8

 

Other noncurrent assets

 

 

29.5

 

 

 

29.3

 

Total assets

 

$

867.8

 

 

$

806.9

 

LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

44.0

 

 

$

33.9

 

Operating lease liabilities

 

 

13.0

 

 

 

14.0

 

Accrued liabilities

 

 

122.9

 

 

 

153.7

 

Total current liabilities

 

 

179.9

 

 

 

201.6

 

Long-term debt

 

 

204.5

 

 

 

124.5

 

Deferred compensation liabilities

 

 

13.4

 

 

 

13.1

 

Pension and other postretirement benefits plans liabilities

 

 

33.4

 

 

 

34.4

 

Noncurrent operating lease liabilities

 

 

9.4

 

 

 

12.1

 

Other noncurrent liabilities

 

 

18.3

 

 

 

19.0

 

Total liabilities

 

 

458.9

 

 

 

404.7

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

Authorized: 1.0 shares; Issued: None

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Authorized: 65.0 shares;

 

 

 

 

 

 

Issued and outstanding: 38.8 shares and 29.4 shares in 2024 (2023 - 38.0 shares and 29.1 shares)

 

 

0.4

 

 

 

0.4

 

Treasury stock, at cost: 9.4 shares in 2024 (2023 - 8.9 shares)

 

 

(293.4

)

 

 

(262.1

)

Additional paid-in capital

 

 

310.7

 

 

 

305.7

 

Retained earnings

 

 

469.4

 

 

 

436.1

 

Accumulated other comprehensive loss

 

 

(78.2

)

 

 

(77.9

)

Total equity

 

 

408.9

 

 

 

402.2

 

Total liabilities and equity

 

$

867.8

 

 

$

806.9

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

6


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Cash Flows

(in millions)

(UNAUDITED)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net earnings

 

$

33.3

 

 

$

15.8

 

Adjustments to reconcile net earnings to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

13.9

 

 

 

12.4

 

Provision for expected losses on accounts receivable

 

 

4.5

 

 

 

3.6

 

Share-based compensation expense

 

 

5.1

 

 

 

4.3

 

Deferred income taxes

 

 

(1.4

)

 

 

(2.9

)

Net pension plan income

 

 

(0.3

)

 

 

(0.2

)

Gain on sale of long-lived assets

 

 

(9.8

)

 

 

(0.3

)

Gain on investments in equity securities

 

 

(0.1

)

 

 

(6.7

)

Amortization of operating lease right-of-use assets

 

 

2.3

 

 

 

3.7

 

Other

 

 

0.3

 

 

 

0.2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables, net

 

 

(47.2

)

 

 

(39.7

)

Prepaid expenses and other current assets

 

 

(6.4

)

 

 

(7.2

)

Accounts payable

 

 

6.4

 

 

 

0.6

 

Income taxes payable and receivable

 

 

7.5

 

 

 

2.2

 

Accrued liabilities and other

 

 

(31.9

)

 

 

(32.8

)

Operating lease liabilities

 

 

(3.7

)

 

 

(4.1

)

Pension and other postretirement benefits plans contributions

 

 

(0.4

)

 

 

(0.4

)

Net cash used in operating activities

 

 

(27.9

)

 

 

(51.5

)

INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures

 

 

(12.3

)

 

 

(10.6

)

Proceeds from sale of long-lived assets

 

 

12.4

 

 

 

 

Proceeds from sales of investments in equity securities

 

 

0.1

 

 

 

8.9

 

Net cash provided by (used in) investing activities

 

 

0.2

 

 

 

(1.7

)

FINANCING ACTIVITIES

 

 

 

 

 

 

Revolving facility borrowings

 

 

138.5

 

 

 

99.0

 

Payments on revolving facility borrowings

 

 

(58.5

)

 

 

(33.5

)

Treasury share repurchases

 

 

(30.8

)

 

 

(18.4

)

Cash received for common stock issuances

 

 

 

 

 

1.2

 

Finance lease payments

 

 

(0.6

)

 

 

(0.6

)

Net cash provided by financing activities

 

 

48.6

 

 

 

47.7

 

Effect of exchange rate on cash and cash equivalents

 

 

(0.3

)

 

 

0.1

 

Net increase (decrease) in cash and cash equivalents

 

 

20.6

 

 

 

(5.4

)

Cash and cash equivalents at beginning of year

 

 

23.1

 

 

 

34.2

 

Cash and cash equivalents at end of period

 

$

43.7

 

 

$

28.8

 

Supplemental cash flow information:

 

 

 

 

 

 

Income taxes paid (net of refunds)

 

$

1.9

 

 

$

2.7

 

Interest paid

 

$

2.8

 

 

$

4.1

 

Non-cash investing activities:

 

 

 

 

 

 

Non-cash consideration from sale of investment in an equity security (Note 1)

 

$

 

 

$

2.9

 

Capitalized software included in accounts payable

 

$

3.8

 

 

$

3.7

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

7


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2024 and 2023

(in millions)

(UNAUDITED)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

 

38.0

 

 

$

0.4

 

 

 

8.9

 

 

$

(262.1

)

 

$

305.7

 

 

$

436.1

 

 

$

(77.9

)

 

$

402.2

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33.3

 

 

 

 

 

 

33.3

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.3

)

 

 

(0.3

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

 

 

5.0

 

Common stock repurchases

 

 

 

 

 

 

 

 

0.1

 

 

 

(8.8

)

 

 

 

 

 

 

 

 

 

 

 

(8.8

)

Issuance of share-based awards, net of withholdings and other

 

 

0.8

 

 

 

 

 

 

0.4

 

 

 

(22.5

)

 

 

 

 

 

 

 

 

 

 

 

(22.5

)

Balance at March 31, 2024

 

 

38.8

 

 

$

0.4

 

 

 

9.4

 

 

$

(293.4

)

 

$

310.7

 

 

$

469.4

 

 

$

(78.2

)

 

$

408.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

36.9

 

 

$

0.4

 

 

 

8.0

 

 

$

(221.8

)

 

$

280.2

 

 

$

353.9

 

 

$

(83.2

)

 

$

329.5

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.8

 

 

 

 

 

 

15.8

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

 

0.3

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.3

 

 

 

 

 

 

 

 

 

4.3

 

Common stock repurchases

 

 

 

 

 

 

 

 

 

 

 

(1.3

)

 

 

 

 

 

 

 

 

 

 

 

(1.3

)

Issuance of share-based awards, net of withholdings and other

 

 

1.0

 

 

 

 

 

 

0.4

 

 

 

(17.0

)

 

 

1.1

 

 

 

 

 

 

 

 

 

(15.9

)

Balance at March 31, 2023

 

 

37.9

 

 

$

0.4

 

 

 

8.4

 

 

$

(240.1

)

 

$

285.6

 

 

$

369.7

 

 

$

(82.9

)

 

$

332.7

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

8


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

 

Note 1. Overview, Basis of Presentation and Significant Accounting Policies

Description of Business

DFIN is a leading global provider of innovative software and technology-enabled financial regulatory and compliance solutions. The Company provides regulatory filing and deal solutions via its software, technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve its clients’ regulatory and compliance needs. DFIN helps its clients comply with applicable regulations where and how they want to work in a digital world, providing numerous solutions tailored to each client’s precise needs. The prevailing trend is toward clients choosing to utilize the Company’s software solutions, in conjunction with its tech-enabled services, to meet their document and filing needs, while at the same time shifting away from physical print and distribution of documents, except for when it is still regulatorily required or requested by investors.

The Company serves its clients’ regulatory and compliance needs throughout their respective life cycles. For its capital markets clients, the Company offers solutions that allow companies to comply with U.S. Securities and Exchange Commission (“SEC”) regulations and support their corporate financial transactions and regulatory/financial reporting through the use of digital document creation and online content management tools; filing agent services, where applicable; solutions to facilitate clients’ communications with their investors; and virtual data rooms and other deal management solutions. For investment companies, including mutual fund, insurance-investment and alternative investment companies, the Company provides solutions for creating, compiling and filing regulatory communications as well as solutions for investors designed to improve the access to and accuracy of their investment information.

Services and Products

The Company separately reports its net sales and related cost of sales for its software solutions, tech-enabled services and print and distribution offerings. The Company’s software solutions consist of ActiveDisclosure® (“ActiveDisclosure”), the Arc Suite® software platform (“Arc Suite”) and Venue® Virtual Data Room (“Venue”). The Company’s tech-enabled services offerings consist of document composition, compliance-related SEC Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) filing services and transactional solutions. The Company’s print and distribution offerings primarily consist of conventional and digital printed products and related shipping.

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of DFIN and all majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial data presented herein should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in the Company’s latest Annual Report. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the results of operations, financial position and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year.

Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with GAAP requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical accounting estimates are disclosed in the Annual Report.

Allowances for Expected LossesTransactions affecting the current expected credit loss (“CECL”) reserve during the three months ended March 31, 2024 and 2023 were as follows:

 

 

March 31,

 

 

 

2024

 

 

2023

 

Balance, beginning of year

 

$

18.9

 

 

$

17.1

 

Provisions charged to expense

 

 

4.5

 

 

 

3.6

 

Write-offs, reclassifications and other

 

 

(2.7

)

 

 

(2.6

)

Balance, end of period

 

$

20.7

 

 

$

18.1

 

 

9


Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

 

The components of the CECL reserve balance at March 31, 2024 and December 31, 2023 were as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

Provision for accounts receivable

 

$

20.0

 

 

$

18.5

 

Provision for unbilled receivables and contract assets

 

 

0.7

 

 

 

0.4

 

Total

 

$

20.7

 

 

$

18.9

 

Assets Held for Sale—As of December 31, 2023, the Company had land held for sale with a carrying value of $2.6 million. On March 29, 2024, the Company sold the land for net proceeds of $13.2 million, of which $12.4 million was received in the first quarter of 2024 and $0.8 million of non-refundable fees were received in 2023. The Company recognized a net pre-tax gain of $10.6 million related to the sale, of which $9.8 million was recorded during the three months ended March 31, 2024 and $0.8 million was recognized during the year ended December 31, 2023. The net pre-tax gain was recorded in other operating income, net on the Unaudited Condensed Consolidated Statements of Operations within the Capital Markets - Compliance and Communications Management operating segment.

Property, Plant and Equipment, net—The components of the Company’s property, plant and equipment, net at March 31, 2024 and December 31, 2023 were as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

Land

 

$

0.3

 

 

$

0.3

 

Buildings

 

 

17.2

 

 

 

17.8

 

Machinery and equipment

 

 

67.6

 

 

 

68.0

 

 

 

 

85.1

 

 

 

86.1

 

Less: Accumulated depreciation

 

 

(72.4

)

 

 

(72.6

)

Total

 

$

12.7

 

 

$

13.5

 

During the three months ended March 31, 2024 and 2023, depreciation expense was $1.8 million and $1.9 million, respectively.

Software, net—Capitalized software development costs are amortized over their estimated useful life using the straight-line method, up to a maximum of three years. Amortization expense related to internally-developed software, excluding amortization expense related to other intangible assets, was $12.1 million and $10.3 million for the three months ended March 31, 2024 and 2023, respectively.

InvestmentsThe carrying value of the Company’s investments in equity securities was $5.5 million at both March 31, 2024 and December 31, 2023. The Company measures its equity securities that do not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company performs an assessment on a quarterly basis to determine whether triggering events for impairment exist and to identify any observable price changes. During the three months ended March 31, 2024, there were no events or changes in circumstances that suggested an impairment or an observable price change.

During the three months ended March 31, 2023, the Company sold an investment in an equity security and received proceeds of $11.8 million, including $8.9 million of cash and common stock of the acquiror. The sale resulted in a net realized gain of $6.7 million for the three months ended March 31, 2023, which is included in investment and other income, net, on the Unaudited Condensed Consolidated Statements of Operations within Corporate.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires that an entity disclose consistent categories and greater disaggregation of significant expenses by reportable segment, information regarding the chief operating decision maker (“CODM”) and how the CODM uses the reported measures in assessing segment performance and deciding how to allocate resources, among other amendments that expand segment reporting disclosures. ASU 2023-07 also requires that an entity disclose all information about a reportable segment’s profit or loss and assets currently required annually by FASB Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, in interim periods. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its disclosures to the Unaudited Condensed Consolidated Financial Statements.

10


Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

 

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires that an entity disclose consistent categories and greater disaggregation of information in the income tax rate reconciliation, income taxes paid disaggregated by jurisdiction, among other amendments that expand income tax disclosures. The standard is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its disclosures to the Unaudited Condensed Consolidated Financial Statements.

 

Note 2. Revenue

Revenue Recognition

The Company manages highly-customized data and materials to enable filings with the SEC on behalf of its customers as well as performs tagging of documents using Inline eXtensible Business Reporting Language (“iXBRL”) and other services. Clients are provided with EDGAR filing services, iXBRL compliance services and translation, editing, interpreting, proof-reading and multilingual typesetting services, among other services. The Company provides software solutions to public and private companies, mutual funds and other regulated investment firms to serve their regulatory and compliance needs, including ActiveDisclosure, Arc Suite and Venue, and provides digital document creation, online content management and print and distribution solutions.

Revenue is recognized upon transfer of control of promised services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products. The Company’s services include software solutions and tech-enabled services whereas the Company’s products are comprised of print and distribution offerings. The Company’s arrangements with customers often include promises to transfer multiple services or products to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately requires significant judgment. Certain customer arrangements have multiple performance obligations as certain promises are both capable of being distinct and are distinct within the context of the contract. Other customer arrangements have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, and therefore is not distinct. Revenue for the Company’s tech-enabled services, software solutions and print and distribution offerings is recognized either over time or at a point in time, as further disclosed in the Annual Report.

Disaggregation of Revenue

The following table disaggregates revenue between tech-enabled services, software solutions and print and distribution by reportable segment:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Tech-enabled Services

 

 

Software Solutions

 

 

Print and Distribution

 

 

Total

 

 

Tech-enabled Services

 

 

Software Solutions

 

 

Print and Distribution

 

 

Total

 

Capital Markets - Software Solutions

 

$

 

 

$

53.0

 

 

$

 

 

$

53.0

 

 

$

 

 

$

43.7

 

 

$

 

 

$

43.7

 

Capital Markets - Compliance and Communications Management

 

 

66.0

 

 

 

 

 

 

25.1

 

 

 

91.1

 

 

 

60.7

 

 

 

 

 

 

33.4

 

 

 

94.1

 

Investment Companies - Software Solutions

 

 

 

 

 

27.3

 

 

 

 

 

 

27.3

 

 

 

 

 

 

26.4

 

 

 

 

 

 

26.4

 

Investment Companies - Compliance and Communications Management

 

 

16.9

 

 

 

 

 

 

15.1

 

 

 

32.0

 

 

 

17.7

 

 

 

 

 

 

16.7

 

 

 

34.4

 

Total net sales

 

$

82.9

 

 

$

80.3

 

 

$

40.2

 

 

$

203.4

 

 

$

78.4

 

 

$

70.1

 

 

$

50.1

 

 

$

198.6

 

 

11


Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

 

Unbilled Receivables and Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in contract assets, unbilled receivables or contract liabilities. Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists and therefore invoicing has not yet occurred. The Company generally estimates contract assets based on the historical selling price adjusted for its current experience and expected resolution of the variable consideration of the completed performance obligation. When the Company’s contracts contain variable consideration, the variable consideration is recognized only to the extent that it is probable that a significant revenue reversal will not occur in a future period. As a result, the estimated revenue and contract assets may be constrained until the uncertainty associated with the variable consideration is resolved, which generally occurs in less than one year. Determining whether there will be a significant revenue reversal in the future and the determination of the amount of the constraint requires significant judgment.

Contract assets were $24.2 million and $16.3 million at March 31, 2024 and December 31, 2023, respectively. Generally, the contract assets balance is impacted by the recognition of additional revenue, amounts invoiced to customers and changes in the level of constraint applied to variable consideration. Amounts recognized as revenue exceeded the estimates for performance obligations satisfied in previous periods by approximately $11.0 million and $11.7 million for the three months ended March 31, 2024 and 2023, respectively, primarily due to changes in the Company’s estimate of variable consideration and the application of the constraint.

Unbilled receivables are recorded when there is an unconditional right to payment and invoicing has not yet occurred. The Company estimates the value of unbilled receivables based on a combination of historical customer selling price and management’s assessment of realizable selling price. Unbilled receivables were $50.5 million and $21.6 million at March 31, 2024 and December 31, 2023, respectively. Unbilled receivables and contract assets are included in receivables, less allowances for expected losses on the Unaudited Condensed Consolidated Balance Sheets.

Contract liabilities consist of deferred revenue and progress billings, which are included in accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets. The Company recognized $19.1 million and $17.7 million of revenue during the three months ended March 31, 2024 and 2023, respectively, that was included in the deferred revenue balances at the beginning of the respective periods. Changes in contract liabilities were as follows:

 

 

March 31,

 

 

 

2024

 

 

2023

 

Balance, beginning of year

 

$

46.8

 

 

$

46.1

 

Deferral of revenue

 

 

41.2

 

 

 

41.5

 

Revenue recognized

 

 

(37.0

)

 

 

(34.6

)

Balance, end of period

 

$

51.0

 

 

$

53.0

 

Most of the Company's contracts with significant remaining performance obligations have an initial expected duration of one year or less. As of March 31, 2024, the future estimated revenue related to unsatisfied or partially satisfied performance obligations under contracts with an original contractual term in excess of one year was approximately $121 million, of which approximately 55% is expected to be recognized as revenue over the succeeding twelve months, and the remainder recognized thereafter.

12


Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

 

Note 3. Goodwill

The goodwill balances by reportable segment were as follows:

 

 

Gross book
value at
December 31,
2023

 

 

Accumulated
impairment
charges at
December 31,
2023

 

 

Net book
value at
December 31,
2023

 

 

Foreign
exchange and
other
adjustments

 

 

Net book
 value at
March 31,
2024

 

Capital Markets - Software Solutions

 

$

100.0

 

 

$

 

 

$

100.0

 

 

$

 

 

$

100.0

 

Capital Markets - Compliance and Communications Management

 

 

252.8

 

 

 

 

 

 

252.8

 

 

 

(0.1

)

 

 

252.7

 

Investment Companies - Software Solutions

 

 

53.0

 

 

 

 

 

 

53.0

 

 

 

 

 

 

53.0

 

Investment Companies - Compliance and Communications Management

 

 

40.6

 

 

 

(40.6

)

 

 

 

 

 

 

 

 

 

Total

 

$

446.4

 

 

$

(40.6

)

 

$

405.8

 

 

$

(0.1

)

 

$

405.7

 

 

Note 4. Leases

The Company has operating leases for certain service centers, office space and equipment as well as finance leases primarily related to certain information technology equipment. The Company’s payments related to its operating and finance lease liabilities for the three months ended March 31, 2024 and 2023 were as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash paid related to operating leases

 

$

3.9

 

 

$

4.5

 

Cash paid related to finance leases

 

$

0.6

 

 

$

0.6

 

The components of lease expense for the three months ended March 31, 2024 and 2023 were as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating lease expense:

 

 

 

 

 

 

Operating lease expense

 

$

2.4

 

 

$

3.9

 

Sublease income

 

 

(1.1

)

 

 

(1.1

)

Net operating lease expense

 

$

1.3

 

 

$

2.8

 

 

 

 

 

 

 

 

Finance lease expense:

 

 

 

 

 

 

Amortization of right-of-use assets

 

$

0.6

 

 

$

0.6

 

Interest on lease liabilities

 

 

0.1

 

 

 

0.1

 

Total finance lease expense

 

$

0.7

 

 

$

0.7

 

The Company’s finance lease liabilities as of March 31, 2024 and December 31, 2023 are presented on the Company’s Unaudited Condensed Consolidated Balance Sheets as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

Property, plant and equipment, net

 

$

6.4

 

 

$

7.0

 

 

 

 

 

 

 

 

Accrued liabilities

 

$

2.5

 

 

$

2.5

 

Other noncurrent liabilities

 

 

4.1

 

 

 

4.7

 

Total

 

$

6.6

 

 

$

7.2

 

 

13


Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

 

Other information related to finance leases for the three months ended March 31, 2024 and 2023 was as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Non-cash disclosure:

 

 

 

 

 

 

Increase in finance lease liabilities due to new right-of-use assets

 

$

 

 

$

2.5

 

 

Note 5. Restructuring, Impairment and Other Charges, net

Restructuring, Impairment and Other Charges, net recognized in Results of Operations

The Company records restructuring charges associated with management-approved restructuring plans, which could include the elimination of job functions, closure or relocation of facilities, reorganization of operations, changes in management structure, workforce reductions or other actions. Restructuring charges may include ongoing and enhanced termination benefits related to employee separations, contract termination costs and other related costs associated with exit or disposal activities. Restructuring charges for employee terminations include management’s estimate as to the timing and amount of severance and actual results could differ from estimates.

For the three months ended March 31, 2024 and 2023, the Company recorded the following restructuring, impairment and other charges, net by reportable segment:

 

 

Employee Terminations

 

 

Other Charges

 

 

Total

 

Three Months Ended March 31, 2024

 

 

 

 

 

 

 

 

 

Capital Markets - Compliance and Communications Management

 

$

0.5

 

 

$

0.1

 

 

$

0.6

 

Investment Companies - Software Solutions

 

 

0.1

 

 

 

 

 

 

0.1

 

Corporate

 

 

1.1

 

 

 

 

 

 

1.1

 

Total

 

$

1.7

 

 

$

0.1

 

 

$

1.8

 

 

 

 

Employee Terminations

 

 

Other Charges

 

 

Total