Donnelley Financial Solutions, Inc. — FY2021 Form 10-K
Business context and reporting period. DFIN provides regulatory filing, transaction, software, technology-enabled, printing and distribution solutions to capital-markets clients and investment companies. This annual filing covers the year ended December 31, 2021; comparisons below are with FY2020 unless noted. The company is shifting toward software and digital services as clients move away from printed materials.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $993.3 million | $894.5 million |
| Income (loss) from operations | $219.3 million | $3.6 million |
| Net earnings (loss) | $145.9 million | ($25.9 million) |
| Diluted EPS | $4.14 | ($0.76) |
| Operating cash flow | $180.0 million | $154.2 million |
| Capital expenditures | $42.3 million | $31.1 million |
| Cash and cash equivalents at year-end | $54.5 million | $73.6 million |
| Long-term debt at year-end | $124.0 million | $230.5 million |
- Total sales rose 11.0%. Tech-enabled services increased 27.0% to $519.5 million and software solutions increased 34.9% to $270.0 million; print and distribution fell 28.5% to $203.8 million.
- Calculated operating margin was approximately 22.1%, versus 0.4% in FY2020. Net margin was approximately 14.7%, versus negative 2.9%.
- Calculated cash flow after capital expenditures was $137.7 million, compared with $123.1 million. Financing cash outflow was $154.9 million, including debt repayments and $40.9 million of share repurchases and employee-award-related repurchases.
- Year-end current assets were $279.7 million and current liabilities $261.4 million. The company reported net available liquidity of $352.3 million: $54.5 million cash plus $297.8 million available under its revolving facility.
Material changes and segment results
- Capital Markets—Software Solutions sales rose 35.9% to $181.0 million; operating income was $30.4 million and margin 16.8%.
- Capital Markets—Compliance and Communications Management sales rose 32.4% to $561.5 million; operating income was $242.6 million and margin 43.2%.
- Investment Companies—Software Solutions sales rose 32.8% to $89.0 million; operating income improved to $8.9 million from a $1.7 million loss.
- Investment Companies—Compliance and Communications Management sales fell 40.1% to $161.8 million, principally due to reduced print volumes; operating income improved to $15.0 million from a $43.1 million loss.
- Operating income increased by $215.7 million, reflecting higher volumes, favorable mix, print-platform savings, and $65.6 million fewer restructuring, impairment and other charges. FY2020 included a $40.6 million goodwill impairment; FY2021 included $13.6 million of restructuring, impairment and other charges.
Debt, outlook, risks and unusual items
- DFIN redeemed its remaining $233.0 million of 8.25% senior notes in October 2021, funded partly with a $200.0 million Term Loan A draw. It then prepaid $75.0 million of that loan; $125.0 million remained outstanding at year-end, due in full May 27, 2026. The company recorded $7.4 million of debt-extinguishment losses in FY2021. It reported compliance with debt covenants.
- Management expects 2022 capital expenditures of approximately $50–$55 million and was evaluating an additional $10–$15 million, primarily for software investment. No specific revenue or earnings guidance is provided in the filing text.
- SEC Rules 30e-3 and 498A reduced printed investor-report and prospectus volumes. DFIN reported increased related software revenue and expects these trends to continue in 2022. Paper sourcing was more difficult in 2021 and is expected to remain more difficult and costly in 2022; management typically seeks to recover higher paper costs through pricing.
- Key risks include volatility in capital-markets transactions, competition and pricing pressure, client self-service technologies, cybersecurity and data-protection incidents, COVID-19 effects, regulatory changes, and reliance on client retention and referrals. The filing describes cyber incidents in 2019 and 2020; DFIN stated the identified unauthorized viewing was limited and its own incident was remediated.
- DFIN remains jointly and severally liable for certain legacy multiemployer pension obligations. After a 2021 arbitration allocated the LSC-related liability one-third to DFIN and two-thirds to RRD, DFIN reported $12.3 million undiscounted liability at year-end, with $10.1 million accrued on a discounted basis. It may face additional payment obligations if RRD fails to pay covered liabilities.
- Other notable items include $5.9 million impairment of an equity investment, a $0.7 million gain on sale of machinery and equipment, and a $7.1 million reimbursement from RRD related to pension-plan payments. Auditors issued an unqualified opinion on the financial statements and internal controls; the critical audit matter concerned valuation of unbilled receivables and contract assets.
Important facts for investors to verify
- Whether software and tech-enabled growth can offset the ongoing decline in print-related revenue, particularly in investment-company compliance.
- How much of the FY2021 earnings improvement reflects durable operating performance versus the unusually high FY2020 impairment and restructuring base.
- Future transaction volumes, software adoption, margins, and the actual 2022 capital-expenditure level.
- Remaining pension-plan exposure, potential contingent liabilities, and continued compliance with credit-facility covenants.
- Cash conversion and working-capital trends, including receivables growth and the valuation of unbilled receivables and contract assets.