Donnelley Financial Solutions, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone Q4 filing; the filing includes unaudited quarterly results for 2023. Unless stated otherwise, amounts are in U.S. dollars.
Business context
DFIN provides software, technology-enabled services, and print and distribution solutions for financial regulatory filings, investor communications, and capital-markets transactions. Its four segments serve capital-markets and investment-company clients through software solutions and compliance and communications management. The company is shifting toward software and recurring revenue as clients move away from printed materials.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $797.2 million | $833.6 million |
| Income from operations | $110.0 million | $145.0 million |
| Net earnings | $82.2 million | $102.5 million |
| Diluted earnings per share | $2.69 | $3.17 |
| Adjusted EBITDA (non-GAAP) | $207.4 million | $218.3 million |
| Cash provided by operating activities | $124.0 million | $150.2 million |
| Capital expenditures | $61.8 million | $54.2 million |
Operating margin was approximately 13.8%, down from 17.4%; gross margin, calculated from reported sales and cost of sales, was approximately 58.2%, versus 55.6%. Operating cash flow less capital expenditures was approximately $62.2 million, compared with $96.0 million in 2022.
At year-end, cash and cash equivalents were $23.1 million, long-term debt was $124.5 million, and total assets were $806.9 million. The company reported $299.0 million of available revolving-credit capacity and $322.1 million of net available liquidity, including cash. It was in compliance with debt covenants. Total contractual and other obligations were approximately $334 million, including approximately $138 million due in 2024.
Fourth quarter: 2023 net sales were $176.5 million, operating income was $9.8 million, and net earnings were $10.6 million ($0.35 diluted EPS). The filing text provided here does not give clear Q4 2022 comparative figures.
Changes versus 2022
- Net sales declined 4.4%, principally because of lower capital-markets transactional and compliance volumes and the EOL and eBrevia dispositions. Software solutions sales increased 4.7% to $292.7 million; tech-enabled services fell 11.6% to $336.9 million, and print and distribution fell 3.2% to $167.6 million.
- Capital Markets—Compliance and Communications Management sales declined 13.4% to $355.4 million, with operating income down 20.9% to $103.9 million. Investment Companies—Software Solutions sales rose 7.4% to $106.8 million; Investment Companies—Compliance and Communications Management sales rose 3.8% to $149.1 million and operating income increased 25.2% to $44.7 million.
- Operating income fell 24.1%. Management cited lower volumes, unfavorable sales mix, higher depreciation and amortization and bad-debt expense, and a $6.1 million loss on the eBrevia disposition. Interest expense rose $6.6 million to $15.8 million, primarily due to higher variable rates and average revolver borrowings during the year.
- Operating cash flow decreased by $26.2 million. Share repurchases under the repurchase program were $22.6 million, versus $152.5 million in 2022. The company also repurchased shares to cover employee award vesting.
Outlook, risks, and unusual items
- Management expects 2024 capital expenditures of approximately $65–70 million, primarily for software investment. It expects the SEC Tailored Shareholder Reports requirements, with compliance due July 24, 2024, to support higher Arc Suite software, service, and print sales beginning in the second half of 2024. No broader quantified revenue or earnings guidance is provided in the supplied filing text.
- DFIN recorded $9.8 million of restructuring, impairment, and other charges in 2023, including $9.2 million of employee termination costs for approximately 170 employees. It also recorded the $6.1 million eBrevia disposal loss; the business generated only $0.5 million in net cash proceeds.
- Principal business risks include transaction-market volatility, client retention and pricing pressure, competition and technology changes, cybersecurity and data privacy, and reliance on third-party systems. The company reported no material cybersecurity incident during the periods covered.
- Potential obligations include multiemployer pension liabilities of $10.1 million at year-end, with joint-and-several exposure related to former affiliates’ obligations. Management said ordinary-course litigation and preference-item matters were not expected to have a material effect; outcomes remain uncertain.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2023.
Important facts for investors to verify
- Whether capital-markets transaction volumes recover and whether software growth can offset weakness in traditional services and print.
- Whether the expected second-half 2024 benefit from Tailored Shareholder Reports requirements materializes, and what implementation costs or client adoption issues arise.
- Cash conversion and capital intensity: operating cash flow declined while software-focused capital expenditures increased.
- Debt costs and covenant headroom under floating-rate credit facilities, alongside the company’s capital-return plans and new $150 million repurchase authorization for 2024–2025.
- Exposure to bad debts, variable consideration in unbilled receivables and contract assets, and potential multiemployer pension obligations.