# Donnelley Financial Solutions, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Donnelley Financial Solutions, Inc.](/companies/dfin.md) (CIK 1669811)
- Form: 10-Q
- Filed: 2024-05-01
- Accepted by EDGAR: May 1, 2024, 16:05 ET
- Period: 2024-03-31
- Accession: 0000950170-24-051247
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1669811/000095017024051247/dfin-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1669811/000095017024051247/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $203.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $72.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $44.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $3.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $8.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $33.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 30,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$27.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $12.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $30.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $43.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $268.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $867.8m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $179.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $458.9m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $204.5m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-03-31 | $408.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,517 characters.

*As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), unless otherwise specified or the context otherwise requires, the “Company” or “DFIN” refer to Donnelley Financial Solutions, Inc. and its consolidated subsidiaries. MD&A should be read together with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes thereto, as well as the Company’s audited Consolidated Financial Statements and the related notes thereto within its Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 20, 2024 (the “Annual Report”).*

### Company Overview

DFIN is a leading global provider of innovative software and technology-enabled financial regulatory and compliance solutions. The Company provides regulatory filing and deal solutions via its software, technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve its clients’ regulatory and compliance needs. DFIN helps its clients comply with applicable regulations where and how they want to work in a digital world, providing numerous solutions tailored to each client’s precise needs. The prevailing trend is toward clients choosing to utilize the Company’s software solutions, in conjunction with its tech-enabled services, to meet their document and filing needs, while at the same time shifting away from physical print and distribution of documents, except for when it is still regulatorily required or requested by investors.

The Company serves its clients’ regulatory and compliance needs throughout their respective life cycles. For its capital markets clients, the Company offers solutions that allow companies to comply with U.S. Securities and Exchange Commission (“SEC”) regulations and support their corporate financial transactions and regulatory/financial reporting through the use of digital document creation and online content management tools; filing agent services, where applicable; solutions to facilitate clients’ communications with their investors; and virtual data rooms and other deal management solutions. For investment companies, including mutual fund, insurance-investment and alternative investment companies, the Company provides solutions for creating, compiling and filing regulatory communications as well as solutions for investors designed to improve the access to and accuracy of their investment information.

Technological advancements, regulatory changes, and evolving workflow preferences have led to the Company’s clients managing more of the financial disclosure process themselves, changing the marketplace for the Company’s services and products. DFIN’s strategy in its Software Solutions segments (CM-SS and IC-SS, as defined below) aligns with the changing marketplace by focusing the Company’s investments and resources in its advanced software solutions, primarily ActiveDisclosure® (“ActiveDisclosure”), Arc Suite® software platform (“Arc Suite”) and Venue® Virtual Data Room (“Venue”), while making targeted investments to further enhance product features. In its Compliance & Communications Management segments (CM-CCM and IC-CCM, as defined below), the Company’s strategy focuses on maintaining its market-leading position by offering a high-touch, service-oriented experience, using its unique combination of tech-enabled services and print and distribution capabilities.

### Market Volatility/Cyclicality and Seasonality

The Company’s Capital Markets segments (CM-SS and CM-CCM), in particular, are subject to market volatility, as the demand for the transactional and Venue offerings is largely dependent on the global market for initial public offerings (“IPOs”), secondary offerings, mergers and acquisitions (“M&A”), public and private debt offerings, leveraged buyouts, spinouts, special purpose acquisition company (“SPAC”) and de-SPAC transactions and other similar transactions. A variety of factors impact the global markets for transactions, including economic activity levels, interest rates, market volatility, the regulatory and political environment, geopolitical and civil unrest and global pandemics, among others. Due to the significant net sales and profitability derived from transactional and Venue offerings, market volatility can lead to uneven financial performance when comparing to previous periods. U.S. IPOs, M&A transactions and public debt offerings were also previously disrupted by U.S. federal government shutdowns, and any future government shutdowns could result in additional volatility. The Company's compliance offerings, supporting the quarterly and annual public company reporting processes through its filing services and ActiveDisclosure, as well as its Investment Companies segments (IC-SS and IC-CCM) regulatory and stockholder communications offerings, including Arc Suite, are less impacted by market volatility. The Company's overall risk profile is balanced by offering services in higher demand during a down market, such as document management tools for the bankruptcy/restructuring process and by moving upstream in the filing process with products like Venue.

The quarterly/annual public company reporting cycle subjects the Company to filing seasonality which peaks shortly after the end of each fiscal quarter. Additionally, investment companies clients’ financial and regulatory reporting requirements include filings for mutual funds on a semi-annual basis as well as annual prospectus filings, which peaks during the second fiscal quarter. The seasonality and associated operational implications include the need to increase staff during peak periods through a combined strategy of hiring temporary personnel, increasing the premium time of existing staff and outsourcing production for a number of services. ActiveDisclosure and Arc Suite provide clients and their financial advisors software solutions which allow them to autonomously file and distribute compliance documents with regulatory agencies reducing the need for additional service support during peak periods. The Company remains focused on driving annual recurring revenue to mitigate the impact of market volatility on its financial results.

### Services and Products

The Company separately reports its net sales and related cost of sales for its software solutions, tech-enabled services and print and distribution offerings. The Company’s software solutions consist of ActiveDisclosure, Arc Suite and Venue. The Company’s tech-enabled services offerings consist of document composition, compliance-related SEC Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) filing services and transactional solutions. The Company’s print and distribution offerings primarily consist of conventional and digital printed products and related shipping.

### Government Regulations and Regulatory Impact

The SEC is adopting new as well as amending existing rules and forms to modernize the reporting and disclosure of information under the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Investment Company Act of 1940, as amended (the “Investment Company Act”). As the scope and complexity of the regulatory environment continues to increase, regulators are also demanding a greater use of structured, machine-readable data in companies’ disclosures. These actions are driving significant changes which impact the Company’s customers, and have enabled the Company to offer new value-added functionality and services and accelerate its transition from print and distribution to software solutions.

On October 26, 2022, the SEC announced that it adopted the Tailored Shareholder Reports (“TSR”) for Mutual Funds and Exchange-Traded Funds rule, which requires certain investment companies to complete a new concise and visually engaging annual and semi-annual TSR that highlights key information that is particularly important for retail investors to assess and monitor their investments. The TSR, which can be printed and mailed or delivered electronically upon request of the investor, replaces SEC Rule 30e-3 “Optional Internet Availability of Investment Company Shareholder Reports” for open-ended funds and ETFs registered under N-1A and will require iXBRL tagging. The rule went into effect on January 24, 2023 and compliance is required by July 24, 2024. As a result, the Company is expecting an increase in net sales from Arc Suite, tech-enabled services and print beginning in the second half of 2024.

### Segments

The Company’s four operating and reportable segments are: Capital Markets – Software Solutions (“CM-SS”), Capital Markets – Compliance and Communications Management (“CM-CCM”), Investment Companies – Software Solutions (“IC-SS”) and Investment Companies – Compliance and Communications Management (“IC-CCM”). Corporate is not an operating segment and consists primarily of unallocated selling, general and administrative (“SG&A”) activities and associated expenses including, in part, executive, legal, finance and certain facility costs. In addition, certain costs and earnings of employee benefits plans, such as pension and other postretirement benefits plans expense (income) as well as share-based compensation expense, are included in Corporate and not allocated to the operating segments.

### Capital Markets

The Company provides software solutions, tech-enabled services and print and distribution solutions to public and private companies for deal solutions and compliance to companies that are, or are preparing to become, subject to the filing and reporting requirements of the Securities Act and the Exchange Act. The Company’s operating segments associated with its capital markets services and products offerings are as follows:

***Capital Markets – Software Solutions—***The CM-SS segment provides Venue and ActiveDisclosure to public and private companies to help manage public and private transactional and compliance processes; collaborate; and tag, validate and file SEC documents.

***Capital Markets – Compliance & Communications Management—***The CM-CCM segment provides tech-enabled services and print and distribution solutions to public and private companies for deal solutions and SEC compliance requirements. The Company's private conference facilities offer around-the-clock services to support the transaction process, production platform and service delivery model for a fully-virtual experience while replicating the in-person experience. The Company has seen clients utilizing the range of options available to them, including a hybrid approach with working group members participating both virtually and in-person during drafting sessions for their transactions.

### Investment Companies

The Company provides software solutions, tech-enabled services and print, distribution and fulfillment solutions to its investment companies clients, which are primarily mutual fund companies, alternative investment companies, insurance companies and third-party fund administrators, that are subject to the filing and reporting requirements of the Investment Company Act as well as European and Canadian regulations. The Company’s operating segments associated with its investment companies services and products offerings are as follows:

***Investment Companies – Software Solutions—***The IC-SS segment provides clients with the Arc Suite platform that contains a comprehensive suite of cloud-based solutions, including ArcDigital, ArcReporting, ArcPro and ArcRegulatory as well as services that enable storage and management of compliance and regulatory information in a self-service, central repository so that documents can be easily accessed, assembled, edited, tagged, translated, rendered and submitted to regulators and investors.

***Investment Companies – Compliance & Communications Management—***The IC-CCM segment provides clients with tech-enabled solutions for creating, filing and distributing regulatory communications and solutions for investor communications, as well as iXBRL-formatted filings pursuant to the Investment Company Act, through the SEC’s EDGAR system. The IC-CCM segment also provides turnkey proxy services, including discovery, planning and implementation, print and mail management, solicitation, tabulation services, stockholder meeting review and expert support.

### Executive Overview

### First Quarter Overview

Net sales for the three months ended March 31, 2024 increased by $4.8 million, or 2.4%, to $203.4 million from $198.6 million for the three months ended March 31, 2023, including a $1.2 million, or 0.6%, decrease due to the disposition of the eBrevia business and a $0.3 million, or 0.2%, increase due to changes in foreign currency exchange rates. Net sales increased primarily due to higher capital markets transactional volumes, higher Venue volumes and Venue price increases, partially offset by lower capital markets and investment companies compliance volumes.

Income from operations for the three months ended March 31, 2024 increased by $29.8 million, to $44.6 million from $14.8 million for the three months ended March 31, 2023, primarily due to a net pre-tax gain on the sale of land, lower restructuring, impairment and other charges, net, higher sales volumes, a favorable sales mix and cost control initiatives, partially offset by higher depreciation and amortization expense and higher incentive compensation expense.

### Financial Review

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical estimates are disclosed in the Annual Report.

In the financial review that follows, the Company discusses its unaudited condensed consolidated results of operations, financial position, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes thereto.

### Results of Operations for the Three Months Ended March 31, 2024 as Compared to the Three Months Ended March 31, 2023

The following table shows the results of operations for the three months ended March 31, 2024 and 2023:

*(in millions, except percentages)*

| Net sales | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Tech-enabled services | $82.9 | $78.4 | $4.5 | 5.7% |
| Software solutions | 80.3 | 70.1 | 10.2 | 14.6% |
| Print and distribution | 40.2 | 50.1 | (9.9) | (19.8%) |
| Total net sales | 203.4 | 198.6 | 4.8 | 2.4% |
| Cost of sales (a) |  |  |  |  |
| Tech-enabled services | 30.6 | 33.3 | (2.7) | (8.1%) |
| Software solutions | 27.3 | 28.4 | (1.1) | (3.9%) |
| Print and distribution | 22.2 | 28.6 | (6.4) | (22.4%) |
| Total cost of sales | 80.1 | 90.3 | (10.2) | (11.3%) |
| Selling, general and administrative expenses (a) | 72.8 | 70.5 | 2.3 | 3.3% |
| Depreciation and amortization | 13.9 | 12.4 | 1.5 | 12.1% |
| Restructuring, impairment and other charges, net | 1.8 | 10.9 | (9.1) | (83.5%) |
| Other operating income, net | (9.8) | (0.3) | (9.5) | nm |
| **Income from operations** | 44.6 | 14.8 | 29.8 | nm |
| Interest expense, net | 3.6 | 3.5 | 0.1 | 2.9% |
| Investment and other income, net | (0.4) | (6.9) | 6.5 | (94.2%) |
| **Earnings before income taxes** | 41.4 | 18.2 | 23.2 | nm |
| Income tax expense | 8.1 | 2.4 | 5.7 | nm |
| **Net earnings** | $33.3 | $15.8 | $17.5 | nm |

(a) Exclusive of depreciation and amortization

nm – Not meaningful

### Consolidated

### Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023

Net sales of tech-enabled services of $82.9 million for the three months ended March 31, 2024 increased $4.5 million, or 5.7%, as compared to the three months ended March 31, 2023. Net sales of tech-enabled services increased primarily due to higher capital markets transactional volumes, partially offset by lower capital markets compliance volumes.

Net sales of software solutions of $80.3 million for the three months ended March 31, 2024 increased $10.2 million, or 14.6%, as compared to the three months ended March 31, 2023. Net sales of software solutions increased primarily due to higher Venue volumes and Venue price increases, partially offset by the disposition of the eBrevia business, which was sold in the fourth quarter of 2023.

Net sales of print and distribution of $40.2 million for the three months ended March 31, 2024 decreased $9.9 million, or 19.8%, as compared to the three months ended March 31, 2023. Net sales of print and distribution decreased primarily due to lower capital markets and investment companies compliance volumes.

Tech-enabled services cost of sales of $30.6 million for the three months ended March 31, 2024 decreased $2.7 million, or 8.1%, as compared to the three months ended March 31, 2023. Tech-enabled services cost of sales decreased primarily due to cost control initiatives and a favorable sales mix, partially offset by higher sales volumes. As a percentage of tech-enabled services net sales, tech-enabled services cost of sales decreased 5.6%, primarily driven by cost control initiatives and a favorable sales mix.

Software solutions cost of sales of $27.3 million for the three months ended March 31, 2024 decreased $1.1 million, or 3.9%, as compared to the three months ended March 31, 2023. Software solutions cost of sales decreased primarily due to a favorable sales mix and cost control initiatives, partially offset by higher sales volumes. As a percentage of software solutions net sales, software solutions cost of sales decreased 6.5%, primarily driven by a favorable sales mix and cost control initiatives.

Print and distribution cost of sales of $22.2 million for the three months ended March 31, 2024 decreased $6.4 million, or 22.4%, as compared to the three months ended March 31, 2023. Print and distribution cost of sales decreased primarily due to lower sales volumes and cost control initiatives. As a percentage of print and distribution net sales, print and distribution cost of sales decreased 1.9%, primarily driven by cost control initiatives.

SG&A expenses of $72.8 million for the three months ended March 31, 2024 increased $2.3 million, or 3.3%, as compared to the three months ended March 31, 2023. SG&A expenses increased primarily due to higher selling expense as a result of the increase in sales volumes, higher bad debt expense, higher share-based compensation expense, higher incentive compensation expense and higher healthcare expense, partially offset by lower consulting expense and cost control initiatives. As a percentage of net sales, SG&A expenses increased to 35.8% for the three months ended March 31, 2024 from 35.5% for the three months ended March 31, 2023, primarily due to higher selling expense, higher bad debt expense, higher share-based compensation expense, higher incentive compensation expense and higher healthcare expense, partially offset by lower consulting expense and cost control initiatives.

Depreciation and amortization of $13.9 million for the three months ended March 31, 2024 increased $1.5 million, or 12.1%, as compared to the three months ended March 31, 2023, primarily due to additional software development.

Restructuring, impairment and other charges, net of $1.8 million for the three months ended March 31, 2024 decreased $9.1 million, or 83.5%, as compared to the three months ended March 31, 2023. For the three months ended March 31, 2024, these charges included $1.7 million of employee termination costs for approximately 10 employees. For the three months ended March 31, 2023, these charges included $10.8 million of employee termination costs for approximately 150 employees.

Other operating income, net of $9.8 million for the three months ended March 31, 2024 included a net pre-tax gain on the sale of land.

Income from operations of $44.6 million for the three months ended March 31, 2024 increased $29.8 million, as compared to the three months ended March 31, 2023. Income from operations increased primarily due to a net pre-tax gain on the sale of land, lower restructuring, impairment and other charges, net, higher sales volumes, a favorable sales mix and cost control initiatives, partially offset by higher depreciation and amortization expense and higher incentive compensation expense.

Interest expense, net of $3.6 million for the three months ended March 31, 2024 increased $0.1 million, or 2.9%, as compared to the three months ended March 31, 2023. Interest expense, net increased primarily due to a higher variable interest rate on the Company’s outstanding debt facilities, partially offset by lower average Revolving Facility (as defined below) borrowings during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Investment and other income, net of $0.4 million for the three months ended March 31, 2024 decreased $6.5 million, or 94.2%, as compared to the three months ended March 31, 2023. Investment and other income, net decreased primarily due to a net realized gain of $6.7 million on the sale of an investment in an equity security during the three months ended March 31, 2023.

The effective income tax rate was 19.6% for the three months ended March 31, 2024, as compared to 13.2% for the three months ended March 31, 2023. The increase in the effective income tax rate was primarily driven by higher pre-tax earnings for the three months ended March 31, 2024, which reduced the net favorable impact of discrete items.

### Information by Segment

The following tables summarize net sales, income (loss) from operations, operating margin and certain items impacting comparability within each of the operating segments for the three months ended March 31, 2024 and 2023:

#### Capital Markets – Software Solutions

*(in millions, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $53.0 | $43.7 | $9.3 | 21.3% |
| Income (loss) from operations | 9.5 | (0.6) | 10.1 | nm |
| Operating margin | 17.9% | (1.4%) |  |  |
| Items impacting comparability |  |  |  |  |
| Restructuring, impairment and other charges, net | — | 2.0 | (2.0) | (100.0%) |
| Non-income tax, net | (0.2) | (0.2) | — | — |
| Depreciation and amortization | 6.5 | 6.2 | 0.3 | 4.8% |

nm – Not meaningful

Net sales of $53.0 million for the three months ended March 31, 2024 increased $9.3 million, or 21.3%, as compared to the three months ended March 31, 2023. Net sales increased primarily due to higher Venue volumes and Venue price increases, partially offset by a $1.2 million decrease due to the disposition of the eBrevia business, which was sold in the fourth quarter of 2023.

Income from operations of $9.5 million for the three months ended March 31, 2024 increased $10.1 million, as compared to a loss from operations of $0.6 million for the three months ended March 31, 2023, primarily due to higher sales volumes, a favorable sales mix, price increases, lower restructuring, impairment and other charges, net and cost control initiatives.

Operating margin increased from a negative margin of 1.4% for the three months ended March 31, 2023 to 17.9% for the three months ended March 31, 2024, primarily due to a favorable sales mix, price increases, lower restructuring, impairment and other charges, net, which had a positive impact on operating margin of 3.8%, and cost control initiatives.

#### Capital Markets – Compliance and Communications Management

*(in millions, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $91.1 | $94.1 | $(3.0) | (3.2%) |
| Income from operations | 38.6 | 16.6 | 22.0 | nm |
| Operating margin | 42.4% | 17.6% |  |  |
| Items impacting comparability |  |  |  |  |
| Restructuring, impairment and other charges, net | 0.6 | 8.3 | (7.7) | (92.8%) |
| Gain on sale of long-lived assets | (9.8) | (0.3) | (9.5) | nm |
| Non-income tax, net | (0.1) | — | (0.1) | nm |
| Accelerated rent expense | — | 0.5 | (0.5) | (100.0%) |
| Depreciation and amortization | 2.1 | 1.8 | 0.3 | 16.7% |

nm – Not meaningful

Net sales of $91.1 million for the three months ended March 31, 2024 decreased $3.0 million, or 3.2%, as compared to the three months ended March 31, 2023. Net sales decreased primarily due to lower compliance volumes, partially offset by higher transactional volumes and price increases.

Income from operations of $38.6 million for the three months ended March 31, 2024 increased $22.0 million, as compared to the three months ended March 31, 2023, primarily due to a net pre-tax gain on the sale of land, lower restructuring, impairment and other charges, net, a favorable sales mix and cost control initiatives, partially offset by lower sales volumes, higher incentive compensation expense and higher bad debt expense.

Operating margin increased from 17.6% for the three months ended March 31, 2023 to 42.4% for the three months ended March 31, 2024, primarily due to a net pre-tax gain on the sale of land and lower restructuring, impairment and other charges, net, which combined had a positive impact on operating margin of 18.9%, a favorable sales mix and cost control initiatives, partially offset by higher incentive compensation expense and higher bad debt expense.

#### Investment Companies – Software Solutions

*(in millions, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $27.3 | $26.4 | $0.9 | 3.4% |
| Income from operations | 3.8 | 5.0 | (1.2) | (24.0%) |
| Operating margin | 13.9% | 18.9% |  |  |
| Items impacting comparability |  |  |  |  |
| Restructuring, impairment and other charges, net | 0.1 | (0.1) | 0.2 | nm |
| Non-income tax, net | (0.1) | — | (0.1) | nm |
| Depreciation and amortization | 4.2 | 3.3 | 0.9 | 27.3% |

nm – Not meaningful

Net sales of $27.3 million for the three months ended March 31, 2024 increased $0.9 million, or 3.4%, as compared to the three months ended March 31, 2023. Net sales increased primarily due to higher ArcReporting volumes and Arc Suite price increases.

Income from operations of $3.8 million for the three months ended March 31, 2024 decreased $1.2 million, or 24.0%, as compared to the three months ended March 31, 2023, primarily due to higher depreciation and amortization expense and higher product development costs.

Operating margin decreased from 18.9% for the three months ended March 31, 2023 to 13.9% for the three months ended March 31, 2024, primarily due to higher depreciation and amortization expense and higher product development costs.

#### Investment Companies – Compliance and Communications Management

*(in millions, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $32.0 | $34.4 | $(2.4) | (7.0%) |
| Income from operations | 7.1 | 8.1 | (1.0) | (12.3%) |
| Operating margin | 22.2% | 23.5% |  |  |
| Items impacting comparability |  |  |  |  |
| Restructuring, impairment and other charges, net | — | 0.2 | (0.2) | (100.0%) |
| Depreciation and amortization | 1.1 | 1.1 | — | — |

Net sales of $32.0 million for the three months ended March 31, 2024 decreased $2.4 million, or 7.0%, as compared to the three months ended March 31, 2023. Net sales decreased primarily due to lower compliance volumes.

Income from operations of $7.1 million for the three months ended March 31, 2024 decreased $1.0 million, or 12.3%, as compared to the three months ended March 31, 2023, primarily due to lower sales volumes, partially offset by lower selling expense as a result of the decrease in sales volumes.

Operating margin decreased from 23.5% for the three months ended March 31, 2023 to 22.2% for the three months ended March 31, 2024, primarily due to lower sales volumes, partially offset by lower selling expense as a result of the decrease in sales volumes.

#### Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate for the three months ended March 31, 2024 and 2023:

*(in millions)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Operating expenses | $14.4 | $14.3 |
| Items impacting comparability |  |  |
| Share-based compensation expense | 5.1 | 4.3 |
| Restructuring, impairment and other charges, net | 1.1 | 0.5 |

Corporate operating expenses of $14.4 million for the three months ended March 31, 2024 increased $0.1 million compared to the three months ended March 31, 2023, primarily due to higher healthcare expense, higher share-based compensation expense and higher restructuring, impairment and other charges, net, mostly offset by lower consulting expense.

### Non-GAAP Measures

The Company believes that certain non-GAAP measures, such as non-GAAP adjusted EBITDA (“Adjusted EBITDA”), provide useful information about the Company’s operating results and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance prepared in accordance with GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Adjusted EBITDA allows investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as historic cost and age of assets, restructuring, impairment and other charges, net, non-income tax, net, gain on investments in equity securities as well as other items, as described below, the Company believes that Adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

Adjusted EBITDA is not presented in accordance with GAAP and has important limitations as an analytical tool. These measures should not be considered as a substitute for analysis of the Company’s results as reported under GAAP. In addition, these measures are defined differently by different companies and, accordingly, such measures may not be comparable to similarly-titled measures of other companies. In addition to the factors listed above, share-based compensation expense is excluded from Adjusted EBITDA. Although share-based compensation is a key incentive offered to certain of the Company’s employees, business performance is evaluated excluding share-based compensation expense. Depending upon the size, timing and the terms of grants, share-based compensation expense may vary but will recur in future periods.

The following table reconciles net earnings to Adjusted EBITDA for the three months ended March 31, 2024 and 2023:

*(in millions)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net earnings | $33.3 | $15.8 |
| Restructuring, impairment and other charges, net | 1.8 | 10.9 |
| Share-based compensation expense | 5.1 | 4.3 |
| Gain on sale of long-lived assets | (9.8) | (0.3) |
| Non-income tax, net | (0.4) | (0.2) |
| Gain on investments in equity securities | (0.1) | (6.7) |
| Accelerated rent expense | — | 0.5 |
| Depreciation and amortization | 13.9 | 12.4 |
| Interest expense, net | 3.6 | 3.5 |
| Investment and other income, net | (0.3) | (0.2) |
| Income tax expense | 8.1 | 2.4 |
| Adjusted EBITDA | $55.2 | $42.4 |

***Restructuring, impairment and other charges, net—***Included employee termination costs of $1.7 million and $10.8 million for the three months ended March 31, 2024 and 2023, respectively. Refer to Note 5, *Restructuring, Impairment and Other Charges, net*, to the Unaudited Condensed Consolidated Financial Statements for additional information.

***Share-based compensation expense—***Included charges of $5.1 million and $4.3 million for the three months ended March 31, 2024 and 2023, respectively. Refer to Note 10, *Share-based Compensation*, to the Unaudited Condensed Consolidated Financial Statements for additional information.

***Gain on sale of long-lived assets—***Included a net pre-tax gain of $9.8 million for the three months ended March 31, 2024 related to the sale of land and a gain of $0.3 million for the three months ended March 31, 2023 related to non-refundable fees on the sale of land. Refer to Note 1, *Overview, Basis of Presentation and Significant Accounting Policies*, to the Unaudited Condensed Consolidated Financial Statements for additional information.

***Non-income tax, net—***Included income of $0.4 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively, related to certain estimated non-income tax exposures previously accrued by the Company.

***Gain on investments in equity securities—***Included a net realized gain of $0.1 million and $6.7 million for the three months ended March 31, 2024 and 2023, respectively, related to the sales of investments in equity securities. Refer to Note 1, *Overview, Basis of Presentation and Significant Accounting Policies*, to the Unaudited Condensed Consolidated Financial Statements for additional information.

***Accelerated rent expense—***Includes charges of $0.5 million for the three months ended March 31, 2023 related to the acceleration of rent expense associated with abandoned operating leases.

### Liquidity and Capital Resources

The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its investors. Cash and cash equivalents on hand, operating cash flows and the Company’s Revolving Facility are the primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s debt obligations, capital expenditures necessary to support productivity improvement and growth, acquisitions and completion of restructuring programs.

The Company maintains cash pooling structures that enable participating international locations to draw on the pools’ cash resources to meet local liquidity needs. Foreign cash balances may be loaned from certain cash pools to U.S. operating entities on a temporary basis in order to reduce the Company’s short-term borrowing costs or for other purposes. The Company has the ability to repatriate foreign cash, associated with foreign earnings previously subjected to U.S. tax, with minimal additional tax consequences. The Company maintains its assertion of indefinite reinvestment on all foreign earnings and other outside basis differences to indicate that the Company remains indefinitely reinvested in operations outside of the U.S., with the exception of the previously taxed foreign earnings already subject to U.S. tax. The Company repatriated excess cash at its foreign subsidiaries to the U.S. during the three months ended March 31, 2024. The Company did not repatriate excess cash at its foreign subsidiaries to the U.S. during the year ended December 31, 2023. The Company is evaluating whether to make any cash repatriations in the future.

The Organization for Economic Co-operation and Development’s (“OECD”) current project, widely known as Anti-Base Erosion and Profit Shifting, seeks to address tax challenges arising in the global economy by introducing a global minimum corporate tax of 15%, referred to as Pillar Two, and several mechanisms to ensure tax is paid (the “GloBE Model Rules”). Policymakers across jurisdictions have begun adopting the GloBE Model Rules to implement a global minimum corporate tax rate of 15%. The OECD continues to release administrative guidance and many countries in which the Company operates have adopted or have proposed legislation to adopt Pillar Two. Many aspects of the minimum tax directive became effective beginning in 2024, with certain additional impacts coming into effect beginning in 2025 and beyond. The Company is monitoring enacted legislation and effective dates in its jurisdictions of operations. The Pillar Two framework did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2024 and the Company does not expect enacted legislation to have a material impact in future periods.

Cash and cash equivalents were $43.7 million at March 31, 2024, which included $17.1 million in the U.S. and $26.6 million at international locations.

The following table describes the Company’s cash flows for the three months ended March 31, 2024 and 2023:

*(in millions)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(27.9) | $(51.5) |
| Net cash provided by (used in) investing activities | 0.2 | (1.7) |
| Net cash provided by financing activities | 48.6 | 47.7 |
| Effect of exchange rate on cash and cash equivalents | (0.3) | 0.1 |
| Net increase (decrease) in cash and cash equivalents | $20.6 | $(5.4) |

### Cash Flows Used in Operating Activities

Operating cash inflows and outflows are largely attributable to sales of the Company’s services and products as well as recurring expenditures for labor, rent and other operating activities.

Net cash used in operating activities was $27.9 million for the three months ended March 31, 2024 as compared to $51.5 million for the three months ended March 31, 2023. The decrease in cash used in operating activities was primarily due to an increase in net earnings and favorable changes to accounts payable, partially offset by an unfavorable change in accounts receivable. Accounts payable increased operating cash flows by $6.4 million for the three months ended March 31, 2024, as compared to $0.6 million for the three months ended March 31, 2023, primarily due to the timing of supplier payments. Accounts receivable decreased operating cash flows by $47.2 million for the three months ended March 31, 2023, as compared to $39.7 million for the three months ended March 31, 2023, due to timing of collections.

### Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities was $0.2 million for the three months ended March 31, 2024, which primarily consisted of $12.4 million of proceeds from the sale of land, partially offset by $12.3 million of capital expenditures, substantially all related to investments in software development. The Company currently expects capital expenditures to be approximately $65 million to $70 million for the year ending December 31, 2024.

Net cash used in investing activities was $1.7 million for the three months ended March 31, 2023, which consisted of $10.6 million of capital expenditures, substantially all related to investments in software development, partially offset by $8.9 million of proceeds from the sale of an investment in an equity security.

### Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $48.6 million for the three months ended March 31, 2024. During the three months ended March 31, 2024, the Company received $138.5 million of proceeds from the Revolving Facility borrowings, partially offset by $58.5 million of payments on the Revolving Facility borrowings. The Company's common stock repurchases for the three months ended March 31, 2024 totaled $30.8 million, which included $22.5 million associated with vesting of the Company's equity awards and $8.3 million of repurchases under the stock repurchase program.

Net cash provided by financing activities was $47.7 million for the three months ended March 31, 2023. During the three months ended March 31, 2023, the Company received $99.0 million of proceeds from the Revolving Facility borrowings, partially offset by $33.5 million of payments on the Revolving Facility borrowings. The Company’s common stock repurchases for the three months ended March 31, 2023 totaled $18.4 million, which included $17.0 million associated with vesting of the Company’s employees’ equity awards and $1.4 million of repurchases under the stock repurchase program.

### Debt

The Company’s debt as of March 31, 2024 and December 31, 2023 consisted of the following (in millions):

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Term Loan A Facility | $125.0 | $125.0 |
| Borrowings under the Revolving Facility | 80.0 | — |
| Unamortized debt issuance costs | (0.5) | (0.5) |
| Total long-term debt | $204.5 | $124.5 |

***Credit Agreement—***On May 27, 2021, the Company amended and restated its credit agreement dated as of September 30, 2016 (as in effect prior to such amendment and restatement, the “Credit Agreement,” and the Credit Agreement, as so amended and restated, the “Amended and Restated Credit Agreement”), by and among the Company, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, to, among other things, provide for a $200.0 million delayed-draw term loan A facility (the “Term Loan A Facility”) (bearing interest at a rate equal to the sum of the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 2.00% to 2.50% based upon the Company's Consolidated Net Leverage Ratio), extend the maturity of the $300.0 million revolving credit facility (the “Revolving Facility”) to May 27, 2026 and modify the financial maintenance and negative covenants in the Credit Agreement.

On May 11, 2023, the Company entered into the first amendment to the Amended and Restated Credit Agreement to change the reference rate from LIBOR, which ceased being published on June 30, 2023, to the Secured Overnight Financing Rate (“SOFR”) for both the Term Loan A Facility and the Revolving Facility. The SOFR interest rate was effective for the Revolving Facility and the Term Loan A on May 30, 2023 and June 12, 2023, respectively. No other significant terms of the Amended and Restated Credit Agreement were amended. The Amended and Restated Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and the Consolidated Net Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $20.0 million in the aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications. The unpaid principal amount of the Term Loan A Facility is due and payable in full on May 27, 2026. Voluntary prepayments of the Term Loan A Facility are permitted at any time without premium or penalty.

As of March 31, 2024, there were $80.0 million of borrowings outstanding under the Revolving Facility as well as $2.5 million in outstanding letters of credit and bank guarantees, of which $1.0 million of the outstanding letters of credit reduced the availability under the Revolving Facility. Based on the Company’s results of operations for the twelve months ended March 31, 2024 and existing debt, the Company would have had the ability to utilize the remaining $219.0 million of the Revolving Facility and not have been in violation of the terms of the agreement.

The current availability under the Revolving Facility and net available liquidity as of March 31, 2024 are shown in the table below:

*(in millions)*

| Availability | March 31, 2024 |
| --- | ---: |
| Revolving Facility | $300.0 |
| Availability reduction from covenants | — |
|  | $300.0 |
| **Usage** |  |
| Borrowings under the Revolving Facility | $80.0 |
| Impact on availability related to outstanding letters of credit | 1.0 |
|  | $81.0 |
| Current availability at March 31, 2024 | $219.0 |
| Cash and cash equivalents | 43.7 |
| Net Available Liquidity | $262.7 |

The Company was in compliance with its debt covenants as of March 31, 2024, and expects to remain in compliance based on management’s estimates of operating and financial results for fiscal year 2024 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s services and products could impact the Company’s ability to remain in compliance with its debt covenants in future periods.

The failure of a financial institution supporting the Revolving Facility would reduce the size of the Company’s committed facility unless a replacement institution was added. As of March 31, 2024, the Revolving Facility is supported by fifteen U.S. and international financial institutions.

As of March 31, 2024, the Company met all the conditions required to borrow under the Revolving Facility, and management expects the Company to continue to meet the applicable borrowing conditions.

### OTHER INFORMATION

### Litigation and Contingent Liabilities

For a discussion of certain litigation involving the Company, see Note 7, *Commitments and Contingencies*, to the Unaudited Condensed Consolidated Financial Statements.

### Critical Accounting Estimates

There were no changes to critical accounting estimates from those disclosed in the Annual Report.

### New Accounting Pronouncements

Recently issued accounting standards and their estimated effect on the Company’s Unaudited Condensed Consolidated Financial Statements are described in Note 1, *Overview, Basis of Presentation and Significant Accounting Policies*, to the Unaudited Condensed Consolidated Financial Statements.

## Controls and procedures

As filed, 973 characters.

(a) Disclosure controls and procedures.

Management, together with the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and Rule 15d-15(e) of the Exchange Act) as of March 31, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024.

(b) Changes in internal control over financial reporting.

The Company is implementing a new quote-to-cash process, including the implementation of new systems, for certain of its software services (“QTC Process”). This project improves the efficiency and effectiveness of certain business transactions, invoicing and reporting processes, as well as the underlying systems environment. The new QTC Process is a significant component of the Company's internal control over financial reporting.

## Risk factors

As filed, 128 characters.

There were no material changes during the three months ended March 31, 2024 to the risk factors identified in the Annual Report.

Filed May 1, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-051247. Last ingested by Listed: Nov 3, 2026, 20:21 ET. No prices; not investment advice.