Donnelley Financial targets 60% of sales from software solutions by 2028 as SaaS momentum accelerates

Earnings Call Insights: Donnelley Financial Solutions (DFIN) Q3 2025

MANAGEMENT VIEW

* Daniel Leib, President, CEO & Director, reported "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." He highlighted the launch of the new Venue Virtual Data Room product, describing it as a "comprehensive rebuild" intended to strengthen the platform’s market position. Leib stated, "Software Solutions sales represented approximately 52% of total sales in the quarter, a positive proof point of our transformation into a software-centric company."
* ActiveDisclosure delivered approximately 26% net sales growth, described as an "acceleration in growth compared to recent trend." Arc Suite posted approximately 10% growth, while management noted that growth was "more modest than the past few quarters as we overlap the benefit associated with the tailored shareholder report solution."
* The company launched ArcFlex, a new module within Arc Suite, tailored for alternative investment companies. Leib emphasized, "ArcFlex builds on existing services to provide enhanced solutions customized for private fund clients."
* Regarding the U.S. government shutdown, Leib explained, "the shutdown has delayed the positive momentum in capital markets deal activity over the last 2 quarters," but added, "DFIN's strong client relationships and market leadership position us well to capture the latent demand when activity level normalizes."
* David Gardella, Executive VP & CFO, detailed the pension plan settlement: "we made a $12.5 million cash contribution in the third quarter to fully fund the plan...recognized a noncash pretax settlement charge of $82.8 million...resulting in a negative EPS impact of $2.20 per diluted share."
* Gardella also highlighted, "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%."

OUTLOOK

* For Q4 2025, Gardella provided guidance of consolidated net sales in the range of $150 million to $160 million and adjusted EBITDA margin in the range of 22% to 24%. He clarified, "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."
* Capital markets transactional net sales for Q4 are expected in the range of $30 million to $40 million, with management noting, "at the midpoint...represents a sequential decline of approximately $7 million from the third quarter of this year, solely due to the government shutdown."
* The company reiterated its long-term target to drive approximately 60% of total sales from Software Solutions by 2028.

FINANCIAL RESULTS

* Total net sales for Q3 2025 were $175.3 million, a decrease of $4.2 million or 2.3% from Q3 2024. Software Solutions net sales increased $8.5 million or 10.3% year-over-year, offsetting declines in other segments.
* Adjusted non-GAAP gross margin was 62.7%, approximately 100 basis points higher than Q3 2024. Adjusted non-GAAP SG&A expense was $60.5 million, a $7.1 million decrease from Q3 2024. Adjusted EBITDA was $49.5 million, an increase of $6.3 million or 14.6% from Q3 2024. Adjusted EBITDA margin was 28.2%, up approximately 410 basis points.
* Free cash flow in the quarter was $59.2 million, $8.1 million lower than Q3 2024, primarily due to working capital and pension settlement impacts. Non-GAAP net leverage ratio was 0.6x as of September 30, 2025.

Q&A

* Charles Strauzer, CJS Securities, Inc.: Asked about the impact of the government shutdown on Q4 margin guidance. Gardella answered, "even at the midpoint at 23% for Q4, expect to be up about 300 basis points relative to what we delivered last year...About half of that is driven by this health care recovery."
* Strauzer followed up on the SEC reporting frequency proposal. Craig Clay, President of Global Capital Markets, responded, "the vast majority of our 10-Qs are on ActiveDisclosure, which operates as a subscription business with long-term contracts. So this subscription model insulates DFIN from most of the public change that would be associated with this."
* Peter Heckmann, D.A. Davidson & Co.: Inquired about SPAC IPO participation and Venue performance. Eric Johnson, President of Global Investment Companies, stated, "DFIN is selective in our SPAC go-to-market...Our share in this increased market has declined, but it's declined because 58% of the year-to-date deals are nano microcap companies...We are participating in quality SPAC and de-SPAC deals with Tier 1 deal teams."
* Heckmann also questioned Venue’s recent momentum. Gardella explained, "sales execution has been the key component to driving the growth that we've seen...the impact of the new product, the better days due to that product are on the horizon here for us."
* Kyle Peterson, Needham & Company, LLC: Asked about the tax rate impact from the pension settlement. Gardella confirmed the GAAP tax rate was affected, adding, "the pension tax component of that weighed on the GAAP tax rate."
* Peterson also questioned capital allocation priorities. Leib reiterated, "#1 priority is having the financial flexibility to execute the transformation and our strategy...being opportunistic around share repurchases...looking at ways of accelerating organic or inorganic investment in the business, but only to accelerate the strategy."

SENTIMENT ANALYSIS

* Analysts expressed neutral to slightly positive sentiment, focusing on operational resilience, margin guidance, and the impact of regulatory changes. Questions demonstrated a cautious optimism around deal activity and product launches.
* Management maintained a confident tone, particularly around software growth and margin expansion. Gardella emphasized, "As you saw this quarter, to the extent that capital markets transactional revenue comes in higher, we would expect to outperform that just like we did in Q3."
* Compared to the previous quarter, management’s tone remained confident but acknowledged greater uncertainty due to the government shutdown, while analysts continued to probe for clarity on deal activity and product mix.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for Q4 2025 reflects a slightly more cautious approach, with the midpoint of revenue guidance implying a 1% year-over-year reduction, while Q2 2025 guidance for Q3 implied a reduction of 5.3% versus the prior year.
* Software Solutions growth accelerated from approximately 8% in Q2 to 10.3% in Q3, while recurring compliance software product growth rose from 15% to 16%.
* Management’s tone shifted from a focus on recovering transactional activity in Q2 to addressing the timing uncertainty caused by the government shutdown in Q3.
* Analysts maintained a focus on deal environment and market share, with ongoing attention to the transformation toward a SaaS-centric model and strategic capital allocation.

RISKS AND CONCERNS

* Management identified the U.S. government shutdown as a key risk, impacting the timing of capital markets transactions, particularly IPOs and M&A deals.
* Ongoing secular decline in print and distribution revenue is expected to continue, with management stating, "we expect a broader secular decline in the demand for printed products, which we expect in the range of 5% to 6%."
* Analyst concerns centered on the impact of regulatory shifts, competitive positioning in SPACs and lower-tier deals, and potential delays in deal completions due to the shutdown.

FINAL TAKEAWAY

Donnelley Financial Solutions emphasized its accelerating transformation into a software-centric business, highlighted by double-digit growth in SaaS offerings and a long-term target of 60% of sales from Software Solutions by 2028. Despite near-term headwinds from the U.S. government shutdown and a continued decline in print sales, management expressed confidence in the company’s ability to capture delayed transactional demand and deliver margin expansion, supported by new product launches and disciplined capital allocation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dfin/earnings/transcripts]

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