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Presentation

Donnelley Financial Solutions, Inc. misses on earnings expectations. Reported EPS is $1.47 EPS, expectations were $1.59.

Operator: Thank you for standing by. My name is Aimee and I will be your conference operator for today. At this time I would like to welcome everyone to the Donnelley Financial Solutions Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. It is now my pleasure to turn the call over to Mike Zhao, Head of Investor Relations. You may begin.

Mike Zhao: Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions’ second quarter 2024 results conference call. This morning we have released our earnings report, including a supplemental trending schedule of historical results, copies of which can be found in the Investors section of our website at dfinsolutions.com. During this call, we will refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further details in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA, adjusted EBITDA margin and organic net sales.

We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company’s ongoing operations and is an appropriate way for you to evaluate the company’s performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Dan Leib, Dave Gardella, and other members of management. I will now turn the call over to Dan.

Dan Leib: Thank you Mike, and good morning everyone. I am pleased with our second quarter operating performance. We delivered strong results including improved revenue performance, record quarterly adjusted EBITDA and adjusted EBITDA margin, as well as increases in both operating cash flow and free cash flow. Our second quarter performance highlights the continued progress we are making in our transformation and positions us well to achieve our long-term financial targets. We continue to make progress against a number of the objectives that underpin our long-term plan that we communicated earlier this year. First, we continue to transform DFIN into a solution centric company often delivered by software. Total software solutions net sales grew 14.4% on an organic basis year-over-year, a continuation of the strong growth rate we achieved in the first quarter of this year, comprising 35.3% of total second quarter net sales, an increase of approximately 400 basis points from last year’s second quarter.

As a reminder, the second quarter, largely due to the proxy season, historically represents a seasonal low for software as a percentage of revenue. On a trailing four quarter basis software solutions net sales reached nearly $313 million, growing 10.1% or 11.3% on an organic basis from the second quarter 2023 trailing four quarters, representing 39% of trailing four quarter sales, an increase of approximately 340 basis points. Our second quarter software solutions net sales growth continues to be led by the performance of Venue, our virtual dataroom product, which posted approximately 38% sales growth. We remain encouraged by Venue’s strong performance, which reflects strong sales execution across Venue’s broad application within the M&A ecosystem that serves both public and private companies.

In addition, the growth rates of our recurring compliance software products, ActiveDisclosure and Arc Suite both remain positive in the second quarter, albeit at low single digit growth rate. Looking ahead, we expect the growth rates for ActiveDisclosure and Arc Suite each to improve 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 mix of software solutions net sales during the second quarter that mix shift was accelerated by a reduction in print and distribution revenue, which declined by $7 million, or 11.3%, compared to the second quarter of 2023.

This reduction was realized both in the printing and distribution of proxy statements, as well as lower print associated with capital markets transactions. Excluding print and distribution, second quarter net sales increased by approximately 4%. As software solution and tech-enabled services net sales make up an increasingly larger percentage of our overall net sales, this positive shift is resulting in our sales mix becoming more stable and predictable. On a trailing four quarter basis, sales of our recurring and reoccurring offerings, which include solutions that serve the ongoing compliance needs of corporations and investment companies plus the Venue dataroom, totaled over $590 million and accounted for approximately 74% of total sales, with the remainder, or approximately $210 million being event-driven transactional revenue.

With nearly three quarters of our revenue being either recurring or reoccurring in nature, our business benefits from the stability and predictability inherent in such a revenue model. Especially during times of market volatility as we invest to accelerate our recurring growth while protecting market share in our transactional traditional offerings, we will continue to shift DFIN toward a higher mix of recurring and reoccurring revenue. The shift to a more favorable sales mix in conjunction with disciplined cost management and pricing improvements results in adjusted EBITDA margin expansion as we continue to balance our revenue profile to drive improved profitability. Our second quarter adjusted EBITDA margin of 35.9% raised the trailing four quarter adjusted EBITDA margin to 29%, further providing confidence in our ability to achieve our long-term targets.

Dave will cover our results in more detail, but first, I’d like to provide an update on the Tailored Shareholder Reports regulation, which had a compliance date of July 24. As I have noted previously, as the leader in both financial reporting and regulatory filings for investment companies, DFIN has been at the forefront in helping Mutual Funds and Exchange-Traded Funds clients operationalize the reporting to comply with this regulation. We demonstrated our readiness for TSR by completing critical test filings via both our ArcReporting SaaS solution as well as our services based offering prior to the July 24 compliance date. In the short time since TSR’s compliance date, we have successfully filed multiple live TSR documents on behalf of our clients thus far in July, which reflects DFIN’s proven ability to handle the complexities of the entire TSR ruling by serving 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.

Given we are in the early days of TSR compliance, DFIN remains focused on assisting our clients to comply with the requirements under this regulation. As we look beyond TSR to an increasingly complex regulatory and compliance environment, DFIN stands ready to serve future regulatory changes. Amongst the changes, the Financial Data Transparency Act, which passed in December of 2022, expansion of statutory reporting to local government agencies and financial reporting for alternative investments are a few examples of regulatory changes, which have the potential to create future opportunities for DFIN. As the regulatory landscape continues to evolve, our advanced technology platform and industry leading service capabilities put DFIN in an excellent position to capture recurring revenue opportunities.

Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our second quarter results and our outlook for the third quarter. Dave?

Dave Gardella: Thank you, Dan, and good morning everyone. Before I discuss our second quarter financial performance, I’d like to recap one housekeeping item. Concurrent with the release of our second quarter results, we published a set of software operating metrics for ActiveDisclosure and Arc Suite, which can be found within our supplemental trending schedule of our historical results posted on our Investor relations website. The publication of these software metrics reflects our efforts to provide investors additional detail into the performance and trends of our recurring compliance software products. We will continue to evaluate additional software metrics for disclosure in the future. Now, turning to our second quarter results.

As Dan noted, we continue to make solid progress in our transformation during the second quarter by delivering modest consolidated net sales growth, record quarterly adjusted EBITDA and strong improvements in both operating cash flow and free cash flow compared to the second quarter of 2023. By continuing our shift toward a more profitable sales mix while also driving operating efficiencies, we expanded our second quarter adjusted EBITDA margin by 520 basis points to 35.9%, also a quarterly record for DFIN. On a consolidated basis, total net sales for the second quarter of 2024 were $242.7 million, an increase of $0.6 million, or 0.2% on a reported basis, and 0.7% on an organic basis from the second quarter of 2023. The increase in net sales is primarily driven by the growth in software solutions, which increased $9.9 million, or 14.4% on an organic basis, and more than offset a decline in capital markets and investment companies’ compliance revenue.

We continue to deprioritize certain low margin traditional compliance work, a component of which is related to print and distribution volume. Excluding print and distribution, net sales grew approximately 4%, as Dan noted earlier. Second quarter adjusted non-GAAP gross margin was 64.4%, approximately 490 basis points higher than the second quarter of 2023, primarily driven by a favorable business mix featuring growth in higher margin software solution sales combined with lower overall print volume and the impact of ongoing cost control initiatives. Adjusted non-GAAP SG&A expense in the quarter was $69 million, a $0.7 million decrease from the second quarter of 2023. As a percentage of net sales adjusted non-GAAP SG&A was 28.4%, a decrease of approximately 40 basis points from the second quarter of 2023.

Decrease in adjusted non-GAAP SG&A was primarily driven by cost control initiatives, a portion of which was related to lower investment spending partially offset by an increase in selling expenses as a result of the changes in the business mix and higher bad debt expense. Moving forward, we will continue to balance cost reductions with investing in initiatives to accelerate our transformation. Our second quarter adjusted EBITDA was $87.2 million, an increase of $12.9 million, or 17.4%, from the second quarter of 2023. Second quarter adjusted EBITDA margin was 35.9%, an increase of approximately 520 basis points from the second quarter of 2023, primarily driven by a favorable sales mix and cost control initiatives. Turning now to our second quarter results by segment.

Net sales in our capital markets software solutions segment were $57.3 million, an increase of 22.2% on an organic basis from the second quarter of last year, driven once again by the strong performance in Venue, which was up $10.3 million, or approximately 38% year-over-year. On a trailing four quarter basis, Venue has reached nearly $130 million in sales and grew approximately 29% compared to the second quarter 2023 trailing four quarter period. Consistent with the recent trend, Venue continued to benefit from an increase in page volume on the platform and higher pricing during the second quarter. In addition, our strong sales execution once again resulted in several large client wins in the quarter with those projects combining to account for approximately one third of Venue’s second quarter net sales growth.

While still significant large projects in the second quarter represented a smaller component of Venue’s overall growth compared to the first quarter of this year with the bulk of Venue’s growth in the second quarter attributable to the resilient underlying activity level and our strong 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 rates we achieved in the first two quarters of this year given the impact of the large projects in addition to overlapping Venue’s stronger performance in the second half of 2023. Net sales of our recurring compliance product ActiveDisclosure, including File 16, increased approximately 1% in the second quarter, driven primarily by growth in subscription revenue, which increased 2% versus the second quarter of last year, partially offset by lower Section 16 beneficial ownership 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. During the second quarter, we made continued progress to expand the adoption of ActiveDisclosure, resulting in the fourth consecutive quarter of net client count growth. In addition to the positive trend in net client growth, we are encouraged by the improvement in the operating metrics of ActiveDisclosure, including an 11% year-over-year growth in annualized recurring revenue inclusive of contracted service packages driven by an increasing client count as well as higher average value per client. The momentum in client count growth, coupled with our recent product enhancements, create a strong foundation for future sales growth.

As we have stated previously, we expect ActiveDisclosure’s growth in the second half of 2024 to be stronger than in the first half as we overlap some of the headwinds we experienced in 2023, including elevated customer churn as a result of the transition to new ActiveDisclosure and the impact of SPAC liquidations. Adjusted EBITDA margin for the segment was 37%, an increase of approximately 930 basis points from the second quarter of 2023 primarily due to higher net sales and a favorable sales mix from the growth in our high margin Venue dataroom offering and cost control initiatives partially offset by higher selling expenses. Net sales in our capital markets compliance and communications management segment were $113.8 million, a decrease of $9.1 million, or 7.4% from the second quarter of 2023, driven primarily by lower capital markets compliance revenue.

The decline in compliance revenue was primarily due to the exit of certain proxy statement activity, including the related printing and distribution as Dan commented earlier. Given the first half of the year is the peak for proxy related activity, we expect the impact from the reductions to become less significant in the second half of the year. In the second quarter, we recorded $45.2 million of capital markets transactional revenue approximately flat compared to last year’s second quarter. While we continue to experience a year-over-year improvement in IPO activity during the second quarter, which resulted in an increased number of priced IPOs, which raised over $100 million compared to the second quarter of 2023, the market for completed M&A deals in the U.S. remained down on a year-over-year basis.

Overall, the deal environment remains soft compared to historical averages. For IPO and M&A transactions that were completed in the second quarter, we maintain our historical high market share reflective of DFIN’s strong market position within capital markets transactions. While the outlook for 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 40.2%, an increase of approximately 370 basis points from the second quarter of 2023. The increase in adjusted EBITDA margin was primarily due to a favorable sales mix as print and distribution revenue becomes a smaller component of overall revenue within this segment, as well as the impact of cost control initiatives.

This was partially offset by lower sales volumes and higher bad debt expense. Net sales in our investment company software solutions segment were $28.3 million, an increase of 1.1% versus the second quarter of 2023, primarily driven by growth in the ArcReporting and ArcDigital modules within Arc Suite. Total Arc Suite subscription revenue declined 1% compared to the second quarter of 2023, which was more than offset by a higher services and support revenue which increased approximately 12% year-over-year. As Dan commented earlier, based on the incremental software revenue from Tailored Shareholder Reports, we expect stronger revenue growth in the second half of 2024 and into 2025. We remain well positioned to capture opportunities from regulatory changes to drive future recurring revenue growth.

Adjusted EBITDA margin for the segment was 39.2%, an increase of approximately 100 basis points from the second quarter of 2023. The increase in adjusted EBITDA margin was primarily due to higher sales and cost control initiatives. Net sales in our Investment Companies Compliance and Communications Management segment were $43.3 million, a decrease of $0.2 million, or 0.5%, from the second 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, partially offset by higher event driven revenue from a large mutual fund special proxy project. Adjusted EBITDA margin for the segment was 42.3%, approximately 300 basis points higher than the second quarter of 2023.

The increase in adjusted EBITDA margin was primarily due to a favorable sales mix and the impact of cost reduction initiatives, including continued synergies from our print platform consolidation. Non-GAAP unallocated corporate expenses were $9.2 million in the quarter, a decrease of $2.4 million from the second quarter of 2023, primarily driven by the impact of cost control initiatives, a portion of which was related to lower investment spending. Free cash flow in the quarter was positive, $36.8 million, an improvement of $29.8 million compared to the second quarter of 2023. The strong year-over-year improvement in free cash flow is primarily driven by an increase in adjusted EBITDA and improved working capital performance, part of which is a result of our changing sales mix, featuring more software solution sales and less print and distribution sales.

These improvements were 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 $179.6 million of total debt, or $144.6 million on a non-GAAP net debt basis, including $55 million drawn on our revolver, down from $80 million drawn at the end of the first quarter. From a liquidity perspective, we had access to the remaining $244 million of our revolver, as well as $35 million of cash on hand. As of June 30, 2024, our non-GAAP net leverage ratio was 0.6 times. As a reminder, our cash flow is historically seasonal. We are a user of cash in the first half and generate more than 100% of our free cash flow in the second half of the year.

As our sales mix continues to evolve to proportionally more subscription based software solutions, we expect the seasonality to be less significant as we have experienced so far in 2024. Regarding capital deployment, we repurchased approximately 317,000 shares of our common stock during the second quarter for $19.2 million at an average price of $60.65 per share. As of June 30, 2024, we had $122 million remaining on our $150 million stock repurchase authorization. Going forward, we will continue to take a balanced approach toward capital deployment. We continue to view organic investments to drive our transformation, share repurchases and net debt reduction each as key components of our capital deployment strategy, and we’ll remain disciplined in this area.

As it relates to our outlook for the third quarter of 2024 we expect consolidated third quarter net sales in the range of $175 million to $185 million and adjusted EBITDA margin in the mid-to-high 20s range. Compared to the third quarter of last year, the midpoint of our consolidated revenue guidance, $180 million implies consolidated net sales approximately flat to last year’s third quarter as the reduction in print and distribution and lower capital markets transactional sales are expected to offset growth in Software Solutions sales, part of which is driven by incremental revenue from tailored shareholder reports. Further, this guidance assumes capital markets transactional sales of approximately $45 million, down approximately $4 million from last year’s third quarter.

With that, I’ll now pass it back to Dan.

Dan Leib: Thanks, Dave. Our performance in the second quarter provides us with strong momentum as we continue to execute DFIN’s strategic transformation. While the macroeconomic outlook remains uncertain, the combination of our market position, cost structure and strong balance sheet position us well heading into the back half of the year. 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, operator, we’re ready for questions.

Operator: Thank you. [Operator Instructions] At this time, I would like to go ahead and open the line for Charles Strauzer with CJS Securities. Your line is now open.

Charles Strauzer: Hi, thank you. Good morning.

Dan Leib: Morning.

Charles Strauzer: Looking at – Dave and Dan, just looking at guidance for Q3, may be expand a little bit more on your thoughts on expected margins. You said mid- to-high-20s range. Maybe some more color what’s driving that? Obviously, you had a very strong quarter, given the mix in the quarter for Q2, but maybe talk a little bit more about your thoughts there.

Dave Gardella: Yes Charlie, this is Dave. Thanks for the question. Look, as we look ahead, and I would say whether that’s for the third quarter or even beyond, right, I would start by saying certainly no change in the strategic direction or operating plans. We continue to do a very good job managing cost and as you noted, shifting our revenue mix to drive profitability. So no change there. Specific to Q3 guidance, probably the simplest way to look at it, when you compare to last year’s EBITDA margin, it was about 27.5% or so. That was up 300 basis points from the third quarter of 2022, and that was on about a 5% decline in top line. So, last year’s third quarter also included a few million dollars of benefit related to a true up of variable compensation.

So, I think when you exclude that benefit, last year’s third quarter would have been right around 26% and again, still up a couple hundred basis points from Q3 of 2022. And so when you look at this year’s third quarter guidance of mid- to high-20s, it puts us somewhere in that same neighborhood. I think the other thing I would say is that when you look this year, we’ve delivered over 400 basis points of margin expansion year-to-date. Trailing fourth quarter margin, as we commented, is now at 29%. And as also we noted in the prepared remarks, starting to overlap some of the margin expansion that we delivered in the back half of 2023. So, the comps start to get tougher. Like I said, we’ll continue to be disciplined on managing costs and shifting the revenue mix, really to deliver against the long-term projections that we provided earlier.

And I would say Q3 is certainly in line with that.

Charles Strauzer: Thanks. And can we talk a bit about venue and the strong growth you’re seeing there? What’s been driving higher volumes and number of deals? Is it just bigger deals and what gives you confidence that this trend might continue? Thanks.

Dave Gardella: Yes, two things – well, three things there. One, and we commented roughly a third of the growth that we saw this quarter was really driven by the kind of outsized data rooms, and that’s down proportionately. You’ll recall in the first quarter we said roughly half the growth was attributable to that. I think when you look at second quarter, the other two thirds of the growth – there was a little bit of room count, but it’s primarily the size of the rooms in terms of the number of pages that are being uploaded, as well as the price increases that we put into place starting the middle of last year and are now coming to overlap that. But we’ve seen that benefit in pricing, call it over the last four quarters or so.

Unidentified Company Representative : Yes, this is [indiscernible] to add to that Dave, thank you. The increased page activity, higher pricing, these rooms are also staying open longer, which is again reinforcing the stability of venue. Underlying demand is less volatile versus the M&A market. So, we’re seeing this more stable revenue stream, which has been an event-driven transactional product. And then just on those large deals, as Dave mentioned, driving a third, it’s really about sales execution, us taking share at large Tier 1 banks. So, we’re super encouraged by the resilience of the activity taking place on the platform. We think the broad application within the M&A ecosystem is serving both announced and unannounced deals across public and private companies.

And so, as we look at the M&A market, we are certainly hopeful and excited for it to return to some median level of activity. But there is a large amount of activity looking to be put to work. We’re pleased with the venue pipeline. We’re also in the process of growing it outside of M&A into recurring subscriptions and then also reoccurring growth. So, we’re just going to continue to focus on what got us here. Great product, sales execution and share expansion.

Operator: Thank you. Your next question comes from the line of Peter Heckmann with D.A. Davidson. Your line is open.

Peter Heckmann: Hey, good morning, everyone. Thanks for taking my question. So, in terms of the completed M&A deals, I guess, how do you feel – I know it’s hard to totally handicap that, but with the venue growth, it certainly feels like there’s a lot of potential deals in the pipeline, either dual process IPO M&A, or just straight M&A. Is there any way to think about what you are embedding in your third quarter guidance in terms of completed M&A from a filings perspective?

Dan Leib: Yes, I’ll touch on the market and turn it to Dave for the guidance. I think you can look at what our clients are telling us. So, certainly Federal Reserve Chair, Powell, said sticky inflation was the reason they didn’t change rates in May. And he addresses this again today at 02:00 p.m. what’s he going to say? I think the bet is there will be a September cut and these rising interest rates have been a drag, a super drag for the last two years with soaring transaction financing costs, depressing stock valuations. So, what we’re hearing our clients talk to us about is a belief that this clearer path to the monetary policy of the future is going to create certainty and will help support deal activity. It’s going to bridge the gap between bid and target price expectations.

And the indication we’re getting, as you stated, is private equity players are coming back into the market and deals will get done. So that is exciting for venue, given our results, and it’s certainly exciting for the CM-CCM platform. And Dave, I will turn it to you.

Dave Gardella: Yes, and Pete, can you clarify the second part of that question?

Peter Heckmann: I was just trying to think about what’s embedded in your third quarter guidance as regards capital markets transaction revenue. I think you said down $4 million year-over-year.

Dave Gardella: Yes.

Peter Heckmann: Just thinking about like, from an M&A perspective, like, I don’t know if – I’m sure that’s a range, but just how you’re thinking about that.

Dave Gardella: Yes, I would say it is a range. And we kind of – we have some visibility, obviously to the near term better than the longer term, and kind of handicap each of the projects that we’re looking at. I would say the $45 million overall is pretty similar, obviously, to each of the first two quarters. And so, on an aggregate basis, probably not much different in Q3 than what we saw in Q2.

Peter Heckmann: Okay. And then just in terms of tailored shareholder reports, any additional findings as you’re getting into the go live, or any thoughts about your relative share on either the software services or print side?

Dan Leib: Yes, it’s Dan. We’re really happy with, that we’ve talked about this before. Our full set of offerings from software through to our traditional platform, which really helps with chain of custody. And so, we’ve seen strong uptake on our software platform. We did mention we thought print would be a lower number, and in fact, that’s playing out that way. So, on the software side, we expect about $11 million to $12 million of annual impact. That will be in 2025. We will get half of that in 2024. But really happy with it’s early days, there is a lot of onboarding and a lot of work going on in the organization, but thus far, in a relatively lite early season, things are going very well. But I let Eric add if you have anything.

Unidentified Company Representative : Yes. Hey, thanks, Dan. Yes, so I think what we’re seeing is DFIN is offering from a TSR solution perspective, we cover the full spectrum. So, we’re seeing clients that are engaging us on the SaaS side of things, we have seen clients come to us looking for traditional composition, tagging and filing. And since the rule has just launched here in July, we’re seeing a lot of variability in client, how prepared our clients are to get through some of this from a filing perspective. So, we’ve seen the full spectrum of services. And as Dan mentioned on the print, from a traditional printing perspective, it is highly competitive and, in many cases, we’re staying very close to our margin profile for that work.

But where we are seeing success is in our optimized digital print platform where we’re driving single package delivery for our clients, leveraging DFIN’s digital software, as well as our digital output platform. So that’s been a nice change for us from an output perspective, and it fits our platform extremely well, and certainly hits our margin profile. So, I see early stage here. Next cycle I am sure we’ll get more volume with the six thirty close. But as we see it, it’s shaping up as we expected. But again, I think the big takeaway is our ability to provide a full spectrum of services for our clients.

Peter Heckmann: Okay. All right, that’s really helpful. I’ll get back in the queue. Thank you.

Dan Leib: Thank you.

Operator: Your next question comes from the line of Kyle Peterson with – Needham sorry. Your line is now open.

Kyle Peterson: Great. Thanks guys. Good morning.

Dan Leib: Good morning.

Kyle Peterson: Appreciate you taking the question. I wanted to touch a little bit on software growth. Second consecutive quarter, you guys have kind of had mid to low teens year-on-year growth in that segment. Just want to see if you guys could give any more color on the breakdown between whether it’s new logos or pricing, just any breakdown of that since it’s really accelerated here with first half, the year would be really helpful.

Craig Clay: Yes, Kyle, this is…

Dave Gardella: Sorry, go ahead Craig.

Craig Clay: This is Craig Clay. Thanks for the question. We touched on venue. I’ll build on ActiveDisclosure. I think in the quarter you saw software subscription sales up 2%. We had that partially offset by File 16. I think just to touch on that, we’re excited to have built the market leading Section 16 filing platform within ActiveDisclosure. So those are for beneficial owners to publicly disclose their relationship with the company. So, within the quarter we had some negative drag. But like with AD they just contextualize it, it was a conversion process. So, we were managing from an old system to a new, we managed out low-paying clients. It’s going to result in a more durable, pipe priced solutions. We’re excited by what the future will hold for that.

What’s the expected second half? We are excited by what we see. We have made progress to expand the adoption of AD, which is slowly being reflected in the quarter results, as you heard Dave talk about. But as the prospective metrics continue to trend favorably, our fourth quarter of net new client growth, so our total client surpasses Q3 at 22, it eclipses 83 churn with new logos and client wins. We saw an 11% year-over=year growth in annualized recurring revenue, which is inclusive of our service packages. We are really excited about what we’re offering our clients. Our average price is up in the mid-teens versus our ActiveDisclosure 3 product and we expect our growth in the second half to be stronger than the first. As you heard, we’re going to overlap our platform transformation and there is a lot more to come.

We have price that is continuing to be an opportunity. Clients want a choice. They’re signing up for multi-year contracts. Our contract length is 30 months and we’ve been able to achieve these higher prices with built-in price increases on renewals and longer-term contracts. And our clients are paying less than our competitor. So, our clients want a choice, which is an exciting place to be. You couple that with product exciting things that we’re putting into market, including design elements, including presentations, which is the full connection of the SEC documents to a presentation that reporting teams need for boards and investors, it’s an exciting place to be. So, our clients are choosing ActiveDisclosure for their most important reporting needs.

Our pipeline is strong and we’re looking forward to the rest of this year in 2025.

Kyle Peterson: That’s really helpful. And I guess just to follow-up, I know in the third quarter guide you guys mentioned that the expectation is for some of the capital markets revenue to be down a bit year-on-year. It seems like a lot of the filing activity has been up quite a bit year-to-date, is the market has been pretty healthy. So just wanted to see, like, is that come comps? I know we had a little bit of a boost last year in the third quarter, but like how much of that is – whether it’s couple of competitors or a slowing pipeline or just conservative on your part?

Dave Gardella: Yes. Kyle, I guess I would describe it as, like I said earlier, we have some visibility into the deals that we’re working. It’s certainly not a pipeline or a market share question, really more just kind of handicapping the timing of when we think these deals ultimately close out and come to market. And so kind of basing a lot of that and what we’ve seen so far this year and just the overall trends, certainly, if things accelerate quicker than what we’re assuming, that would be great, but it’s our best guess at this point.

Kyle Peterson: Helpful, thanks guys.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of, it looks like Raj Sharma with B. Riley & Company. Your line is open.

Raj Sharma: Yes, thank you for taking my questions. I wanted to understand, the sales inflection, the top line inflection relies really on software growth second half and ongoing that should happen, I guess, due to software growth, but also print any proactive reductions they’re still to be expected forward? And related to the top line inflection in software, – you’ve talked about software having double-digit growth in the next few years, doubling from – but doubling again over a three-, four-year period. And you just said the TSR contribution for next year is $11 million to $12 million. What takes software to that double-digit growth over the next few years?

Dave Gardella: Yes Raj, I’ll start. So, you had a handful of questions there. I think as it relates to the back half of the year, you are right, I think, our expectation certainly to continue the software growth. Part of that comes through the TSR regulation, right, which we commented on. And of that $11 million to $12 million, roughly half of it, we expect to come in Q3 and Q4. As it relates to the print reductions, as we commented on not only last quarter, but also this quarter, you look at Q1 and Q2, that tends to be the higher quarters in terms of the concentration of print as it relates to 10-Ks and proxies specifically. And so, while there is some impact in the back half of the year, it’s not nearly as significant as we’ve experienced in the first half of the year.

And then with your comment or question regarding the ability to double the software, really a combination of a couple of things. One is growing the existing offerings as they currently sit today. And you’ll also recall then we talked about over time, we believe that a lot of what we’re doing in the Compliance and Communications Management segment ends up shifting to a hybrid model or maybe over a longer period of time, a full software model. And so, there is a little bit of mix shift as we look ahead in those five-year projections.

Raj Sharma: Great. And then just lastly, I know on your guidance, your 3Q guidance, you’re assuming slightly down transactional volume. Now ex-Venue do you think that we should kind of expect or are you seeing – are you assuming a flat second half on transactions from where you stand now?

Dave Gardella: Yes. So, we haven’t really given guidance looking beyond Q3. And I should clarify that when we talk about transactional, that’s excluding Venue. We do expect, as we said, Venue to continue to grow probably not at the same pace that we’ve seen year-to-date, just given what we’ve seen in some of the kind of outsized, large, rooms, as well as starting to overlap some of the price increases that went into play midyear last year. But from a transactional perspective, again, when we say transactional excluding Venue, like I said, we expect that to be in Q3 pretty similar to what we experienced in each of the first two quarters this year. And then for Q4, we’ll provide an outlook on the Q3 earnings call in early November.

Raj Sharma: Great, thank you for answering the question. I will take it offline. Great.

Dan Leib: Thank you.

Raj Sharma: Congratulations.

Dan Leib: Thank you.

Dave Gardella: Thanks Raj. Great, thank you.

Operator: At this time, there are no further questions. Mr. Leib, I’d like to turn the call back over to you for closing remarks.

Dan Leib: Great. Thank you. And thanks to everyone for attending the call. We look forward to speaking with you soon.

Operator: This concludes today’s conference call. You may now disconnect.