Donnelley Financial Solutions, Inc. Q3 FY2026 earnings call

• Strong Overall Performance: The company delivered third-quarter sales of $185 million, at the high end of guidance, representing a 5.5% year-over-year increase. Adjusted EBITDA reached $54.4 million with an expanded margin of 29.4%, reflecting significant improvement over historical periods.
• Software-Led Transformation: Software solutions now account for 51.5% of total sales in Q3 2026, up from approximately 14% in 2016. The company is successfully transitioning from a print-centric model to a software-led regulatory and compliance provider.
• Active Disclosure Momentum: Active Disclosure continues to be a key growth driver, with year-over-year sales growth of approximately 24%. It has surpassed $100 million in trailing four-quarter revenue. Growth is fueled by increased net client count, higher average value per client, and the migration of IPO registration activities from traditional models to the Active Disclosure platform.
• Venue Product Update: Venue sales were approximately flat year-over-year. While U.S. sales grew by approximately 7% due to strong commercial adoption and focus on key investment banks, international performance (particularly in EMEA) softened due to a tempered deal environment.
• ArcSuite and ArcFlex Strategy: ArcSuite experienced a modest 2% decline, consistent with recent trends as the impact of Tailored Shareholder Reports regulations normalizes. The company introduced ArcFlex to serve the growing private funds market, positioning it as a module within Active Disclosure to leverage common technology capabilities. Commercial adoption of ArcFlex is in early stages, with expected ramp-up in 2027.
• Regulatory Tailwinds: The SEC’s proposed e-delivery rule is expected to redirect demand toward software-based e-delivery solutions, further benefiting the company’s software portfolio while reducing print and distribution demand. The company anticipates full implementation impacts towards 2028.
• Operational Efficiency: Cost control initiatives, price uplifts, and favorable sales mix contributed to improved gross margins (up 210 basis points) and adjusted EBITDA margins (up 120 basis points). Free cash flow increased significantly to $85.8 million.

• Capital Markets Software Solutions: Net sales of $64.1 million, an increase of 8.6% year-over-year. This segment contributed approximately 34.6% of total consolidated revenue for the quarter. Growth was driven by Active Disclosure, which saw a 24% year-over-year increase.
• Capital Markets Compliance and Communications Management: Net sales of $61.9 million, an increase of 8.2% year-over-year. This segment contributed approximately 33.5% of total consolidated revenue. Growth was primarily driven by higher transactional revenue and compliance volume.
• Investment Company Software Solution: Net sales of $31.1 million, a decrease of 1.9% year-over-year. This segment contributed approximately 16.8% of total consolidated revenue. Subscription revenue was flat, while services revenue declined due to lower client implementations associated with Tailored Shareholder Reports.
• Investment Companies Compliance and Communications Management: Net sales of $27.9 million, an increase of 1.8% year-over-year. This segment contributed approximately 15.1% of total consolidated revenue. Growth was driven by higher services revenue, partially offset by lower print and distribution volumes.

• Fourth Quarter 2026 Net Sales: Guidance is set at $175 million to $180 million. The midpoint implies a year-over-year growth of approximately 3%, consistent with the year-to-date growth rate through the first three quarters.
• Fourth Quarter 2026 Adjusted EBITDA Margin: Guidance is between 26% and 27%. The midpoint of 26.5% is flat compared to the fourth quarter of 2025, which included a one-time reimbursement of approximately $3 million related to a stop-loss insurance policy.
• Transactional Sales Assumptions: The outlook assumes capital markets transactional net sales of $50 million for Q4, which is approximately $1 million higher than the previous year's fourth quarter. This includes a small portion reflected within the Capital Markets Software Solutions segment for transactions performed using Active Disclosure.
• Long-Term Outlook: Management expects continued evolution toward a higher-margin software business mix, supported by changing client preferences and new regulations like the SEC’s e-delivery rule.

• Market Volatility in Deal Activity: The softening of the U.S. new equity issuance market in Q3, particularly for regular-way IPOs raising over $100 million, contrasts with strong large M&A deals. Uneven recovery in capital markets activity poses a risk to transactional revenue streams.
• International Headwinds: Slower market activity in the EMEA region negatively impacted Venue sales, highlighting geographic concentration risks and varying regional economic conditions.
• Regulatory Uncertainty: While new regulations offer opportunities, delays or changes in finalization of rules like the SEC’s e-delivery rule could alter the timing and magnitude of expected benefits. The phase-in period may extend impacts into 2028.
• Competitive Pressure: Although management believes they are taking share, the presence of new entrants and smaller competitors offering pieces of the solution requires continuous innovation and investment to maintain competitive advantage.
• Decline in Print/Distribution: The secular decline in printed products and potential reduction in specific event-driven filings (e.g., 8K, special proxies) continue to pressure legacy revenue streams, necessitating successful transition to software and services.

Q: Charles Strauser asked about the assumptions behind the $50 million fourth-quarter capital markets transactional sales guidance and updates on the SEC e-delivery rule. / A: CFO Dave Gardella stated that the guidance aligns with year-over-year improvements seen earlier in the year, assuming slightly stronger IPO activity than Q3 and similar M&A strength. CEO Dan Leib added that comment letters have been submitted regarding the e-delivery rule, but final regulation with a phase-in is pending; benefits to software are expected to offset some print decline, with full impact likely reaching 2028.

Q: Pete Heckmann sought details on Active Disclosure’s sustained growth drivers, the role of ArcFlex in expanding TAM, and when it will become additive to overall growth. / A: Dave Gardella explained that ArcFlex revenue will be de minimis in 2026 and ramp in 2027, with specific TAM estimates to follow later. He noted Active Disclosure’s growth is driven by new product adoption, hybrid service models, and migration of IPO activities from traditional platforms. Private company use cases are growing, often leading to public IPOs on Active Disclosure.

Q: Kyle Peterson inquired about DFIN’s exposure to specific verticals like life sciences versus tech, and requested an update on Venue’s pipeline and go-to-market initiatives. / A: Dave Gardella indicated DFIN plays across all verticals, with slightly heavier share in biotech, noting that a strong IPO market generally benefits the company regardless of sector. Dan Leib highlighted that the new Venue product launched in late 2025 has seen good execution, including entry into bulge bracket banks, resulting in 7% U.S. growth despite EMEA weakness, and expressed confidence in the product path forward.