Donnelley Financial Solutions (NYSE: DFIN) today reported
financial results for the first quarter 2019.
Highlights:
- First-quarter net sales of $229.6 million, in line with guidance
-
U.S. Investment Markets net sales increased by 4.0% from the first
quarter of 2018 as a result of a special proxy project, as well as
growth in annual report and prospectus solutions -
SaaS net sales increased by 6.5% from the first quarter of 2018,
primarily driven by ActiveDisclosure; SaaS net sales represented 18.5%
of first-quarter net sales - Company reaffirms full-year 2019 guidance
“We are pleased with the strong demand we saw in U.S. Investment Markets
for our market-leading regulatory and compliance solutions,” said Daniel
N. Leib, DFIN’s president and chief executive officer. “As we
anticipated, capital markets’ transactional activity was negatively
impacted by the government shutdown early in the quarter, yet activity
levels strengthened each successive month and returned to more
normalized levels in March.”
“We exit the first quarter in line with our expectations, and enter our
seasonally strongest period with a robust transactional pipeline,
keeping us on track to achieve our full-year guidance while we continue
to execute on our digital-focused strategy,” Leib concluded.
Net Sales
Net sales in the first quarter of 2019 were $229.6 million, a decrease
of $25.6 million, or 10.0%, from the first quarter of 2018 driven
largely by the impact of the sale of the Language Solutions business and
lower global transactional activity. After adjusting for the 2018 sale
of the Language Solutions business, changes in foreign exchange rates
and the 2018 acquisition of eBrevia, organic net sales decreased 2.5%
from the first quarter of 2018. The organic decline was primarily driven
by lower global transactional activity, partially offset by higher
mutual fund volume in U.S. Investment Markets, higher compliance volume
in U.S. Capital Markets and growth in global SaaS solutions, primarily
in ActiveDisclosure and FundSuiteArc.
GAAP Earnings
First-quarter 2019 net loss was $1.4 million, or $0.04 loss per diluted
share, compared to net earnings of $7.7 million, or $0.23 earnings per
diluted share, in the first quarter of 2018. The first-quarter 2019 net
loss included after-tax adjustments of $3.6 million and first-quarter
2018 net earnings included after-tax adjustments of $7.9 million, all of
which are excluded from the presentation of non-GAAP net earnings.
Additional details regarding the amount and nature of these and other
items are included in the attached schedules.
Non-GAAP Adjusted EBITDA and Net Earnings
Non-GAAP adjusted EBITDA in the first quarter of 2019 was $23.7 million,
compared to $40.8 million in the first quarter of 2018. Non-GAAP
adjusted EBITDA margin in the first quarter of 2019 was 10.3%, 570 basis
points lower than in the first quarter of 2018. The Non-GAAP adjusted
EBITDA decrease was primarily driven by lower global transactional
activity and the sale of the Language Solutions business, partially
offset by the impact of cost saving initiatives.
Non-GAAP net earnings totaled $2.2 million, or $0.06 per diluted share,
in the first quarter of 2019 compared to non-GAAP net earnings of $15.6
million, or $0.46 per diluted share, in the first quarter of 2018.
Reconciliations of net earnings to non-GAAP adjusted EBITDA and non-GAAP
net earnings, as well as non-GAAP adjusted EBITDA margin, are presented
in the attached schedules.
Sale of the Language Solutions Business
On July 22, 2018, the Company sold its Language Solutions business for
net proceeds of $77.5 million in cash. As such, first-quarter 2019
results exclude Language Solutions, while first-quarter 2018 results
include Language Solutions. The sale negatively impacted the
first-quarter net sales comparison by $18.8 million and negatively
impacted the gross profit and non-GAAP adjusted EBITDA comparisons by
approximately $5.5 million and $1.0 million, respectively, inclusive of
estimated net stranded costs.
Similarly, the sale will negatively impact the year-over-year
comparisons in the second and third quarters of 2019. In the second
quarter, the sale will negatively impact the net sales comparison by
$19.8 million and negatively impact the gross profit and non-GAAP
adjusted EBITDA comparisons by approximately $5.3 million and $1.5
million, respectively, inclusive of estimated net stranded costs. In the
third quarter, the sale will negatively impact the net sales comparison
by $3.2 million and negatively impact the gross profit and non-GAAP
adjusted EBITDA comparisons by approximately $1.2 million and $0.5
million, respectively, inclusive of estimated net stranded costs.
2019 Guidance
The Company reaffirms its previous full-year guidance for 2019.
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2019 Guidance |
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| Net sales | $910 to $940 million | |
| Non-GAAP adjusted EBITDA | $145 to $155 million | |
| Depreciation and amortization | Approximately $48 million | |
| Interest expense | Approximately $35 million | |
| Non-GAAP effective tax rate | 29% to 31% | |
| Diluted share count | Approximately 35 million | |
| Capital expenditures | $40 to $45 million | |
| Free cash flow(1) | $40 to $45 million | |
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(1) Defined as operating cash flow less capital |
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Certain components of the guidance given above are provided on a
non-GAAP basis only, without providing a reconciliation to guidance
provided on a GAAP basis. Information is presented in this manner,
consistent with SEC rules, because the preparation of such a
reconciliation could not be accomplished without “unreasonable efforts.”
The Company does not have access to certain information that would be
necessary to provide such a reconciliation, including non-recurring
items that are not indicative of the Company’s ongoing operations. Such
items include, but are not limited to, restructuring charges, impairment
charges, spinoff-related transaction expenses, acquisition-related
expenses, gains or losses on investments and business disposals and
other similar gains or losses not reflective of the Company’s ongoing
operations. The Company does not believe that this information is likely
to be significant to an assessment of the Company’s ongoing operations,
given that it is not an indicator of business performance.
Conference Call
DFIN will host a conference call and simultaneous webcast to discuss its
first-quarter results today, Thursday, May 2, 2019, at 9:00 a.m. Eastern
time (8:00 a.m. Central time). The live webcast will be accessible on
DFIN’s web site at investor.dfinsolutions.com.
Individuals wishing to participate on the call must
register in advance at http://www.meetme.net/DFIN.
After registering, participants will receive dial-in numbers, a
passcode, and a personal identification number (PIN) that is used to
uniquely identify their presence and automatically join them into the
audio conference. A webcast replay will be archived on the Company’s web
site for 30 days after the call.
About DFIN
DFIN is a leading global risk and compliance solutions company. We
provide domain expertise, enterprise software and data analytics for
every stage of our clients’ business and investment lifecycles. Markets
fluctuate, regulations evolve, technology advances, and through it all,
DFIN delivers confidence with the right solutions in moments that
matter. Learn about DFIN’s end-to-end risk and compliance solutions
online at DFINsolutions.com or you can also follow us on Twitter
@DFINSolutions or on LinkedIn.
Use of non-GAAP Information
This news release contains certain non-GAAP measures, including non-GAAP
SG&A, non-GAAP SG&A as % of total net sales, non-GAAP income from
operations, non-GAAP operating margin, non-GAAP adjusted EBITDA,
non-GAAP adjusted EBITDA margin, non-GAAP effective tax rate, non-GAAP
net earnings, non-GAAP diluted earnings per share, free cash flow and
organic net sales. The Company believes that these non-GAAP measures,
when presented in conjunction with comparable GAAP measures, provide
useful information about the Company’s operating results and liquidity
and enhance the overall ability to assess the Company’s financial
performance. The Company uses these measures, together with other
measures of performance under GAAP, to compare the relative performance
of operations in planning, budgeting and reviewing the performance of
its business.
Our non-GAAP statement of operations measures, non-GAAP SG&A, non-GAAP
SG&A as % of total net sales, non-GAAP income from operations, non-GAAP
operating margin, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA
margin, non-GAAP effective tax rate, non-GAAP net earnings and non-GAAP
diluted earnings per share, are adjusted to exclude the impact of
certain costs, expenses, gains and losses and other specified items that
management believes are not indicative of our ongoing operations. These
adjusted measures exclude the impact of expenses associated with the
Company’s acquisition activities, spin-off related expenses,
non-recurring investor-related fees, share-based compensation and
eliminate potential differences in results of operations between periods
caused by factors such as historic cost and age of assets, financing and
capital structures, taxation positions or regimes, restructuring,
impairment and other charges and gain or loss on certain equity
investments and asset sales.
Free cash flow is a non-GAAP financial measure and is defined by the
Company as net cash flow provided by operating activities less capital
expenditures. By adjusting for the level of capital investment in
operations, the Company believes that free cash flow can provide useful
additional basis for understanding the Company’s ability to generate
cash after capital investment and provides a comparison to peers with
differing capital intensity.
Organic net sales is a non-GAAP financial measure and is defined by the
Company as reported net sales adjusted for the changes in foreign
exchange rates and the purchase or disposition of businesses.
These non-GAAP measures should be considered in addition to, not a
substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. In addition, these measures are
defined differently by different companies in our industry and,
accordingly, such measures may not be comparable to similarly-titled
measures of other companies.
Use of Forward-Looking Statements
This news release includes certain “forward-looking statements” within
the meaning of, and subject to the safe harbor created by, Section 21E
of the Securities Exchange Act of 1934, as amended, with respect to the
business, strategy and plans of DFIN and its expectations relating to
future financial condition and performance. Statements that are not
historical facts, including statements about DFIN management’s beliefs
and expectations, are forward-looking statements. Words such as
“believes,” “anticipates,” “estimates,” “expects,” “intends,” “aims,”
“potential,” “will,” “would,” “could,” “considered,” “likely,”
“estimate” and variations of these words and similar future or
conditional expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such
statements. While DFIN believes these expectations, assumptions,
estimates and projections are reasonable, such forward-looking
statements are only predictions and involve known and unknown risks and
uncertainties, many of which are beyond DFIN’s control. By their nature,
forward-looking statements involve risk and uncertainty because they
relate to events and depend upon future circumstances that may or may
not occur. Actual results may differ materially from DFIN’s current
expectations depending upon a number of factors affecting the business
and risks associated with the performance of the business. These factors
include such risks and uncertainties detailed in DFIN periodic public
filings with the SEC, including but not limited to those discussed under
“Risk Factors” in DFIN’s Form 10-K for the fiscal year ended December
31, 2018, those discussed under “Cautionary Statement” in DFIN’s
quarterly Form 10-Q filings, and in other investor communications of
DFIN’s from time to time. DFIN does not undertake to and specifically
declines any obligation to publicly release the results of any revisions
to these forward-looking statements that may be made to reflect future
events or circumstances after the date of such statement or to reflect
the occurrence of anticipated or unanticipated events.
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Donnelley Financial Solutions, Inc. |
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Condensed Consolidated Balance Sheets |
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As of March 31, 2019 and December 31, 2018 |
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(UNAUDITED) |
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(in millions, except per share data) |
||||||||
| March 31, 2019 | December 31, 2018 | |||||||
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Assets |
||||||||
| Cash and cash equivalents | $ | 10.5 | $ | 47.3 | ||||
|
Receivables, less allowances for doubtful accounts of $8.6 in 2019 (2018 – $7.9) |
235.6 | 172.9 | ||||||
| Inventories | 14.8 | 12.1 | ||||||
| Prepaid expenses and other current assets | 20.8 | 16.7 | ||||||
| Total Current Assets | 281.7 | 249.0 | ||||||
| Property, plant and equipment – net | 38.1 | 32.2 | ||||||
| Right-of-use assets | 95.5 | — | ||||||
| Software – net | 49.9 | 47.8 | ||||||
| Goodwill | 450.2 | 450.0 | ||||||
| Other intangible assets – net | 33.6 | 37.2 | ||||||
| Deferred income taxes | 12.3 | 9.7 | ||||||
| Other noncurrent assets | 41.1 | 42.8 | ||||||
| Total Assets | $ | 1,002.4 | $ | 868.7 | ||||
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Liabilities |
||||||||
| Accounts payable | $ | 98.0 | $ | 72.4 | ||||
| Accrued liabilities |
113.7 |
126.0 | ||||||
| Total Current Liabilities |
211.7 |
198.4 | ||||||
| Long-term debt | 411.7 | 362.7 | ||||||
| Deferred compensation liabilities | 19.8 | 19.5 | ||||||
| Pension and other postretirement benefits plan liabilities | 50.1 | 51.3 | ||||||
| Noncurrent lease liabilities |
73.9 |
— | ||||||
| Other noncurrent liabilities | 7.7 | 10.8 | ||||||
| Total Liabilities | 774.9 | 642.7 | ||||||
|
Equity |
||||||||
| Common stock, $0.01 par value | ||||||||
| Authorized: 65.0 shares; | ||||||||
| Issued: 34.4 shares in 2019 (2018 – 34.2 shares) | 0.3 | 0.3 | ||||||
| Treasury stock, at cost: 0.2 shares in 2019 (2018 – 0.1 shares) | (3.6 | ) | (2.4 | ) | ||||
| Additional paid-in capital | 218.0 | 216.5 | ||||||
| Retained earnings | 92.9 | 94.3 | ||||||
| Accumulated other comprehensive loss | (80.1 | ) | (82.7 | ) | ||||
| Total Equity | 227.5 | 226.0 | ||||||
| Total Liabilities and Equity | $ | 1,002.4 | $ | 868.7 | ||||
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Donnelley Financial Solutions, Inc. |
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Condensed Consolidated Statements of Operations |
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For the Three Months Ended March 31, 2019 and 2018 |
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(UNAUDITED) |
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(in millions, except per share data) |
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| For the Three Months Ended March 31, | ||||||||||||||||||||||||
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2019
GAAP |
ADJUSTMENTS
TO NON-GAAP |
2019
NON-GAAP |
2018
GAAP |
ADJUSTMENTS
TO NON-GAAP |
2018
NON-GAAP |
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| Services net sales | $ | 127.9 | $ | — | $ | 127.9 | $ | 159.5 | $ | — | $ | 159.5 | ||||||||||||
| Products net sales | 101.7 | — | 101.7 | 95.7 | — | 95.7 | ||||||||||||||||||
| Total net sales | 229.6 | — | 229.6 | 255.2 | — | 255.2 | ||||||||||||||||||
|
Services cost of sales (1) |
75.4 | — | 75.4 | 85.9 | — | 85.9 | ||||||||||||||||||
|
Products cost of sales (1) |
78.5 | — | 78.5 | 72.7 | — | 72.7 | ||||||||||||||||||
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Total cost of sales (1) |
153.9 | — | 153.9 | 158.6 | — | 158.6 | ||||||||||||||||||
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Selling, general and administrative expenses (SG&A) (1) |
54.9 | (2.9 | ) | 52.0 | 66.1 | (10.3 | ) | 55.8 | ||||||||||||||||
|
Restructuring, impairment and other
charges – net |
2.1 | (2.1 | ) | — | 0.7 | (0.7 | ) | — | ||||||||||||||||
| Depreciation and amortization | 12.1 | — | 12.1 | 10.4 | — | 10.4 | ||||||||||||||||||
| Income from operations | 6.6 | 5.0 | 11.6 | 19.4 | 11.0 | 30.4 | ||||||||||||||||||
| Interest expense-net | 8.9 | — | 8.9 | 9.0 | — | 9.0 | ||||||||||||||||||
| Investment and other income – net | (0.6 | ) | — | (0.6 | ) | (0.8 | ) | — | (0.8 | ) | ||||||||||||||
| (Loss) earnings before income taxes | (1.7 | ) | 5.0 | 3.3 | 11.2 | 11.0 | 22.2 | |||||||||||||||||
|
Income tax (benefit) expense (2) |
(0.3 | ) | 1.4 | 1.1 | 3.5 | 3.1 | 6.6 | |||||||||||||||||
| Net (loss) earnings | $ | (1.4 | ) | $ | 3.6 | $ | 2.2 | $ | 7.7 | $ | 7.9 | $ | 15.6 | |||||||||||
| Net (loss) earnings per share: | ||||||||||||||||||||||||
| Basic net (loss) earnings per share | $ | (0.04 | ) | $ | 0.06 | $ | 0.23 | $ | 0.46 | |||||||||||||||
| Diluted net (loss) earnings per share | $ | (0.04 | ) | $ | 0.06 | $ | 0.23 | $ | 0.46 | |||||||||||||||
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Weighted average number of
common shares outstanding: |
||||||||||||||||||||||||
| Basic | 34.0 | 34.0 | 33.7 | 33.7 | ||||||||||||||||||||
| Diluted | 34.0 | 34.1 | 33.9 | 33.9 | ||||||||||||||||||||
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Additional information: |
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Gross margin (1) |
33.0 | % | 33.0 | % | 37.9 | % | 37.9 | % | ||||||||||||||||
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SG&A as a % of total net sales (1) |
23.9 | % | 22.6 | % | 25.9 | % | 21.9 | % | ||||||||||||||||
| Operating margin | 2.9 | % | 5.1 | % | 7.6 | % | 11.9 | % | ||||||||||||||||
| Effective tax rate | 17.6 | % | 33.3 | % | 31.3 | % | 29.7 | % | ||||||||||||||||
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(1) |
Exclusive of depreciation and amortization | |
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(2) |
During the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09 “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share Based Payment Accounting,” which required all excess tax benefits and tax deficiencies to be recognized as discrete items within income tax expense or benefit in the income statement in the reporting period in which they occur. Beginning in the first quarter of 2019, these discrete tax items are excluded from Non-GAAP income tax expense or benefit. Prior periods have not been revised. |
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The Company believes that certain non-GAAP measures, when |
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Donnelley Financial Solutions, Inc. |
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Reconciliation of GAAP to Non-GAAP Measures |
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For the Three Months Ended March 31, 2019 and 2018 |
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(UNAUDITED) |
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(in millions, except per share data) |
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| For the Three Months Ended March 31, 2019 | ||||||||||||||||||||
| SG&A |
Income
from operations |
Operating
margin |
Net (loss)
earnings |
Net (loss)
earnings per diluted share |
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| GAAP basis measures | $ | 54.9 | $ | 6.6 | 2.9 | % | $ | (1.4 | ) | $ | (0.04 | ) | ||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||
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Restructuring, impairment and other
charges – net |
— | 2.1 | 0.9 | % | 1.6 | 0.04 | ||||||||||||||
| Share-based compensation expense | (1.5 | ) | 1.5 | 0.7 | % | 1.1 | 0.03 | |||||||||||||
| Investor-related expenses | (1.0 | ) | 1.0 | 0.4 | % | 0.7 | 0.02 | |||||||||||||
| Spin-off related transaction expenses | (0.4 | ) | 0.4 | 0.2 | % | 0.3 | 0.01 | |||||||||||||
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Income tax adjustments |
— | — | 0.0 | % | (0.1 | ) | 0.00 | |||||||||||||
| Total Non-GAAP adjustments | (2.9 | ) | 5.0 | 2.2 | % | 3.6 | 0.10 | |||||||||||||
| Non-GAAP measures | $ | 52.0 | $ | 11.6 | 5.1 | % | $ | 2.2 | $ | 0.06 | ||||||||||
| For the Three Months Ended March 31, 2018 | ||||||||||||||||||||
| SG&A |
Income
from operations |
Operating
margin |
Net
earnings |
Net
earnings per diluted share |
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| GAAP basis measures | $ | 66.1 | $ | 19.4 | 7.6 | % | $ | 7.7 | $ | 0.23 | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||
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Restructuring, impairment and other
charges – net |
— | 0.7 | 0.3 | % | 0.5 | 0.01 | ||||||||||||||
| Spin-off related transaction expenses | (7.8 | ) | 7.8 | 3.0 | % | 5.6 | 0.17 | |||||||||||||
| Share-based compensation expense | (1.8 | ) | 1.8 | 0.7 | % | 1.3 | 0.04 | |||||||||||||
| Disposition-related expenses | (0.5 | ) | 0.5 | 0.2 | % | 0.4 | 0.01 | |||||||||||||
| Acquisition-related expenses | (0.2 | ) | 0.2 | 0.1 | % | 0.1 | 0.00 | |||||||||||||
| Total Non-GAAP adjustments | (10.3 | ) | 11.0 | 4.3 | % | 7.9 | 0.23 | |||||||||||||
| Non-GAAP measures | $ | 55.8 | $ | 30.4 | 11.9 | % | $ | 15.6 | $ | 0.46 | ||||||||||
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Donnelley Financial Solutions, Inc. |
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Segment GAAP to Non-GAAP Operating Income and Non-GAAP Adjusted |
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For the Three Months Ended March 31, 2019 and 2018 |
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(UNAUDITED) |
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(in millions) |
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| U.S. | International | Corporate | Consolidated | |||||||||||||
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For the Three Months Ended March 31, 2019 |
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| Net sales | $ | 202.8 | $ | 26.8 | $ | — | $ | 229.6 | ||||||||
| Income (loss) from operations | 21.3 | (3.3 | ) | (11.4 | ) | 6.6 | ||||||||||
| Operating margin % | 10.5 | % | (12.3 | %) | nm | 2.9 | % | |||||||||
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Non-GAAP Adjustments |
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| Restructuring, impairment and other charges – net | 0.6 | 0.6 | 0.9 | 2.1 | ||||||||||||
| Share-based compensation expense | — | — | 1.5 | 1.5 | ||||||||||||
| Investor-related expenses | — | — | 1.0 | 1.0 | ||||||||||||
| Spin-off related transaction expenses | — | — | 0.4 | 0.4 | ||||||||||||
| Total Non-GAAP adjustments | 0.6 | 0.6 | 3.8 | 5.0 | ||||||||||||
| Non-GAAP income (loss) from operations | $ | 21.9 | $ | (2.7 | ) | $ | (7.6 | ) | $ | 11.6 | ||||||
| Non-GAAP operating margin % | 10.8 | % | (10.1 | %) | nm | 5.1 | % | |||||||||
| Depreciation and amortization | 10.3 | 1.6 | 0.2 | 12.1 | ||||||||||||
| Non-GAAP Adjusted EBITDA | $ | 32.2 | $ | (1.1 | ) | $ | (7.4 | ) | $ | 23.7 | ||||||
| Non-GAAP Adjusted EBITDA margin % | 15.9 | % | (4.1 | %) | nm | 10.3 | % | |||||||||
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For the Three Months Ended March 31, 2018 |
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| Net sales | $ | 213.1 | $ | 42.1 | $ | — | $ | 255.2 | ||||||||
| Income (loss) from operations | 26.4 | 2.5 | (9.5 | ) | 19.4 | |||||||||||
| Operating margin % | 12.4 | % | 5.9 | % | nm | 7.6 | % | |||||||||
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Non-GAAP Adjustments |
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| Restructuring, impairment and other charges – net | 0.7 | (0.1 | ) | 0.1 | 0.7 | |||||||||||
| Spin-off related transaction expenses | 6.3 | — | 1.5 | 7.8 | ||||||||||||
| Share-based compensation expense | — | — | 1.8 | 1.8 | ||||||||||||
| Disposition-related expenses | — | — | 0.5 | 0.5 | ||||||||||||
| Acquisition-related expenses | — | — | 0.2 | 0.2 | ||||||||||||
| Total Non-GAAP adjustments | 7.0 | (0.1 | ) | 4.1 | 11.0 | |||||||||||
| Non-GAAP income (loss) from operations | $ | 33.4 | $ | 2.4 | $ | (5.4 | ) | $ | 30.4 | |||||||
| Non-GAAP operating margin % | 15.7 | % | 5.7 | % | nm | 11.9 | % | |||||||||
| Depreciation and amortization | 8.9 | 1.4 | 0.1 | 10.4 | ||||||||||||
| Non-GAAP Adjusted EBITDA | $ | 42.3 | $ | 3.8 | $ | (5.3 | ) | $ | 40.8 | |||||||
| Non-GAAP Adjusted EBITDA margin % | 19.8 | % | 9.0 | % | nm | 16.0 | % | |||||||||
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Donnelley Financial Solutions, Inc. |
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Condensed Consolidated Statements of Cash Flows |
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For the Three Months Ended March 31, 2019 and 2018 |
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(UNAUDITED) |
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(in millions) |
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| For the Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net (loss) earnings | $ | (1.4 | ) | $ | 7.7 | |||
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Adjustments to reconcile net earnings to net cash used in operating activities: |
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| Depreciation and amortization | 12.1 | 10.4 | ||||||
| Provision for doubtful accounts receivable | 1.0 | 1.0 | ||||||
| Share-based compensation | 1.5 | 1.8 | ||||||
| Deferred income taxes | (2.8 | ) | 0.6 | |||||
| Net pension plan income | (0.5 | ) | (0.8 | ) | ||||
| Other | 8.7 | 0.5 | ||||||
| Changes in operating assets and liabilities – net of acquisitions: | ||||||||
| Accounts receivable – net | (63.6 | ) | (65.4 | ) | ||||
| Inventories | (2.7 | ) | (5.8 | ) | ||||
| Prepaid expenses and other current assets | (1.4 | ) | (0.2 | ) | ||||
| Accounts payable | 23.9 | 20.3 | ||||||
| Income taxes payable and receivable | (11.3 | ) | 0.6 | |||||
| Accrued liabilities and other | (31.6 | ) | (23.1 | ) | ||||
| Pension and other postretirement benefits plan contributions | (0.2 | ) | (1.2 | ) | ||||
| Net cash used in operating activities | $ | (68.3 | ) | $ | (53.6 | ) | ||
| Capital expenditures | (15.1 | ) | (6.4 | ) | ||||
| Acquisition of business, net of cash acquired | (2.2 | ) | — | |||||
| Other investing activities | 0.2 | — | ||||||
| Net cash used in investing activities | $ | (17.1 | ) | $ | (6.4 | ) | ||
| Revolving facility borrowings | 178.5 | 88.0 | ||||||
| Payments on revolving facility borrowings | (130.0 | ) | (68.0 | ) | ||||
| Proceeds from issuance of common stock | — | 1.2 | ||||||
| Treasury share repurchases | (1.2 | ) | (0.8 | ) | ||||
| Debt issuance costs | (0.2 | ) | — | |||||
| Net cash provided by financing activities | $ | 47.1 | $ | 20.4 | ||||
| Effect of exchange rate on cash and cash equivalents | 1.5 | (0.3 | ) | |||||
| Net decrease in cash and cash equivalents | (36.8 | ) | (39.9 | ) | ||||
| Cash and cash equivalents at beginning of year | 47.3 | 52.0 | ||||||
| Cash and cash equivalents at end of period | $ | 10.5 | $ | 12.1 | ||||
|
Additional Information: |
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| 2019 | 2018 | |||||||
| For the Three Months Ended March 31: | ||||||||
| Net cash used in operating activities | $ | (68.3 | ) | $ | (53.6 | ) | ||
| Less: capital expenditures | 15.1 | 6.4 | ||||||
| Free cash flow | $ | (83.4 | ) | $ | (60.0 | ) | ||
|
Donnelley Financial Solutions, Inc. |
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|
Reconciliation of Reported to Organic Net Sales |
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For the Three Months Ended March 31, 2019 and 2018 |
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|
(UNAUDITED) |
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|
(in millions) |
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| U.S. | |||||||||||||||||||||
| Capital Markets | Investment Markets | Language Solutions | Total U.S. | International | Consolidated | ||||||||||||||||
|
Reported Net Sales: |
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|
For the Three Months Ended
March 31, 2019 |
$ | 109.7 | $ | 93.1 | $ | — | $ | 202.8 | $ | 26.8 | $ | 229.6 | |||||||||
|
For the Three Months Ended
March 31, 2018 (1) |
117.5 | 89.5 | 6.1 | 213.1 | 42.1 | 255.2 | |||||||||||||||
| Net sales change | (6.6 | %) | 4.0 | % | (100.0 | %) | (4.8 | %) | (36.3 | %) | (10.0 | %) | |||||||||
|
Supplementary non-GAAP information: |
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| Year-over-year impact of changes in foreign exchange (FX) rates | — | % | — | % | — | % | — | % | (2.6 | %) | (0.4 | %) | |||||||||
| Year-over-year impact of the Language Solutions disposition | — | % | — | % | (100.0 | %) | (2.8 | %) | (30.1 | %) | (7.3 | %) | |||||||||
| Year-over-year impact of the eBrevia acquisition | 0.5 | % | — | % | — | % | 0.3 | % | — | % | 0.2 | % | |||||||||
| Net organic sales change (2) | (7.1 | %) | 4.0 | % | — | % | (2.3 | %) | (3.6 | %) | (2.5 | %) | |||||||||
|
(1) |
Certain prior year amounts were restated to conform to the Company’s current reporting unit structure. The former Language Solutions and other reporting unit has been renamed “Language Solutions.” Certain results previously included within the former Language Solutions and other reporting unit are now included within the Investment Markets reporting unit. |
|
|
(2) |
Adjusted for the impact of changes in FX rates, the Language Solutions disposition and the eBrevia acquisition. |
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|
Donnelley Financial Solutions, Inc. |
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|
Reconciliation of GAAP Net Earnings (Loss) to Non-GAAP Adjusted |
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For the Three and Twelve Months Ended March 31, 2019 and 2018 |
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|
(UNAUDITED) |
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|
(in millions) |
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|
For the Twelve
Months Ended |
For the Three Months Ended | |||||||||||||||||||
|
March 31, |
March 31, |
December 31, |
September 30, |
June 30, |
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| GAAP net earnings (loss) | $ | 64.5 | $ | (1.4 | ) | $ | (1.0 | ) | $ | 48.0 | $ | 18.9 | ||||||||
|
Adjustments |
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| Income tax expense (benefit) | 25.3 | (0.3 | ) | (2.4 | ) | 19.7 | 8.3 | |||||||||||||
| Interest expense-net | 36.6 | 8.9 | 9.5 | 8.4 | 9.8 | |||||||||||||||
| Investment and other income-net | (18.1 | ) | (0.6 | ) | (2.7 | ) | (14.0 | ) | (0.8 | ) | ||||||||||
| Depreciation and amortization | 47.5 | 12.1 | 12.7 | 11.6 | 11.1 | |||||||||||||||
| Restructuring, impairment and other charges-net | 5.8 | 2.1 | 0.3 | 0.8 | 2.6 | |||||||||||||||
| Share-based compensation expense | 8.9 | 1.5 | 2.0 | 2.1 | 3.3 | |||||||||||||||
| Investor-related expenses (1) | 1.5 | 1.0 | 0.5 | — | — | |||||||||||||||
| Spin-off related transaction expenses | 12.7 | 0.4 | 0.2 | 3.7 | 8.4 | |||||||||||||||
| Gain on sale of business | (53.8 | ) | — | (0.3 | ) | (53.5 | ) | — | ||||||||||||
| Disposition-related expenses | 6.3 | — | 0.3 | 4.5 | 1.5 | |||||||||||||||
| Acquisition-related expenses | 0.6 | — | 0.3 | — | 0.3 | |||||||||||||||
| Total Non-GAAP adjustments | 73.3 | 25.1 | 20.4 | (16.7 | ) | 44.5 | ||||||||||||||
| Non-GAAP adjusted EBITDA | $ | 137.8 | $ | 23.7 | $ | 19.4 | $ | 31.3 | $ | 63.4 | ||||||||||
| Net sales | $ | 937.4 | $ | 229.6 | $ | 200.3 | $ | 216.9 | $ | 290.6 | ||||||||||
| Non-GAAP adjusted EBITDA margin % | 14.7 | % | 10.3 | % | 9.7 | % | 14.4 | % | 21.8 | % | ||||||||||
|
For the Twelve
Months Ended |
For the Three Months Ended | |||||||||||||||||||
|
March 31, |
March 31, |
December 31, |
September 30, |
June 30, |
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| GAAP net earnings (loss) | $ | 8.1 | $ | 7.7 | $ | (23.7 | ) | $ | 5.3 | $ | 18.8 | |||||||||
|
Adjustments |
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| Income tax expense | 43.2 | 3.5 | 24.5 | 2.1 | 13.1 | |||||||||||||||
| Interest expense-net | 40.8 | 9.0 | 10.2 | 10.6 | 11.0 | |||||||||||||||
| Investment and other income-net | (3.4 | ) | (0.8 | ) | (0.9 | ) | (0.8 | ) | (0.9 | ) | ||||||||||
| Depreciation and amortization | 44.7 | 10.4 | 12.8 | 10.6 | 10.9 | |||||||||||||||
| Restructuring, impairment and other charges-net | 4.0 | 0.7 | 0.7 | (0.6 | ) | 3.2 | ||||||||||||||
| Share-based compensation expense | 7.5 | 1.8 | 1.6 | 1.7 | 2.4 | |||||||||||||||
| Spin-off related transaction expenses | 21.6 | 7.8 | 6.7 | 2.6 | 4.5 | |||||||||||||||
| Disposition-related expenses | 0.5 | 0.5 | — | — | — | |||||||||||||||
| Acquisition-related expenses | 0.4 | 0.2 | 0.2 | — | — | |||||||||||||||
| Total Non-GAAP adjustments | 159.3 | 33.1 | 55.8 | 26.2 | 44.2 | |||||||||||||||
| Non-GAAP adjusted EBITDA | $ | 167.4 | $ | 40.8 | $ | 32.1 | $ | 31.5 | $ | 63.0 | ||||||||||
| Net sales | $ | 992.8 | $ | 255.2 | $ | 224.8 | $ | 222.6 | $ | 290.2 | ||||||||||
| Non-GAAP adjusted EBITDA margin % | 16.9 | % | 16.0 | % | 14.3 | % | 14.2 | % | 21.7 | % | ||||||||||
|
(1) |
Expenses incurred related to non-routine investor matters which include third-party advisory and consulting fees and legal fees. |
|
| Donnelley Financial Solutions, Inc. | ||||||||||||
| Debt and Liquidity Summary | ||||||||||||
|
As of March 31, 2019 and 2018 and December 31, 2018 |
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|
(UNAUDITED) |
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|
(in millions) |
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|
Total Liquidity |
March 31, 2019 | December 31, 2018 | March 31, 2018 | |||||||||
|
Availability |
||||||||||||
| Stated amount of the Revolving Facility (1) | $ | 300.0 | $ | 300.0 | $ | 300.0 | ||||||
| Less: availability reduction from covenants | 138.9 | 45.3 | 80.2 | |||||||||
| Amount available under the Revolving Facility | 161.1 | 254.7 | 219.8 | |||||||||
|
Usage |
||||||||||||
| Borrowings under the Revolving Facility | 48.5 | — | 20.0 | |||||||||
|
Impact on availability related to outstanding letters of credit |
— | — | — | |||||||||
| Amount used under the Revolving Facility | 48.5 | — | 20.0 | |||||||||
| Availability under the Revolving Facility | 112.6 | 254.7 | 199.8 | |||||||||
| Cash (2) | 10.5 | 47.3 | 12.1 | |||||||||
| Net Available Liquidity | $ | 123.1 | $ | 302.0 | $ | 211.9 | ||||||
| Short-term debt | $ | — | $ | — | $ | — | ||||||
| Long-term debt | 411.7 | 362.7 | 478.8 | |||||||||
| Total debt | $ | 411.7 | $ | 362.7 | $ | 478.8 | ||||||
|
Non-GAAP adjusted EBITDA for the twelve months ended March 31, 2019 and 2018, and the year ended December 31, 2018 |
$ | 137.8 | $ | 154.9 | $ | 167.4 | ||||||
|
Non-GAAP Gross Leverage (defined as total debt divided by non-GAAP adjusted EBITDA) |
3.0 | x | 2.3 | x | 2.9 | x | ||||||
| Non-GAAP Net Debt (defined as total debt less cash) | $ | 401.2 | $ | 315.4 | $ | 466.7 | ||||||
|
Non-GAAP Net Leverage (defined as non-GAAP Net Debt divided by non-GAAP adjusted EBITDA) |
2.9 | x | 2.0 | x | 2.8 | x | ||||||
|
(1) |
The Company has a $300.0 million senior secured revolving credit facility (the “Revolving Facility”). The Revolving Facility is subject to a number of covenants, including a minimum Interest Coverage Ratio and a maximum Leverage Ratio, both as defined and calculated in the Credit Agreement. There was $48.5 million of outstanding borrowings under the Revolving Facility as of March 31, 2019. Based on the Company’s results of operations for the twelve months ended March 31, 2019 and existing debt, the Company would have had the ability to utilize an incremental $112.6 million of the $300.0 million Revolving Facility and not have been in violation of the terms of the agreement. |
|
|
(2) |
Approximately 70% of cash as of March 31, 2019, 37% of cash as of December 31, 2018 and 71% of cash as of March 31, 2018 was located outside of the U.S. The Company began to repatriate excess cash at its foreign subsidiaries to the U.S. during the three months ended March 31, 2019 and expects additional repatriations during 2019. The Company recorded deferred taxes attributable to the book-over-tax outside basis differences in its foreign subsidiaries for the excess cash repatriated as of March 31, 2019. As the foreign earnings have previously been subject to U.S. tax, the Company estimates that the repatriation of the related foreign cash to the U.S. will create minimal additional tax expense. Repatriation of some foreign cash balances are further restricted by local laws. |
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