Donnelley Financial Solutions, Inc. Aktie

Greetings, and welcome to Donnelley Financial Solutions First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Mike Zhao, Head of Investor Relations.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions First Quarter 2026 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results, copies of which can be found in the Investors section of our website at dfinsolutions.com. During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further detailed in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other filings with the SEC.

Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Dan Leib, Dave Gardella and other members of management.

I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. We started 2026 by building on the positive momentum in our performance from the fourth quarter of last year, delivering consolidated net sales growth, year-over-year growth in adjusted EBITDA, adjusted EBITDA margin expansion and improvements in both operating cash flow and free cash flow.

We delivered first quarter net sales of $205.5 million, which increased 2.2% compared to the first quarter of 2025. The combination of consolidated net sales growth and cost management yielded first quarter adjusted EBITDA of $70.6 million and adjusted EBITDA margin of 34.4%, both of which are significantly stronger than historical periods with similar revenue profiles. Importantly, our strong operating performance was in the context of a volatile market environment during the first quarter. Shaped by increased macroeconomic uncertainty and escalating geopolitical conflicts.

Our first quarter results are further proof points to the progress of our transformation and demonstrate the resiliency of our operating model across various market conditions as our business mix continues to transform. I am encouraged by the continued growth in our software solutions offerings, where we delivered year-over-year net sales growth of 8.4%. Software solutions net sales represented 44.6% of total net sales in the first quarter, an increase of approximately 250 basis points from last year's software solutions net sales mix, despite a moderate increase in print and distribution net sales in the first quarter related to a large special proxy project.

Despite this deal-related increase in print and distribution sales in the first quarter, our view on the long-term secular decline in the demand for printed products remains consistent, which we expect to be in the range of 5% to 6% annually, with fluctuations based on transactional volumes. On a trailing 4-quarter basis, software solutions net sales made up 47.4% of total net sales, an increase of approximately 460 basis points from the first quarter 2025 trailing 4-quarter period.

This continued positive mix shift positions us well to achieve our long-term target of deriving approximately 60% of total net sales from software solutions by 2028. A major driver of the first quarter software solutions net sales growth was the performance of our recurring compliance software product, ActiveDisclosure, which posted approximately 21% sales growth. Marking the sixth consecutive quarter of double-digit sales growth. This sustained momentum reflects the continued growth in net client count and increases in average value per client, both of which are positive outcomes of our transition from the legacy ActiveDisclosure platform to new AD as well as improved sales execution.

In addition, we continue to experience the migration of certain traditional activities to ActiveDisclosure, including an increase in the number of transactional documents and proxy statements being completed on the platform compared to last year's first quarter, a trend we expect to continue going forward.

Further, Active Intelligence, a suite of artificial intelligence capabilities we introduced to select ActiveDisclosure clients in the fourth quarter of last year, became available to all clients in April, representing a step forward in our mission to responsibly deploy AI to increase productivity and efficiency for our clients.

ActiveDisclosure's intelligent fit-for-purpose capabilities, combined with the domain expertise and 24/7 support of our services organization remains a strategic differentiator for DFIN.

Venue delivered solid year-over-year sales growth of approximately 7% in the first quarter, driven by a resilient demand for data rooms. I am encouraged by the momentum in the commercial adoption of our new Venue product, which was introduced in the third quarter of last year as the upgraded product continues to resonate with both current and prospective clients for its speed and simplicity. The rebuilt product redefines efficiency in data room initiation and management, is easier to govern access and permissions and is more intuitive for deal teams to use.

The improvements we have delivered in new Venue, combined with our strong go-to-market execution have allowed us to access a broader range of clients and increase the size of our serviceable market. As the adoption of new Venue continues to ramp up, we expect the upgraded product to contribute to Venue's growth in 2026. In addition, we remain excited by opportunities for ArcFlex, the newest module within Arc Suite, which was also launched in the third quarter of 2025. As the momentum toward private investments increases and with it, more robust reporting and disclosure management needs, we are seeing increased interest from private investment institutions, including hedge funds, private equity and business development companies.

As a financial and regulatory reporting solution purpose-built for private investment institutions, ArcFlex positions DFIN well to capture incremental market demand in the private investment space. In a demonstration of our progress in this area, during the first quarter, we signed our first ArcFlex contract with an alternative asset manager utilizing ArcFlex to modernize its financial and regulatory reporting workflows. We expect the commercial activities around ArcFlex to continue to scale through 2026, resulting in more meaningful incremental revenue starting in 2027.

Before I turn the call over to Dave, I'd like to provide some perspective on DFIN's operating characteristics as we navigate an evolving external environment. Over the past several months, global markets have been impacted by elevated volatility driven by a combination of AI-driven uncertainty and geopolitical tensions. In that context, DFIN's operating model continues to be a point of strength and a source of differentiation. Let me highlight a few items behind our relatively stable performance amid the turmoil.

First, we serve markets where demand is regulatory-driven and nondiscretionary, centered on mission-critical compliance and deal-related workflows for corporations and investment companies. As a result, more than 75% of our revenue is based on recurring and reoccurring sources, the majority of which is related to ongoing SEC compliance for corporations and investment companies with the remainder, specifically Venue, serving a wide market that encompasses both announced and unannounced deals across public and private companies, which is inherently more stable than the market for completed M&A transactions.

Our strong mix of recurring and reoccurring offerings provide stability during times of market volatility. Next, -- our unique hybrid model features a combination of software solutions, tech-enabled services and print-related output, underpinned by DFIN's deep regulatory knowledge and domain and service expertise. The hybrid model differentiates from seat-based pricing models and emphasizes domain expertise and execution, which contrasts with more narrowly focused point solution and pure-play software providers. While we continue to invest in the growth of our software products, our traditional services and output-related offerings supplement DFIN's ability to work in ways our clients prefer, whether through software-led service-enabled or hybrid workflows backed by capabilities to produce outputs where needed, providing multiple ways to serve their needs as the regulatory landscape evolves.

Finally, amid the AI-induced market volatility, DFIN's strong position as a leading regulatory and compliance provider and our hybrid offerings are important differentiators in the marketplace. During times of market volatility and technological disruption, our clients increasingly recognize AI as a productivity enhancer within DFIN's workflows, not a substitute for the platform itself or the expertise behind it. Compliance and disclosure remain mission-critical, highly regulated activities that require accuracy and accountability and AI is most effective when deployed within that framework.

As we responsibly integrate AI across both our products and internal operations, our focus remains on improving efficiency, reducing risk and enhancing productivity while maintaining rigorous standards around security, privacy and data governance. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our first quarter results and our outlook for the second quarter.

Dave?

Thanks, Dan, and good morning, everyone. As Dan noted, we continue to demonstrate positive momentum in our performance during the first quarter, highlighted by year-over-year net sales growth, an increase in adjusted EBITDA and adjusted EBITDA margin expansion. We posted 8.4% growth in our software solutions net sales, including approximately 21% growth in our recurring compliance product, ActiveDisclosure.

By continuing to execute our software-centric strategy while also driving operating efficiencies, we expanded our first quarter adjusted EBITDA margin by approximately 50 basis points to 34.4%. On a consolidated basis, total net sales for the first quarter of 2026 were $205.5 million, an increase of $4.4 million or 2.2% from the first quarter of 2025. The growth in software solutions net sales, which increased $7.1 million or 8.4% compared to the first quarter of last year, combined with higher event-driven transactional revenue within capital markets, part of which was realized through an increase in print and distribution revenue related to a special proxy, more than offset decline in capital markets and investment companies compliance revenue, the majority of which was related to a reduction in the demand for printed products, consistent with recent trend.

First quarter adjusted non-GAAP gross margin was 64%, approximately 30 basis points higher than the first quarter of 2025, driven by the growth in software solutions net sales, the impact of cost control initiatives and price uplifts, partially offset by higher print and distribution volume. Adjusted non-GAAP SG&A expense in the quarter was $61 million, a $1.1 million increase from the first quarter of 2025. As a percentage of net sales, adjusted non-GAAP SG&A was 29.7%, a decrease of approximately 10 basis points from the first quarter of 2025. The increase in adjusted non-GAAP SG&A was primarily driven by an increase in selling expense related to higher sales volume, partially offset by the impact of ongoing cost control initiatives.

Our first quarter adjusted EBITDA was $70.6 million, an increase of $2.4 million or 3.5% from the first quarter of 2025. First quarter adjusted EBITDA margin was 34.4%, an increase of approximately 50 basis points from the first quarter of 2025, primarily driven by higher software solutions net sales and cost control initiatives, partially offset by higher capital markets transactional print volume.

Turning now to our first quarter segment results. Net sales in our Capital Markets - Software Solutions segment were $58.6 million, an increase of $6.7 million or 12.9% from the first quarter of last year, primarily driven by growth in ActiveDisclosure, which grew approximately 21%.

Total subscription revenue increased by approximately 17%, primarily driven by the continued growth in client count and the ongoing adoption of ActiveDisclosure Services subscription packages, while service and support revenue increased approximately 36% as we benefit from the continued migration of certain traditional activities to ActiveDisclosure, including the use case for corporate proxy and transactional filings.

During the first quarter, we experienced a higher volume of corporate proxy documents and S-1 filings related to IPO transactions completed on ActiveDisclosure compared to last year's first quarter. We expect this trend to continue in the future, driven by the capabilities of our software platform, combined with the evolving client preference to work in a hybrid environment, leveraging both our software and unmatched service and domain expertise.

We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth, part of which will be influenced by the pace of traditional activities transitioning onto the platform. Net sales of Venue increased approximately $2 million or 7% compared to the first quarter of last year. On a sequential basis, the impact from large projects, which aided venues growth during the fourth quarter of last year was less significant during the first quarter.

A resilient level of underlying activity taking place on the platform, coupled with our recent launch of new Venue creates a strong foundation for future sales growth. Adjusted EBITDA margin for the segment was 32.8%, an increase of approximately 600 basis points from the first quarter of 2025, primarily due to higher net sales and cost control initiatives, partially offset by higher bad debt expense. Net sales in our Capital Markets - Compliance and Communications Management segment were $82.8 million, a decrease of $1.1 million or 1.3% from the first quarter of 2025, driven by lower compliance volume, partially offset by higher transactional revenue.

In the first quarter, we recorded $50.8 million of capital markets transactional revenue, which exceeded the high end of our expectations and was up approximately $2 million or 5% from first quarter of 2025. The positive momentum in the equity deal environment, which had been building throughout the second half of 2025, continued to start the year, resulting in increases in the number of regular way IPO transactions that raised over $100 million and completed public company M&A deals in the U.S. during January and February of 2026 compared to 2025. However, as the quarter progressed, increased market volatility and escalating geopolitical tensions dampened deal activity in March, resulting in a slowdown in the number of deal completions, especially large IPOs.

In short, the global deal environment in the first quarter remained soft compared to historical averages. For transactions that were completed in the first quarter, we maintained our historical market share, reflective of DFIN's strong market position. Specific to M&A activity during the quarter, we benefited from a large merger-related special proxy that included an outsized print and distribution component, specifically the printing and delivery of shareholder communication documents.

Capital Markets compliance revenue was down $3.3 million, primarily due to our continued exit of certain low-margin activity and the related print and distribution. In addition, we continue to experience lower market demand for certain event-driven filings such as 8-Ks given the softness in that market.

Finally, as I commented earlier, certain activities which were historically performed on our traditional services platform shifted to ActiveDisclosure. Adjusted EBITDA margin for the segment was 40.7%, a decrease of approximately 300 basis points from the first quarter of 2025. The decrease in adjusted EBITDA margin was primarily due to the higher mix of print and distribution sales, partially offset by cost control initiatives and lower bad debt expense. Net sales in our Investment Company - Software Solutions segment were $33.1 million, an increase of $0.4 million or 1.2% versus the first quarter of 2025, driven by an increase in services revenue, while subscription revenue was flat.

As expected, Arc Suite's first quarter growth remained more modest compared to the growth rate from last year's first quarter, during which net sales increased approximately 20% year-over-year, driven by the uplift from the tailored shareholder report solution. We expect a similar dynamic to play out in the second quarter of this year. As Dan noted earlier, we are encouraged by the early positive market reception of ArcFlex and expect meaningful incremental revenue starting in 2027. Adjusted EBITDA margin for the segment was 39.6%, an increase of approximately 50 basis points from the first quarter of 2025. The increase in adjusted EBITDA margin was primarily due to price uplifts and cost control initiatives, partially offset by higher service-related costs.

Net sales in our Investment Companies - Compliance & Communications Management segment were $31 million, a decrease of $1.6 million or 4.9% from the first quarter of 2025, driven by lower print and distribution revenue, which accounted for more than all of the year-over-year decline. Adjusted EBITDA margin for the segment was 39%, approximately 160 basis points higher than the first quarter of 2025. The increase in adjusted EBITDA margin was primarily due to favorable sales mix and cost control initiatives, partially offset by the impact of lower sales volume.

Non-GAAP unallocated corporate expenses were $7.5 million in the quarter, approximately flat to the first quarter of 2025. Free cash flow in the quarter was negative $16 million, an improvement of $35 million compared to the first quarter of 2025. The year-over-year improvement in free cash flow was primarily driven by favorable working capital, part of which was a result of lower incentive-based payments related to 2025 incentive targets and lower capital expenditures. While our first quarter capital expenditures were lower on a run rate basis compared to our annual guidance of $55 million to $60 million, we expect our spending to ramp up throughout the year, reaching the range stated in our 2026 guidance.

We ended the quarter with $229.9 million of total debt and $203.8 million of non-GAAP net debt, including $121 million drawn on our revolver. As of March 31, 2026, our non-GAAP net leverage ratio was 0.8x. As a reminder, our cash flow is historically seasonal, though over time, that seasonality has become less pronounced as our sales mix has evolved towards software subscriptions. Regarding capital deployment, we repurchased approximately 595,000 shares of common stock during the first quarter for $28.3 million at an average price of $47.58 per share.

During the second quarter, the Board of Directors authorized a new share repurchase program of up to $150 million with an expiration date of December 31, 2027. This repurchase authorization, which commenced on April 17, 2026, replaced the prior authorization, which had $25.5 million remaining as of March 31, 2026. We continue to view share repurchases as an important component to drive value for shareholders and as part of our balanced capital deployment plan, which also features organic investments to drive future growth and net debt reduction.

As it relates to our outlook for the second quarter of 2026, we expect the unsettled operating environment we experienced during the first quarter to continue, driven by market volatility and ongoing geopolitical uncertainty. Further, we expect the reduction in print and distribution revenue associated with our traditional compliance offerings we highlighted earlier to continue in the second quarter, which historically is comprised of a heavy mix of print and distribution sales driven by the annual proxy season. This component of our sales profile becoming less significant over time continues to improve our overall sales mix and facilitates our long-term margin expansion.

With those factors as the backdrop, we expect consolidated second quarter net sales in the range of $215 million to $225 million and adjusted EBITDA margin in the range of 34% to 36%. Compared to the second quarter of last year, the midpoint of our consolidated revenue guidance, $220 million implies a modest increase of approximately $2 million or 1% year-over-year as growth in software solutions net sales, predominantly ActiveDisclosure and Venue and higher capital markets transactional revenue are expected to more than offset a continued decline in print and distribution net sales.

Further, our estimates assume capital markets transactional revenue in the range of $40 million to $45 million, which at the midpoint is up approximately $8 million from last year's second quarter. As a reminder, last year's second quarter transactional revenue of $34.8 million represented an all-time low in quarterly transactional revenue. In addition, and related to my earlier comments regarding the impact of the transactional environment on certain compliance filings, most notably 8-Ks, our second quarter estimate assumes a modest year-over-year decline in our compliance-based sales within this segment, part of which is related to print and distribution.

With that, I'll now pass it back to Dan.

Thanks, Dave. Our strong performance in the first quarter was the result of the historical and current disciplined execution of our strategy, which again demonstrated DFIN's ability to perform across varying market conditions. Our focus remains on accelerating our business mix shift by continuing to grow our SaaS revenue base while maintaining share in our core traditional businesses. We will continue to invest to drive growth and support clients.

In addition, we will continue to aggressively manage our costs and drive operational efficiencies while maintaining our historical discipline in the allocation of capital. While uncertainty continues to exist within our broader operating environment, the combination of our strong market position, portfolio of mission-critical regulatory and compliance offerings, backed by our deep domain expertise and financial flexibility position us well.

Before we open it up for Q&A, I'd like to thank the DFIN employees around the world. Now with that, we're ready for questions.

[Operator Instructions] Your first question comes from the line of Charles Strauzer with CJS Securities.

A couple of questions. First on guidance. If you could maybe expand a little bit more on the underlying assumptions for Q2? And what are you seeing kind of in the external markets?

Yes, Charlie, it's Dave. Thanks for the question. So look, I think from a transactional perspective, right, we said the guidance includes somewhere in the range of $40 million to $45 million, up significantly from last year's second quarter. I think when you look at what we saw in the first quarter this year, right, just over $50 million, that started to soften, as we mentioned in the prepared remarks that January and February started out pretty nicely and then March was much softer with just some of the broader geopolitical uncertainty.

And so far, we've seen that continue into -- throughout April and into May here. And so I think it's just kind of taking a cautious approach on when that might come back.

I don't know, Craig, do you have anything to add to that?

Yes. Dave, maybe just to put an explanation point on March. It was a real turning point. Only 2 times in history have filings declined sequentially from February. The first time was COVID 2020 and now the second is March of 2026. So it just underscores how quickly volatility can change issuer behavior.

As you turn to April and May, as Dave said, we're cautiously optimistic. It is building back. There have been 12 large IPOs that have priced in April, which is a nice number of $100 million-plus IPOs. Our share of that was 67%. So it highlights both the market share gain as well as the improved conversion as these issuance are accelerating again. I think another important note, most of those issuers have adopted ActiveDisclosure as their platform post IPO. So it reinforces the durability of these relationships beyond the transaction itself into contracted recurring revenue. There's 2 IPOs in April that I think are giving the market some foundation. Madison Air, the largest IPO of the year. They used ActiveDisclosure for their IPO, as Dave and Dan mentioned in the remarks.

This transaction has really anchored April and hopefully gives the market some confidence. The next one is Arcus, a defense contractor, $1.1 billion IPO in April, again, furthering the investor appetite. DFIN is proud to have supported 3 of the $4 billion-plus IPOs this year, Madison, Forgent and Arc. And their aftermarket performance has been pretty good. This week and next week's calendar of IPOs that have said they expect to price is continuing to build.

If all of this moves forward, it will equal Q1 for deals over $100 million. So DFIN has a robust pipeline of companies that have confidentially filed that are working through the process. We have a nice pipeline of IPO RFPs. So it suggests a normalized calendar as we move into likely the second half of 2026.

Great. And just on the M&A side, sorry, clearly seeing some pickup there with the kind of benign DOJ, FTC kind of eye on things. Are you seeing things kind of percolating behind the scenes to on that front?

Yes. So defense M&A business is a great opportunity. We deliver end-to-end support from the deal ideation through announced, through public or private disclosure. Our virtual data room and M&A offering highlights how we support our clients from that early diligence through execution. Q1 was certainly dominated by a few mega deals, same issues with the March that we talked about with IPOs. And as you look at April and May, M&A momentum remains real, but I think narrow. We are seeing pitch activity and opportunity creation trending positively.

So some of the same things you mentioned, we're excited about the future impact of that. I mean, buyers are certainly prioritizing certainty right now. And the venue forecast is to grow modestly. We had a large deal in Q2 of 2025. And as Dan noted earlier, we're encouraged by the end market performance of our new venue. We believe we're positioned to capture this incremental demand going forward. When we say we have the newest Venue, it to me means we're acting as the disruptor. It's been built from the ground up. We're a strong #3 in that marketplace, and we are positioned to take share as clients modernize their disclosure. So we're cautiously optimistic in the same way of M&A building throughout 2026.

Your next question comes from the line of Kyle Peterson with Needham.

Great. I wanted to ask a little bit specifically on some of the SEC proposals on semiannual reporting. I know there's a lot of different puts and takes and that it seems like you guys have some insulation there. But any color you guys could give or thoughts on the impact if this does go through and gain a fair amount of adoption with U.S. issuers would be really helpful.

Yes. This is Craig. We're closely monitoring, obviously, that development, again, moving from quarterly to semiannual. The SEC proposal is sitting with the Office of Management and Budget. That will be returned to the SEC. We expect any day now. And soon after that, the proposed rule is expected to be posted for public comment.

The Chair Atkins has commented several times on semiannual reporting. He's considering doing this for smaller companies where perhaps semiannual might be more appropriate for them. So it's unknown what the proposed rule will be. So at this stage, whether it's semiannual or not, we likely will see as much or equal or more disclosure when the -- whether the SEC continues to require quarterly earnings 8-Ks for large accelerated filers remains to be seen. You also have to weigh how the public debt obligation will weigh into this. So if a company has public debt, they have to report quarterly. Likely, it's just easier to continue with that process.

You can look to Europe. Companies there are given a choice. About half are doing semiannual. If they do that, they often are doing quarterly calls, quarterly disclosures that are as large or comprehensive as before. So what the actual adoption is going to be and what the proposal is, we don't know. But what is important is the vast majority of our 10-Qs are prepared in ActiveDisclosure, which operates on a subscription model, long-term contracts and that subscription model helps insulate us from changes in filing frequency.

So again, closely monitoring it. We think, again, any regulatory change is a positive for us.

Okay. I appreciate the color there. That's really helpful. And then maybe I wanted to switch over into the softness you guys talked about on the 8-K filings. So I apologize if I missed this, but I guess like could you guys give any more color on what has driven the softness? Like is there actually less activity? Or is there more competition? Or I guess like what's the delta there?

Go ahead, David.

Yes, I was just going to say it's really tied the 8-Ks associated with the capital markets transactions, right? So the ancillary filings as the transactions progress. And so we characterize the 8-K as a compliance filing, right, separate from the transactional activity. But there is some kind of carry-on effect of the lower transactional activity in the market down to some of these 8-Ks and the like.

Okay. Thank you for the color. And then I guess just last one for me. The SG&A did run a little high this quarter. I know it sounds like there was some additional selling expense. I guess looking at the implied expense guide for the second quarter, it looks like you get some efficiency back. And I know you guys mentioned some other cost savings. So I guess like -- was there any timing things on that extra selling expense? Or is that the benefit of the cost savings that are already starting to kick in? Just any more insight or context into what's driving the operating leverage would be very helpful.

Yes. So I'll take that one, Kyle. I think when you look at the SG&A, certainly, like you said, up modestly year-over-year. I think when you look at it as a percent of sales, right, down modestly. So it's a lot driven by the mix of revenue coming through, right, with the higher software sales tends to have higher gross margin, which we saw in the quarter, up 40 basis points. And then I think when you look at the SG&A line, some additional SG&A comes in. But all in, the 50 basis points of EBITDA margin is obviously contemplates all that and really driven by the mix.

From a timing perspective, I'd say nothing abnormal. There's always some small puts and takes, but nothing outsized in the quarter. And then I think based on the guidance that we gave for Q2, probably a fairly similar trend in terms of SG&A dollar -- year-over-year dollar modest increase and the SG&A as a percent of sales is pretty close to constant to last year.

Your next question comes from the line of Charles Strauzer with CJS Securities.

Just a quick follow-up. Just on the conversation you guys are having about AI earlier, what's the general appetite from your client base in terms of inquiries about AI offerings that you may have or planning to have? It seems that AI tools could be a very highly complementary fit for the underlying software programs that you guys have as well as the transactional side as well. Any thoughts there?

Yes. Thank you, Charlie. I can start off. Yes, I think it's multifaceted and it's something we're experimenting with. Specific to the question on client interest, I would say the interest is really high as it is across all industries. And then as we've rolled out Active Intelligence and been able to get insights from our clients as well, clients want to be absolutely sure from a security, governance, data perspective that everything is secured. There'll be no leakage. Obviously, in the -- we mentioned in our prepared remarks, the work we do from a compliance standpoint needs to be 100% correct. So that is also a consideration. But like all elsewhere in corporate America, extremely high level, we're looking at it both on the internal side, we break it into 3 buckets.

On the internal side, we rely a lot on our vendors who have incorporated artificial intelligence within their offerings. For things that are proprietary for DFIN on the internal side, we're actually looking at our own opportunities to build and drive efficiencies, serve clients better. And then on the product side, we view it as not a feature, but a core part of the offerings with all my comments around the needs for governance, security, et cetera. But certainly not going away any time. We think there will continue to be advancements that will be helpful to us. We've talked a bit, I think, on our last call about vertical software and then the service that wraps around it that is helpful and can thrive in an artificial intelligence environment.

And see if anyone else on the team wants to weigh in further.

Dan, I'll add just some context on Active Intelligence. So Active Intelligence is in the market and clients are not relying on defense simply for a tool, but for an outcome. And we really see that playing out with Active Intelligence, our AI capability embedded in ActiveDisclosure. It's streamlining client research, comparison, analysis of SEC filings. A client recently said to us that they used Active Intelligence for their 10-K, quickly proved its value. The peer analysis surface disclosure that the client hadn't traditionally included. And so having this visibility across peers built confidence in their decision to trust in that disclosure.

So artificial intelligence at DFIN and in ActiveDisclosure is really a force multiplier. It's embedding it into our mission-critical compliance workflows. We're really strengthening the client trust. We're increasing switching costs and reinforcing our position at the center of that. ActiveDisclosure is a system of record embedded in this high consequence workflow. So it's a real awesome opportunity for us to be at the center of this, where accuracy and trust are nonnegotiable, and we think that we're positioned to become even more essential.

There are no further questions at this time. I will now turn the call back to Dan Leib, CEO, for closing remarks.

Dan, over to you.

Thank you, Kara, and thanks, everyone, for joining. And we look forward to connecting in the near term, and I will pass it back to Kara to close it out.

Thank you. This concludes today's call. Thank you for attending, and you may now disconnect.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Fourth Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mike Zhao, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions' fourth quarter and full year 2025 results conference call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results, copies of which can be found in the Investors section of our website at dfinsolutions.com.

During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further detailed in our most recent annual report on Form 10-K and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information.

I am joined this morning by Dan Leib, Dave Gardella and other members of management.

I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. We finished 2025 by delivering strong fourth quarter results, highlighted by 10.4% consolidated net sales growth, year-over-year growth in adjusted EBITDA and strong adjusted EBITDA margin. Double-digit growth in both our software solutions and event-driven transactional offerings were key components of our strong top and bottom line performance. In addition, given our stock trading levels, strong balance sheet and perspective on long-term value, we accelerated our share buyback during the fourth quarter and repurchased approximately 1.3 million shares, bringing the 2025 total share repurchase to approximately 3.6 million shares or approximately 12% of the company's outstanding shares from the beginning of the year at an average price of $48.36 per share. As a result of focused execution, we grew consolidated adjusted EBITDA by $14.1 million or approximately 44% year-over-year and delivered an adjusted EBITDA margin of 26.6% in the quarter, an increase of approximately 630 basis points from last year's fourth quarter. Our fourth quarter performance is a further validation of our strategy.

Reflecting on the full year of 2025 against the backdrop of continued economic volatility, we delivered strong full year results, including Software Solutions net sales growth of 8.7%, growth in adjusted EBITDA, record adjusted EBITDA margin and higher free cash flow compared to full year 2024. While 2025 marked another year of decline in our transactional revenue, the fourth consecutive year of decline, our strong execution enabled us to deliver consolidated adjusted EBITDA of $239.8 million, an increase of $22.5 million or 10.4% year-over-year and consolidated adjusted EBITDA margin of 31.3%, approximately 350 basis points higher than 2024. For context, our 2025 full year adjusted EBITDA margin exceeded the previous record, which was 29.7% despite this year's significantly lower overall and transactional revenues compared to that year.

Our long-term focused execution to improve our sales mix and manage our cost structure has resulted in DFIN becoming structurally more profitable, creating the financial flexibility to balance investment in our transformation with smart capital deployment. While transformational implementation continues, 2025 also marks the end of Chapter 2 or the fundamental transformation chapter of our journey as an independent company, a phase that started in 2020. Specifically, during Chapter 2, we transformed many areas of the company, simplified and improved our business processes, installed more robust tooling across the organization and increased development velocity to bring new solutions to market more efficiently, all aimed at creating significantly improved client experience, while increasing value for our clients, employees and shareholders. Our performance in 2025 demonstrates much of our progress within Chapter 2.

Let me highlight a few of those examples. First, one of the fundamental aspects of our strategy has been the continued transformation of sales mix by increasing the adoption of our software solutions, while continuing to serve the market where desired by clients with our tech-enabled services and print and distribution offerings. Our 2025 performance further demonstrated the progress of that strategy. For full year 2025, we delivered record Software Solutions net sales of $358.4 million, an increase of 8.7% from 2024, resulting in Software Solutions comprising approximately 47% of our total full year net sales. Since our 2016 spin-off, we've grown our annual Software Solutions net sales by approximately $222 million from $136 million to $358 million, representing an annualized growth rate of approximately 11%. At the same time, we've maintained a strong tech-enabled services offering and successfully managed the decline in print and distribution net sales, a decline driven by regulatory change, our proactive decision to exit certain low-margin work and the secular decline in the demand for print and materials. Our progress keeps us on the right path toward achieving our long-term financial goals.

Let me share a few highlights that underpin the growth in our software solutions in 2025. First, we are encouraged by the sales growth in our recurring compliance products, ActiveDisclosure and Arc Suite, which increased by approximately 13% in aggregate. For ActiveDisclosure, sales increased by 17% for the full year, our highest annual growth rate since 2021. Since completing the product transition in 2023, we've realized sequential improvements in ActiveDisclosure's operating performance, including growth in net client count as well as higher value per client. This improved growth trajectory demonstrates that the upgrades we have made across the offering, including technology, services and support, combined with strong sales execution are delivering positive results. With a strong foundation and ongoing momentum, we expect ActiveDisclosure to continue to deliver solid growth in 2026. Arc Suite, our market-leading compliance software offering to mutual funds and other regulated investment companies delivered solid full year net sales growth of approximately 11%, in part due to the tailored shareholder reports regulation. Given the midyear 2024 effective date, the TSR regulation primarily benefited our first half sales growth in 2025, while the second half growth in aggregate was more modest as we overlap the impact of both TSR and a large client contract renewal. As I have stated previously, we expect the growth profile of Arc Suite to be more modest during periods outside of regulatory changes, while over the longer term, still exhibiting the double-digit growth we have delivered historically based in part on a dynamic and evolving regulatory environment. We are optimistic about the opportunities created by future regulatory change and believe Arc Suite is well positioned to capture additional demand from new regulations to further accelerate recurring software revenue growth.

In addition to regulatory changes, Arc Suite is also well positioned to capture additional market-driven demand in areas such as private investments. We expect increased reporting and disclosure needs by private investment institutions, including hedge funds, private equity and business development companies. Our newly launched financial and regulatory reporting offering, ArcFlex, positions DFIN well to capture incremental opportunities in the private investment space. The initial release of ArcFlex has received positive response in the marketplace, and we expect to ramp up in ArcFlex revenue starting in 2027.

Turning now to Venue. As expected, the growth rate in 2025 was more modest compared to the approximately 26% growth we achieved in 2024, which was aided by several large projects. On a full year basis, Venue delivered approximately $142 million in net sales and grew approximately 3% versus full year of 2024. Importantly, Venue's year-over-year growth rate improved sequentially each quarter throughout the year, and we ended the year with positive momentum, having delivered approximately 20% growth in the fourth quarter. In addition, the rollout of new Venue, which was launched in the third quarter, continues to gain traction in the marketplace. We are pleased with the ongoing commercial adoption of Venue and expect the upgraded product to contribute to Venue's overall growth in 2026.

Next, 2025 was an important milestone in our product development efforts. Having introduced several new solutions to market, including the new Venue Virtual Data Room, ArcFlex, our offering for alternative investments; and Active Intelligence, a suite of artificial intelligence capabilities within ActiveDisclosure designed to streamline compliance and reporting for companies. These new products introduced in 2025 are the latest in a series of new software introductions over the last several years, which also include new AD and within Arc Suite, Total Compliance Management and the tailored shareholder report solutions and are the result of our efforts to accelerate the modernization, innovation and growth of our software portfolio. Over the past several years, these investments have enabled us to launch or modernize the majority of our software products. Our investments have enabled us to increase development velocity, bring new solutions to market more efficiently by leveraging the platform capabilities of our single compliance platform and empower our clients to adapt quickly to an evolving regulatory environment, all while incorporating the most modern technology.

Finally, in a business landscape that has become increasingly shaped by the adoption of artificial intelligence, DFIN is deploying AI across both our product offerings as well as our internal operations. As we continue to enhance our compliance platform, we are building an AI framework architecture designed to deliver increased value to our clients through improved efficiency and increased productivity. The AI capabilities embedded in the Active Intelligence are a good example of the higher value we provide to clients. Specifically, during the initial rollout, select ActiveDisclosure clients have access to AI-enhanced capabilities for streamlining the research, comparison and analysis of draft SEC filings against their own prior filings and those of selected peers. This capability will help to reduce risk and expedite the preparation of quarterly and annual reports, proxy statements and IPO filings. As active intelligence and other AI features expand more broadly across the DFIN software platform, we expect more clients will benefit from increased efficiency and actionable insights. This enhancement is part of our end-to-end offering, ensuring clients benefit from both advanced technology and the human expertise required for mission-critical compliance. At the center of our approach is an unwavering commitment to security, privacy and responsible data governance. For example, we never use client data to train large language models, and we architect our systems to ensure sensitive information is protected at every step. Internally, our investments in AI enable us to modernize our business operations by applying automation and AI-driven tools, including commercial AI solutions and our own Agentic AI development to streamline workflows, improve productivity and support profitable growth. One area where we are realizing meaningful benefits from AI is in product development, where improved processes and increased development velocity are enabling us to bring new solutions to market more quickly. These internal gains enhance the speed and quality of the solutions we deliver, allowing us to respond quickly to evolving regulatory, compliance and client needs. As AI strengthens and expands our capabilities, the value DFIN provides a unique combination of deep regulatory expertise and excellent service model and advanced technology becomes more evident. We remain a responsible innovator and a trusted partner dedicated to delivering secure, dependable and insight-driven solutions for clients' most important regulatory and compliance needs.

Before turning it over to Dave, I wanted to provide a quick update on our operating priorities for 2026. In 2026, we will transition to Chapter 3 or the sustained growth chapter of our transformation. During Chapter 3, we will continue to realize benefits from our revenue mix shift and historical investments that have resulted in a strong foundation for continued innovation and growth. With revenue from recurring and reoccurring offerings approaching 80% of our full year total revenue and the remaining approximately 20% being event-driven, we expect the evolution of our revenue profile towards a higher mix of predictable revenue to continue going forward as we accelerate the growth in our recurring and reoccurring offerings while benefiting from but being less dependent on event-driven revenues. These dynamics result in sustained profitable revenue growth. We look forward to driving value creation by delivering predictable, consistent organic top line growth, continued strong profitability and ongoing robust cash flow generation.

Specific to 2026, our primary focus remains on accelerating our business mix shift by continuing to grow our recurring SaaS revenue base while maintaining share in our core traditional businesses, including transactions. We are encouraged by the momentum in capital markets transactional activity so far in the year and remain well positioned to capture an uptick in deal activity. In addition, we expect print and distribution to continue to decline as a result of the long-term secular reduction in the demand for printed products, though at approximately 14% of our 2025 total net sales, the magnitude of the reduction will be more than offset by the growth in Software Solutions net sales. Further, as it relates to regulatory change, we do not expect major SEC rule changes for 2026. That said, our historic and ongoing investments in our regulatory and compliance software platform positions us well to capture the demand from future regulations and non-SEC use cases. In addition, we will continue to aggressively manage our costs and drive operational efficiencies, part of which will be enabled by the increased adoption of artificial intelligence productivity tools.

Finally, we will maintain our disciplined approach to investments and capital allocation in our pursuit of profitable growth opportunities to maximize financial return and create long-term value. I'm confident with our continued focus on executing our strategy, we will create increased value for our clients, employees and shareholders.

Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our fourth quarter financial results and outlook for the first quarter of 2026. Dave?

Thank you, Dan, and good morning, everyone. As Dan noted, we delivered strong fourth quarter results in an uncertain operating environment, including double-digit consolidated year-over-year net sales growth, higher adjusted EBITDA, adjusted EBITDA margin expansion and an increase in both operating cash flow and free cash flow from last year's fourth quarter. We continue to deliver solid growth in our software solutions offering during the quarter, which grew 11.4% year-over-year. In addition, we experienced an increase in the level of capital markets transactions compared to last year's fourth quarter, which resulted in higher-than-expected event-driven revenue in the quarter. The fourth quarter capped off a solid full year performance, demonstrated by our evolution toward a more favorable sales mix, strong adjusted EBITDA margin expansion and disciplined capital allocation. On a consolidated basis, total net sales for the fourth quarter of 2025 were $172.5 million, an increase of $16.2 million or 10.4% from the fourth quarter of 2024. Net sales exceeded the high end of our guidance range, aided in part by higher capital markets transactional revenue. The 11.4% growth in Software Solutions net sales, combined with higher capital markets transactional revenue more than offset a year-over-year decrease in capital markets and investment companies traditional compliance revenue with the majority of the reduction related to the secular decline in print and distribution volume, consistent with recent trends. Fourth quarter adjusted non-GAAP gross margin was 63.5%, approximately 360 basis points higher than the fourth quarter of 2024, primarily driven by higher net sales and a favorable sales mix, the impact of cost control initiatives and price uplifts. Adjusted non-GAAP SG&A expense in the quarter was $63.8 million, a $1.7 million increase from the fourth quarter of 2024. As a percentage of net sales, adjusted non-GAAP SG&A was 37%, a decrease of approximately 270 basis points from the fourth quarter of 2024 as a result of operating leverage on higher net sales. The increase in adjusted non-GAAP SG&A was primarily driven by an increase in selling expense as a result of higher sales volume and higher incentive compensation expense relative to last year's fourth quarter, though full year incentive compensation expense was less than last year, partially offset by the impact of ongoing cost control initiatives.

Our fourth quarter adjusted EBITDA was $45.8 million, an increase of $14.1 million from the fourth quarter of 2024. Fourth quarter adjusted EBITDA margin was 26.6%, an increase of approximately 630 basis points from the fourth quarter of 2024. The increases in adjusted EBITDA and adjusted EBITDA margin were primarily due to higher net sales, a favorable sales mix and cost control initiatives, partially offset by higher incentive compensation expense and higher selling expense as a result of the increase in sales volume.

Turning now to our fourth quarter segment results. Net sales in our Capital Markets Software Solutions segment were $60 million, an increase of 20% from the fourth quarter of last year with each offering within the segment, Venue and ActiveDisclosure growing approximately 20% year-over-year. Specifically, Venue sales were up $6.2 million from last year's fourth quarter, while also increasing sequentially from the third quarter. Venue sales growth accelerated in the fourth quarter, driven by increases in activity across both the United States and Europe. In addition, we benefited from several large projects in this year's fourth quarter, which combined to account for approximately half of Venue's year-over-year sales growth. As Dan noted earlier, we are encouraged by the in-market performance of new venue and believe we are well positioned to capture additional share going forward. As it relates to ActiveDisclosure, we posted another quarter of strong sales growth, increasing by $3.8 million or 20.2% compared to the fourth quarter of 2024 and a continuation of the stronger growth rate we delivered in the third quarter. Total subscription revenue increased by approximately 12%, an acceleration compared to recent trend, primarily driven by the continued growth in client count. In addition, we continue to make progress in the migration of certain activities historically performed on our traditional services platform to ActiveDisclosure, including the use case for IPOs.

During the fourth quarter, we experienced higher usage of ActiveDisclosure in the drafting and filing of S-1 documents for certain IPO transactions. We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth, part of which will be influenced by the amount of event-driven transactional activity taking place on the platform. The combination of ActiveDisclosure, our strong service offering and the related domain expertise remains a strategic differentiator for DFIN. Adjusted EBITDA margin for the segment was 30.2%, an increase of approximately 360 basis points from the fourth quarter of 2024, primarily due to higher net sales and cost control initiatives, partially offset by higher selling expenses as a result of the increased net sales. Net sales in our Capital Markets, Compliance and Communications Management segment were $61.6 million, an increase of $8.3 million or 15.6% from the fourth quarter of 2024, driven by higher event-driven transactional revenue.

During the fourth quarter, we recorded $48.6 million in transactional revenue, which exceeded the high end of our expectations and was up approximately $11 million or 29% from the fourth quarter of 2024. While the U.S. government shutdown temporarily paused certain transactions from being completed, once the shutdown ended in mid-November, we experienced a quick resumption of deal completions driven by both the backlog of delayed deals as well as from increased market activity. Overall, the positive momentum in the equity deal environment, which had been building throughout 2025, continued in the fourth quarter, resulting in increases in the number of regular way IPO transactions that raised over $100 million and completed public company M&A deals in the U.S. compared to the fourth quarter of 2024. Consistent with our historical track record, we continue to maintain high market share for large, high-quality IPO and M&A transactions completed in the quarter. DFIN remains very well positioned to capture future demand for transaction-related products and services as market activity normalizes. Capital Markets compliance revenue was down $2.4 million or 15.5% year-over-year driven by a lower volume of compliance work, including the related print and distribution, consistent with the trend from the first 3 quarters of the year. Adjusted EBITDA margin for the segment was 33.6%, an increase of approximately 810 basis points from the fourth quarter of 2024. The increase in adjusted EBITDA margin was primarily due to higher transactional revenue and cost control initiatives, partially offset by lower compliance volume.

Net sales in our Investment Company Software Solutions segment were $30.9 million, a decrease of $0.7 million or 2.2% versus the fourth quarter of 2024. As expected, during the fourth quarter, Arc Suite faced tough comparisons as we overlapped a very strong fourth quarter of 2024, during which sales increased approximately 23% year-over-year. The robust fourth quarter 2024 sales growth was aided by an increase in revenue associated with onboarding clients to the tailored shareholder report solution as well as the favorable impact related to the renewal of a large customer contract. As such, we overlapped both impacts during this year's fourth quarter, resulting in a modest decline in services revenue, while subscription revenue was flat year-over-year. On a full year basis, Total Arc Suite delivered approximately $128 million in revenue and grew 10.6% year-over-year, driven by growth in subscription revenue. As Dan noted earlier, with demand normalizing following the adoption of tailored shareholder reports, we expect a more modest growth related to this offering in 2026, while ArcFlex, our alternative investment solution, is expected to drive incremental revenue starting in 2027.

Adjusted EBITDA margin for the segment was 37.9%, an increase of approximately 90 basis points from the fourth quarter of 2024. The increase in adjusted EBITDA margin was primarily due to price uplifts and cost control initiatives, partially offset by the impact of lower sales volume. Net sales in our Investment Companies Compliance and Communications Management segment were $20 million, a decrease of $1.4 million from the fourth quarter of 2024, driven primarily by lower print and distribution revenue. The reduction in print and distribution revenue is a result of the secular decline in the demand for printed materials, a trend we expect to continue going forward. Adjusted EBITDA margin for the segment was 26.5%, an increase of approximately 410 basis points from the fourth quarter of 2024. The increase in adjusted EBITDA margin was primarily due to cost control initiatives, partially offset by the impact of lower sales volume.

Non-GAAP unallocated corporate expenses were $10 million in the quarter, a decrease of $1.7 million from the fourth quarter of 2024, primarily driven by lower health care expense and cost control initiatives, partially offset by higher incentive compensation expense. Free cash flow in the fourth quarter was $47.9 million, and full year free cash flow was $107.8 million, an increase of $2.6 million over full year 2024. The improvement in full year free cash flow was primarily due to the flow-through of higher adjusted EBITDA, lower cash tax payments and lower capital expenditures, partially offset by working capital and the onetime cash contribution related to the pension plan settlement, which occurred during the third quarter. We ended the year with $171.3 million of total debt and $146.8 million of non-GAAP net debt. At year-end 2025, we had $61 million of outstanding borrowings under our revolver and had $24.5 million of cash on hand. As of December 31, 2025, our non-GAAP net leverage ratio was 0.6x.

Regarding capital deployment, we repurchased approximately 1,255,000 shares of common stock during the fourth quarter for $60.7 million at an average price of $48.38 per share. For full year 2025, we repurchased approximately 3,563,000 shares for $172.3 million at an average price of $48.36 per share. As of December 31, 2025, we had $53.8 million remaining on our current $150 million stock repurchase authorization.

Going forward, we will continue to take a balanced approach to our capital deployment. As it relates to our outlook for the first quarter of 2026, we are encouraged by both the level of transactional activity as well as the pipeline so far in the first quarter, though overall deal volume still remains below the historical average. In addition, we expect a continued decline in print and distribution sales, which will impact our traditional compliance offerings consistent with the recent trend. Given the first and second quarters are the peak periods for compliance activities, such as corporate proxies and annual reports and the associated printing and distribution, the rate of decline in print and distribution sales is expected to be greater during the first half of the year compared to the second half. Further, we expect continued solid growth in Venue and ActiveDisclosure, while Arc Suite will overlap the stronger growth we delivered in last year's first quarter. With that as the backdrop, we expect consolidated first quarter net sales in the range of $200 million to $210 million and consolidated adjusted EBITDA margin in the range of 33% to 35%. Compared to the first quarter of last year, the midpoint of our consolidated revenue guidance, $205 million implies an increase of approximately 2% as the decline in print and distribution volume will be more than offset by software solutions sales growth.

I'll also provide a bit more color on our assumptions for the capital markets transactional sale. We assume first quarter transactional sales in the range of $45 million to $50 million, the midpoint of which is approximately flat compared to the first quarter of 2025 as well as flat on a sequential basis. While we remain very encouraged by the ongoing improvement in underlying market activity, recent market volatility has the potential to impact the timing of certain transactions between quarters. As it relates to the full year, our 2026 operating plan reflects the continued execution of our strategy and associated investments aimed toward accelerating our transformation. Our capital spending, which is predominantly related to development in our software products and the underlying technology to support them, is projected to be between $55 million and $60 million, approximately flat from the $57.1 million that we spent in 2025.

With that, I'll now pass it back to Dan.

Thanks, Dave. Our performance in 2025 serves as a further proof point that our strategic transformation is enabling DFIN to become more profitable and resilient. We executed well in a challenging market environment, delivering strong financial results while also continuing to invest in and execute our strategic transformation. The combination of our market position, cost structure and financial flexibility create a solid foundation as we progress in Chapter 3 of our transformation journey. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world.

Now with that, operator, we're ready for questions.

[Operator Instructions] our first question will come from the line of Charlie Strauzer with CJS Securities.

A couple of quick questions for you guys, I'm sorry. How much of the outperformance in Q4 was kind of volume versus price? And any more color behind the outperformance that would be great.

Yes, Charlie, it's Dave. I'll take that one. I would say price was not significant. I'd say a modest driver. Really, when we think about the outperformance, much of it was on the capital markets transactional revenue and then I think both Venue and AD showed that 20% growth, which was a little bit better than we expected. So predominantly volume. And I would say, as it relates specifically to the capital markets transactional activity, we had the government shutdown for the first half of the quarter, mid-November. The recovery was quicker than we had expected. And then you combine that with the strong underlying activity level in transaction made for a nice quarter in terms of the top and bottom line relative to our guidance.

Great. And then margins were very strong, obviously, in Q4 and for the year. Any more color on the drivers behind the outperformance on that side as well?

Yes. I would say more of the same of what we've seen over the long term. I think when you look at how the mix of sales is changing, what we're doing with the cost structure and then certainly the growth, especially on the software sales and then in particular, this quarter with a nice growth in transactional, that operating leverage, right? So the incremental margin on the sales growth has really pushed margin higher. And again, I'd say in line with what we've talked about in terms of going forward, certainly in line with the trajectory that we've seen. Our long-term guidance is for margins north of 30%. We're probably, frankly, ahead of what we had projected. And so I feel really good about the direction where we're going with profitability.

Great. Dan, just a quick one for you. Just when you look at the -- or think about capital allocation, valuation multiples have contracted across a number of technology stocks. When you look at the potential opportunity in your kind of purview, are you seeing anything more interesting that you would have seen maybe a couple of months ago?

Yes, it's a great question. I think expectations probably haven't followed as quickly. And as we see the disruption even over the past week or two, it will take a bit of time. Obviously, for public companies, everyone's had a bit of a re-rate. And -- but I think most folks are thinking or hoping it's not permanent. So I don't think the expectation side of it yet has adjusted. But if valuations persist at a lower level with the AI overhang, then I think they will. And folks are sitting on assets for a fairly long amount of time and looking for liquidity in some cases. So it will take longer, but something that we continue to watch.

Our next question will come from the line of Pete Heckmann with D.A. Davidson.

As regards ArcFlex, the platform designed for alternative investment managers, is that -- can you talk a little bit about kind of how you think about the relative TAM for ArcFlex relative to Arc Suite? And are those two solutions designed to be sold together to investment managers that do both? Or is ArcFlex -- can ArcFlex be a stand-alone product sold to purely alternative managers?

Yes. Thank you, Pete. It can definitely be sold as standalone. We do see synergy with existing relationships, certainly on the TPA side. And it is a good example of an offering that we were able to build much more quickly, efficiently given the platform that we've been developing and talked about for a few years. But we see the market, and we see the interest being really high as assets continue to grow in the private space. People need more robust solutions in the market. And so getting a lot of interest in discussions. There is not as much of a regulatory framework around that. But even without that, we are seeing some firms transact and purchase ArcFlex. And Eric, I don't know if you wanted to add to that.

Yes. Thanks, Dan. Hi, Pete, it's Eric Johnson. The -- just the data that we have from the SEC shows that the private fund numbers, so number of private funds, so early 2025 was over 54,000, up 15% from the prior period 2023 or same time frame. So there's a significant increase in the number of funds. But what's really happening is this retail access is driving an expansion in the number of investors, which is really pushing the industry to need efficient production at scale. And with the introduction of Arc Flex, we can handle the alternative investment reporting requirements. At the same time, with the horsepower of Arc reporting, we can help these clients manage the scale that's required to manage this influx of reporting activity due to the increased demand and especially driven from the retail side of the market.

Okay. That's really helpful. And then just in terms of the IPO activity in the quarter, it looked like DFIN's share of traditional IPOs was very, very strong. And I guess, would you characterize that as anything beyond just a good mix towards the kind of the larger and more complex IPOs versus smaller deals?

Hi, it's Craig Clay. Thank you for the question. I think as you saw in Q4, there were 41 companies that priced 17 raised over $100 million. Our share of that over $100 million was 65%, which is certainly on the higher side. I think what's awesome is Q4's volume was up 70% year-over-year in the $100 million category. So these 17 companies raised a total of $13 billion. Health care dominated across a number of deals. Medline raised $6 billion, and that was a DFIN supported deal. There was one other $1 billion-plus deal, Data Technologies that we also supported. I think to your question, we certainly play to the larger deals in the full year 2025, there were 10 offerings greater than $1 billion, and we had 70% share of that. So certainly, we are prepared and ready to work the way that our clients want to work. You saw in the prepared remarks how we are supporting IPOs on ActiveDisclosure, which is really a terrific opportunity for us to move into that space. We look at that hybrid solution as a way for our companies to work across the boundaries of having access to our customer service and having access to our regulatory experts. And I think just an opportunity to touch on Active Intelligence. It demonstrates, as Dan said, we're delivering a higher value to our clients across this. So our success with implementing that into ActiveDisclosure, which has Ks, Qs, proxies, IPOs, also validates us as a core member of our clients' team, which is embedded at the moment they need accuracy and speed and regulatory confidence. So thank you for the question.

And our next question comes from the line of Ross Cole with Needham & Company.

Congratulations on a strong quarter. I was wondering if you could dive in a little deeper in terms of the double-digit software growth you're seeing for 2026? And maybe how do you see that broken out between product or maybe between capital markets versus investment companies, especially given the dynamic of fewer regulatory changes in the year and possibly a slower IPO market?

Yes, Ross, just to be clear, on 2026, I think what we said was we expect continued strong growth from ActiveDisclosure and Venue heading into '26, and certainly have that momentum coming out of Q4 here. And then exactly to your point, as it relates to Arc Suite, we've seen the growth in Arc Suite really be more lumpy, I guess, over the course of time. And a lot of that tied to new regulation, whether it be tailored shareholder reports and the total compliance management solution that we launched a few years ago and then more recently with -- sorry, the prior one was 30e-3 with total compliance management and then more recently, tailored shareholder reports, those regulations. And so we would say that it will continue to be lumpy going forward. The outsized growth the coming years with new regulatory changes. And then to the earlier question as it relates to private markets, continue to view that as an opportunity and more to come as it relates to Arc Flex and serving the private market side.

Yes. And just to build on that to the 2026 specifically to Dave's point and then on Arc Flex, our comments where we expect benefit in '27, it's possible it's tail end or some benefit in '26, but it will be very tail end or -- but definitely more predominant in 2027.

[Operator Instructions] And that will conclude our question-and-answer session. I'll turn the call back over to Dan Leib for closing comments.

Thank you very much, and thank you, everyone, for joining us, and we will look forward to seeing you very soon. Thank you.

This concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Third Quarter Earnings Conference Call.

[Operator Instructions]

I would now like to turn the call over to Mike Zhao, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions Third Quarter 2025 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results, copies of which can be found in the Investors section of our website at dfinsolutions.com.

During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further details in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other filings with the SEC.

Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information.

I am joined this morning by Dan Leib, Dave Gardella and other members of management. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. Our third quarter results offered further validation of our strategy, including the continued shift toward a favorable sales mix driven by double-digit growth in our SaaS offerings, strong year-over-year growth in adjusted EBITDA and adjusted EBITDA margin expansion. In addition, we continue to make great progress in modernizing and expanding the adoption of our offerings in the marketplace, highlighted by the launch of our new Venue Virtual Data Room product.

Against the backdrop of an improving but still soft capital markets transactional environment, which resulted in an 8% reduction in our event-driven transactional revenue, we delivered solid results, which once again demonstrated the resiliency of our operating model across various market conditions and the sustainability of our performance as our business mix continues to transform.

Specific to our third quarter performance, I am pleased with the continued strong demand for our software offerings, where we delivered year-over-year net sales growth of 10.3%, an improvement compared to the growth rate we achieved in the first half of the year. Software Solutions sales represented approximately 52% of total sales in the quarter, a positive proof point of our transformation into a software-centric company.

On a trailing 4-quarter basis, Software Solutions sales reached approximately $350 million, growing 8.5% from the third quarter 2024 trailing 4 quarters and accounted for 46.5% of trailing 4-quarter sales, an increase of approximately 640 basis points from the third quarter 2024 trailing 4-quarter sales. This continued positive mix shift positions us well to achieve our long-term target of driving approximately 60% of total sales from Software Solutions by 2028.

A major driver of the third quarter software growth was the performance of our recurring Compliance software products. ActiveDisclosure and Arc Suite, which posted approximately 16% sales growth in aggregate, marking the third consecutive quarter of double-digit sales growth across these 2 products. The growth in our recurring Compliance software offerings is led by ActiveDisclosure, which delivered third quarter net sales growth of approximately 26%, an acceleration in growth compared to recent trend. We are encouraged by the continued growth in ActiveDisclosure subscription service packages.

In addition, as I discussed previously, we are serving additional use cases via a hybrid model that combines our software solution with an unmatched service offering. Within this context, ActiveDisclosure has been increasingly chosen by our clients for their IPO registration and proxy statement needs, which historically were managed in a traditional model.

In the third quarter, we saw higher ActiveDisclosure sales associated with IPO registrations being completed on the platform compared to last year's third quarter. In the case of Arc Suite, the growth rate in the third quarter, approximately 10% was more modest than the past few quarters as we overlap the benefit associated with the tailored shareholder report solution, which was introduced in July of 2024. As I commented previously, we expect the growth profile of Arc Suite to be more modest during periods outside of regulatory changes, while over the longer term, still exhibiting the double-digit growth we have delivered historically based in part on a dynamic and evolving regulatory environment.

For the fourth quarter, on a year-over-year basis, in addition to overlapping the TSR uplift, we will also overlap a contract renewal with a strategic client during last year's fourth quarter that produced favorable economics since the renewal. These factors combined to create a tough comparison versus the fourth quarter of last year when Arc Suite grew 23% year-over-year. I am encouraged by the continued adoption of Arc Suite among investment company clients as we build on the sales momentum and positive market response since launching our TSR solution.

As it relates to Venue, we delivered improved year-over-year sales performance in the third quarter, increasing by approximately 3% compared to the third quarter of last year. We remain encouraged by Venue's performance, which benefits from stable demand from both announced and unannounced deals across public and private companies alike.

To further solidify Venue's market position as a leading virtual data room for M&A due diligence, we launched a new version of Venue during the third quarter following a comprehensive rebuild. The redesigned Venue delivers a highly intuitive user experience, empowers clients to manage complex transactions more efficiently, streamlines collaboration within deal teams and safeguard sensitive information throughout the deal life cycle.

Following the rollout, we have received very positive client feedback. Venue's modern architecture positions us well to efficiently add further capabilities as needed. We expect the new product launch will strengthen Venue as the data room of choice for corporate transactions.

In addition to introducing new Venue, which serves our capital markets clients, during the third quarter, we released for broad adoption ArcFlex, the newest module within Arc suite, designed specifically to meet the needs of investment companies focused on alternative investments. ArcFlex is a purpose-built financial and regulatory offering tailored for a wide range of private investment institutions, including hedge funds, private equity and business development companies.

By leveraging the foundational capabilities within the DFIN platform, ArcFlex builds on existing services to provide enhanced solutions customized for private fund clients. Coupled with DFIN's deep domain and service expertise, ArcFlex is well positioned as the leading end-to-end financial and regulatory reporting solution serving the growing private funds market. New Venue and ArcFlex are the latest in a series of new software introductions made possible by our focused investments to accelerate the modernization, innovation and growth of our software portfolio.

Over the past several years, these investments have enabled us to launch or modernize a majority of our software products. Our investments have enabled us to increase development velocity, bring new solutions to market more efficiently by leveraging the platform capabilities of our single compliance platform and empower our clients to adapt quickly to an evolving regulatory environment, all while incorporating the most modern technology.

Before turning the call over to Dave, I'd like to comment on the U.S. government shutdown and the related impact on our outlook for Capital Markets deal activity. Since the shutdown began on October 1, the SEC's Division of Corporation Finance has been unable to review or accelerate registration statements, issue comment letters or provide interpretive guidance. As a result, the SEC's ability to declare registration statements effective has been curtailed, impacting IPO activity as well as other capital markets transactions so far in the fourth quarter. While some transactions, including select IPO pricings are taking place within a limited window without SEC comment, most of the planned transactional activity has been paused.

Overall, the shutdown has delayed the positive momentum in capital markets deal activity over the last 2 quarters. Based on what we experienced during the previous government shutdown, the shutdown represents a shift in the timing of when transactions complete as most deals that were paused during the previous shutdown were reactivated when the SEC reopened.

While the duration of the shutdown remains uncertain, we continue to support our clients in preparing transactions so they remain ready to move quickly when regulatory operations at the SEC resume. DFIN's strong client relationships and market leadership position us well to capture the latent demand when activity level normalizes.

Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our third quarter results and our outlook for the fourth quarter. Dave?

Thanks, Dan, and good morning, everyone. Before I discuss our third quarter operating performance, I'd like to recap one housekeeping item. As detailed in our press release issued on October 23, during the third quarter, we successfully completed the termination of our primary defined benefit pension plan, which had been frozen and closed since 2011. As part of this transaction, we made a $12.5 million cash contribution in the third quarter to fully fund the plan, which was recorded as a use of cash within the operating activities section of the statement of cash flows and settled the plan obligations through a combination of lump sum payments to certain plan participants and the purchase of a group annuity contract from a third-party insurer.

In addition, as a result of the planned settlement, we remeasured the plan's assets and obligations and recognized a noncash pretax settlement charge of $82.8 million or $60.3 million on an after-tax basis resulting in a negative EPS impact of $2.20 per diluted share due to the recognition of unrealized accumulated planned losses previously reported within accumulated other comprehensive loss on the balance sheet.

Finally, the settlement of the plan resulted in the removal of approximately $10 million of net liability from our balance sheet comprised of approximately $200 million of plan obligations and approximately $190 million of plan assets. We are pleased with this outcome, which will further enhance our financial flexibility and reduce future administrative and financial volatility associated with the legacy pension plan.

Now turning to our third quarter operating performance. As Dan noted, we delivered strong results within the backdrop of an improved operating environment, highlighted by an acceleration in Software Solutions growth and year-over-year increases in adjusted EBITDA and adjusted EBITDA margin. We posted approximately 10% growth in our Software Solutions net sales, including approximately 16% sales growth in our recurring compliance software products, all while continuing to drive operating efficiencies and expanding adjusted EBITDA margin to 28.2%.

On a consolidated basis, total net sales for the third quarter of 2025 were $175.3 million, a decrease of $4.2 million or 2.3% from the third quarter of 2024. Third quarter net sales were at the high end of our guidance range was driven by lower volume in our Compliance and Communications Management segments, which declined $12.7 million in aggregate with Compliance revenue across the capital markets and investment companies businesses accounting for $8.3 million of the decline. The reduction in Compliance revenue was mostly reflected in lower print and distribution volume related to both the ongoing decline in this area, consistent with recent trend as well as the timing impact of certain investment companies print volume that shifted from the third quarter into the fourth quarter this year.

In addition, total event-driven transactional revenue declined by $4.4 million year-over-year primarily a result of the lower volume for foreign issuer transactions on U.S. exchanges, partially offset by stronger U.S. IPO volume. These declines were partially offset by growth in Software Solutions net sales, which increased $8.5 million or 10.3% compared to the third quarter of last year.

Third quarter adjusted non-GAAP gross margin was 62.7%, approximately 100 basis points higher than the third quarter of 2024, primarily driven by higher Software Solutions net sales, the impact of cost control initiatives and price uplifts, partially offset by lower capital markets transactional volume.

Adjusted non-GAAP SG&A expense in the quarter was $60.5 million, a $7.1 million decrease from the third quarter of 2024. As a percentage of net sales, adjusted non-GAAP SG&A was 34.5%, a decrease of approximately 320 basis points from the third quarter of 2024. The decrease in adjusted non-GAAP SG&A expense was primarily driven by the impact of cost control initiatives, a reduction in selling expense related to lower sales in certain areas and lower bad debt expense, which continued to normalize in the third quarter, partially offset by higher health care expense.

Our third quarter adjusted EBITDA was $49.5 million, an increase of $6.3 million or 14.6% from the third quarter of 2024. Third quarter adjusted EBITDA margin was 28.2%, an increase of approximately 410 basis points from the third quarter of 2024, primarily driven by higher Software Solutions net sales, cost control initiatives and lower selling expense as a result of the decrease in sales volume, partially offset by lower capital markets transactional volume and higher health care expense.

Turning now to our third quarter segment results. Net sales in our Capital Markets - Software Solutions segment were $59 million, an increase of $5.7 million or 10.7% from the third quarter of last year, primarily driven by ActiveDisclosure, which was up $4.7 million year-over-year. During the third quarter, ActiveDisclosure sales grew approximately 26%, an acceleration of the stronger growth trend we experienced over the last 3 quarters, primarily driven by the continued adoption of ActiveDisclosure subscription service packages and the ongoing migration of certain activities historically performed on our traditional services platform.

The migration to a hybrid model enables clients to leverage the combination of ActiveDisclosure and DFIN service model. Specific to the shift of traditional activities to ActiveDisclosure, during the quarter, we experienced an increase in the volume of IPO activity taking advantage of the hybrid offering with clients using ActiveDisclosure for the drafting and filing of S-1 documents, resulting in higher usage of ActiveDisclosure for certain IPO transactions. We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth, part of which will be influenced by the amount of event-driven transactional activity taking place on the platform.

Net sales of Venue increased approximately $1 million or 3% compared to the third quarter of last year when Venue grew approximately 27% year-over-year. A resilient level of underlying activity taking place on the platform, coupled with our recent launch of new venue creates a strong foundation for future sales growth.

Adjusted EBITDA margin for the segment was 34.9%, an increase of approximately 1,010 basis points from the third quarter of 2024, primarily due to the increased sales, cost control initiatives and lower bad debt expense.

Net sales in our Capital Markets - Compliance & Communications Management segment were $57.2 million, a decrease of $6.3 million or 9.9% from the third quarter of 2024, driven by lower transactional revenue as well as a reduction in compliance volume, part of which was related to lower print and distribution sales consistent with recent trend. In the third quarter, we recorded $41.8 million of capital markets transactional revenue, which exceeded the high end of our expectations, yet was down $3.5 million from last year's third quarter. Following the second quarter, when we experienced sequential improvement in transactional revenue as the quarter progressed, the uptick in the level of capital markets deal activity, especially the market for new equity issuances in the U.S. strengthened in the third quarter with the number of regular way IPO transactions that raised over $100 million, exceeding last year's levels.

As such, we realized approximately 25% year-over-year increase in our transactional revenue related to U.S. IPO activity. However, the improvement in U.S. IPO activity was more than offset by the soft market for foreign issuance transactions and large public company M&A deals, which remained a headwind on a year-over-year basis and combined to more than offset the growth in IPO revenue. With the outlook for capital markets transactional environment is uncertain, in part due to the impact of the government shutdown, DFIN remains very well positioned to capture future demand for transactional-related products and services when market activity resumes.

Capital Markets Compliance revenue decreased by $2.8 million or 15.4% compared to the third quarter of 2024, driven primarily by lower volume of compliance work, including the related printing and distribution, consistent with the trend from the first half of the year. In addition, we continue to experience lower market demand for certain event-driven filings such as 8-K and special proxies associated with corporate transactions.

Adjusted EBITDA margin for the segment was 34.3%, an increase of approximately 260 basis points from the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to cost control initiatives, lower selling expense as a result of lower sales volume and lower bad debt expense, partially offset by lower sales volume.

Net sales in our Investment Companies - Software Solutions segment were $31.7 million, an increase of $2.8 million or 9.7% versus the third quarter of 2024, driven by growth in subscription revenue. As expected, the growth rate in the third quarter was more modest compared to the levels we delivered in the last several quarters as we started to overlap the uplift in software revenue as a result of the tailored shareholder reports regulation, which became effective in July of last year.

As Dan stated earlier, we expect a tough comparison against last year's fourth quarter as we overlap uplifts associated with both TSR and the strategic contract renewal, which benefited our performance last year. Adjusted EBITDA margin for the segment was 36.6%, an increase of approximately 580 basis points from the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in net sales, price uplifts and cost control initiatives, partially offset by higher service-related costs associated with the tailored shareholder reports offering.

Net sales in our Investment Companies - Compliance & Communications Management segment were $27.4 million, a decrease of $6.4 million or 18.9% from the third quarter of 2024, primarily driven by lower print and distribution volume, which accounted for $4.1 million of the year-over-year decline and lower compliance revenue. Third quarter print and distribution revenue within this segment was impacted by the timing shift of certain volume related to tailored shareholder reports for the variable annuity market from the third quarter into the fourth quarter of this year as well as the ongoing impact of lower page counts related to tailored shareholder reports for the mutual fund industry.

Going forward, we expect a broader secular decline in the demand for printed products, which we expect in the range of 5% to 6%, will continue to result in lower print and distribution revenue within this segment in addition to any future regulatory change-driven impacts. Adjusted EBITDA margin for the segment was 34.7%, approximately 450 basis points higher than the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to lower selling expense and cost control initiatives, partially offset by the impact of lower sales volume.

Non-GAAP unallocated corporate expenses were $11.8 million in the quarter, an increase of $2.6 million from the third quarter of 2024, primarily due to higher health care expense, partially offset by cost control initiatives. As it relates to the increase in health care expense, the variance was driven by a single outsized claim, a portion of which is eligible for reimbursement through a stop-loss insurance policy. The company received a $2.8 million reimbursement this week in accordance with that policy. And as such, we will record the $2.8 million recovery in our fourth quarter results.

Free cash flow in the quarter was $59.2 million, $8.1 million lower than the third quarter of 2024. The year-over-year decline in free cash flow was primarily driven by unfavorable working capital and the onetime cash contribution related to the pension plan settlement, partially offset by lower cash tax payments, higher adjusted EBITDA and lower capital expenditures.

We ended the quarter with $154.7 million of total debt and $132 million of non-GAAP net debt, including $43 million drawn on our revolver. As of September 30, 2025, our non-GAAP net leverage ratio was 0.6x. Regarding capital deployment, we repurchased approximately 659,000 shares of common stock during the third quarter for $35.5 million at an average price of $53.79 per share. Year-to-date through September 30, we've repurchased approximately 2.3 million shares for $111.6 million at an average price of $48.35 per share.

As of September 30, 2025, we had $114.5 million remaining on our current $150 million stock repurchase authorization. We continue to view organic investments to drive our transformation, share repurchases and net debt reduction as key components of our capital deployment strategy and will remain disciplined in this area.

As it relates to our outlook for the fourth quarter of 2025, we expect consolidated fourth quarter net sales in the range of $150 million to $160 million and adjusted EBITDA margin in the range of 22% to 24%, which at the midpoint represents an increase of approximately 300 basis points compared to last year's fourth quarter, where we posted adjusted EBITDA margin of approximately 20%.

Our fourth quarter adjusted EBITDA guidance reflects the stop-loss reimbursement of approximately $2.8 million received this week, as I noted earlier. In terms of our revenue guidance, the midpoint of $155 million implies a reduction of approximately 1% compared to the fourth quarter of last year as lower print and distribution sales and lower capital markets transactional sales are expected to more than offset growth in Software Solutions.

I'll also provide a bit more color on our assumptions for the capital markets transactional sales. Due to the impacts of the government shutdown and the resulting increase in uncertainty around timing of deal completions, our expectations for capital markets transactional revenue reflect a temporary softening relative to the recent trajectory. Our estimates assume capital markets transactional net sales in the range of $30 million to $40 million, which at the midpoint is down approximately $2.7 million from last year's fourth quarter and represents a sequential decline of approximately $7 million from the third quarter of this year, solely due to the government shutdown.

This guidance assumes transactions that were approved before the shutdown will proceed in the normal course of business. As it relates to new transactions, in line with what we have seen thus far in October, we expect some deals such as IPOs currently in the pipeline to be completed during the fourth quarter based on guidance provided by the SEC, though we expect most in-process deals will be delayed. Conversely, our guidance assumes a continuation of the year-over-year growth trend we've seen in Venue driven by the new product release and further supported by an improvement in underlying market activity.

With that, I'll now pass it back to Dan.

Thanks, Dave. The execution of our strategy continues to deliver positive results and further demonstrates DFIN's ability to perform well in varying market conditions. Our solid financial profile provides us with the foundation to continue to execute our strategic transformation. While the government shutdown has injected uncertainty into the capital markets transactional environment, the combination of our strong market position and deep domain expertise positioned DFIN well to capitalize on the return to a more normalized level of activity.

We are in the midst of preparing our 2026 operating plan and extending our long-range plan through 2030. In 2026, we expect to build on the positive momentum in growing our software solutions portfolio, including accelerating the shift of our traditional compliance activities to SaaS, continued operational transformation and the execution of our strategy. Through the planning period, we expect continued progress in delivering higher value for our clients, our employees and our shareholders. Consistent with past practice, we expect to provide an update on 2026 and our long-range projections in February.

Before we open it up for Q&A, I'd like to thank the DFIN employees around the world. Now with that, operator, we're ready for questions.

[Operator Instructions] And your first question comes from the line of Charles Strauzer of CJS Securities.

Maybe we can just pick up on the government shutdown discussion. And when you look at the -- thank you for giving us the quantification in your guidance for Q4 for revenue. But any metrics you can give us around the impact to margins in Q4?

Yes, Charlie, I'll talk about that. I think we've contemplated the margin impact of the lower transactional revenue in our range. As we talked about margins in the quarter, we -- even at the midpoint at 23% for Q4, expect to be up about 300 basis points relative to what we delivered last year. And again, I think that's in line with the margin expansion we've seen so far this year. Obviously, that has a bit of a negative impact in Q4. But the piece that we have going the other way, right, we talked about the outsized health care. We're going to get a recovery on that in Q4. We've actually already received the cash for that recovery.

And so when you look at the 300 basis points of margin expansion, again, that's at the midpoint of our guidance. About half of that is driven by this health care recovery. And then I would say the other half just kind of in line with our ongoing margin expansion. As you saw this quarter, to the extent that capital markets transactional revenue comes in higher, we would expect to outperform that just like we did in Q3. And that was a big driver. That will be the swing factor, I guess, in any quarter but certainly as we face the government shutdown here in Q4.

Yes. And then just to add, and maybe Craig can also provide some context to past shutdowns and impact. But the impact of the shutdown, as we said, is primarily in our capital markets transactions area, all of the compliance activities that run through the SEC continue during the shutdown other than those that are associated with transactions, but minimal impact to venue, and Craig can speak to both venue and then what we've seen from past shutdowns.

Yes, Charlie, to build on Dave and Dan's comments, the SEC posted guidance that provides a path forward for companies seeking to IPO. So unlike past shutdowns, the IPO market is frozen for most but not all. It cannot -- the SEC cannot declare a registration statement effective. But instead, they've instructed companies to file a completed statement and wait 20 days. So there are companies that are pressing ahead.

As we look at October, we have 5 listings that have completed, 4 are traditional IPOs greater than $100 million, 2 of those are DFIN deals. We've also completed one very large direct listing this month, Obook, which closed up 480% a DFIN deal. And then you look forward, according to Renaissance Capital, 6 companies intend to price in the next few weeks using the SEC's 20-day guidance. DFIN is working with 5 of those 6. And then if you look at the total number of publicly companies on file at the SEC to price, including the 6, that is a total of 13 with a $50 million or greater placeholder. These are publicly filed but not priced.

A DFIN supported deal joined the list yesterday, Medline could be the largest IPO of the year and their public filing signals that despite the shutdown, the IPO market continues to move forward. DFIN's share of these 13 deals is 69%. We have a robust pipeline of companies who file confidentially. -- as well as an IPO pipeline of RFPs. So it is definitely impacted. It has slowed, hasn't completely stopped given the 20-day rule.

And then to build on some of the M&A comments that Dan talked about, we're really fortunate at DFIN to have a business that delivers M&A support from deal ideation through the process to announce transactions that require public disclosure. With Venue, it's a really optimistic look as Dan and Dave stated, Q3 results show progress. We're seeing increased activity in Venue, and we have a new product. Clients are loving it. Venue's architecture will provide us great leverage going forward.

And we expect the product launch to strengthen Venue as the data room of choice, and we look forward to those accomplishments in future quarters. But M&A in the traditional side, is impacted. It is already a complex regulatory environment and the government shutdown has exacerbated this. So we expect deals that were to close in Q4 to be pushed to 2026 due to regulatory bottlenecks.

While we know the government will open, we can't predict it. And we've been here before. These delayed transactions will get completed but it likely could be 2026. It's going to take a beat for the market to catch up once the government opens. And then we're working against the holidays here in November and December. So it's going to open. The underlying activity is strong and DFIN is at the ready.

Great. Shifting gears a little bit to the talk about SEC reporting frequency from quarterly to potentially semiannual. How are you thinking about that? And any knowledge you could share with us?

Yes. Great question. So we're closely monitoring the developments related to the proposal to reduce the frequency of corporate reporting. At this time, many, many questions are outstanding. So will the proposal require more disclosure for a semiannual report than a current 10-Q? What will the XBRL tagging requirements be? Another option is for the SEC to continue to require quarterly earnings 8-Ks. These could be larger. And does it expand the 8-K disclosure that would require XBRL tagging.

We're also analyzing what happened in Europe. Companies here will be given a choice. Most European countries -- companies, sorry, when given the choice did not reduce the frequency of reporting. So we really don't know what the adoption rate will be here in the U.S. So given these unknown aspects, we're continuing to build models and to follow it.

But I think the most important point to make is the vast majority of our 10-Qs are on ActiveDisclosure, which operates as a subscription business with long-term contracts. So this subscription model insulates DFIN from most of the public change that would be associated with this. As the subscription is priced not on a per filing basis but on a software delivery basis. So following it closely, we have some insulation to the impact.

And your next question comes from the line of Pete Heckmann of D.A. Davidson.

I wanted to follow up on this resurgence of SPAC IPOs that we've seen. Over the last, what, 4 to 6 quarters, when we think about DFIN's participation there, I guess, how much of DFIN not getting retained on some of these deals is the company's choice and worries about potentially those deals not getting done? And how much of it is just a more competitive set of competitors kind of on these lower-end IPOs?

Yes. DFIN is selective in our SPAC go-to-market. And as you're familiar with the reasons why risk of liquidation, delisting, merger terminations, there is an increase in the quantity and there is a few quality deals, and those are the ones that we play at. Our share in this increased market has declined, but it's declined because 58% of the year-to-date deals are nano microcap companies, 25% are trading below the $5 per share, 33% are international. Most of those have an international provider. And 50% of the SPACs have been public for over 3 years, so they're struggling to find a target.

So we continue to be selective due to these reasons. We're aware of the activity levels and remain really diligent on reviewing the opportunities. We are participating in quality SPAC and de-SPAC deals with Tier 1 deal teams. And the issuers that use a competitor for a SPAC merger and have completed it, we're attacking those clients and winning their future '34 Act reporting on ActiveDisclosure, so contracted revenue. So some of these companies, when they get through, we're able to upgrade them from the lower-end providers.

Okay. That's helpful. And then just in terms of Venue in October, I'm not sure if you can give us too much insight there. But just thinking about, we have seen an uptick in larger M&A deals in the bank sector and some other sectors. I guess, are you seeing the benefit of that? And to the extent that there is a slowdown in government reviews that slowed down M&A -- the process of M&A towards closing. Would you expect to see that October, November? Kind of what do you think is the timing there? And then in prior shutdowns, I guess, how fast does the catch-up occur?

Go ahead, Dave.

Craig, I'll start and then you can jump in. I think certainly, the momentum that we saw in Venue in Q3, it's embedded in our guidance in Q4 as well. I think the underlying activity still remains and regardless of the shutdown and deals getting completed. It's one of the great things, and we've talked about this in the past that if you look -- describe the market as the number of completed deals, you may get a very different answer than the activity that's going on underneath the waterline, so to speak. And we feel really good about how we're positioned with Venue, especially with the new product in the market and the acceptance that we're getting thus far.

Go ahead, Craig.

To build on that, Dave, thank you. We're playing in the formal process of deals coming to market. So before they're announced, certainly before they close. So as Dave said, excited by that opportunity. We have pitches that are up, opportunity creation that is up, so all moving in the right direction as we see what you see. Given that we have this broad application serving both announced and unannounced, we have a lot of activity there but certainly, the government shutdown is worsening an already complex regulatory landscape. So I think you're probably referencing the antitrust. You have health care technology energy deals that are delayed. They already were delayed given the HSR Act updates, which has added time and complexity to the process.

The government shutdown exacerbated this. So again, likely to see these deals that had anticipated to close, close later potentially in 2026. So what we expect to see is a government that opens. It will take a while to get moving again. One of the things that's been eliminated during the shutdown is the Trump administration have been able to terminate the waiting period. But with the shutdown, they don't have the staff to do it. So we would anticipate a build. It likely will be in 2026.

Your next question comes from the line of Kyle Peterson of Needham.

I wanted to start off, the tax rate this quarter. It looks like you guys had a pretty big kind of onetime benefit. Is that related to the pension plan settlement and everything like that? Or were there any like discrete items or anything that skewed the tax rate around this quarter that we should be mindful of?

Yes, Kyle, I think we talked about the pretax pension charge of just over $80 million, the post-tax at $60 million. So certainly, the pension tax component of that weighed on the GAAP tax rate. I think in the non-GAAP tax rate, a little bit different story there where we exclude it but some small dollars of adjustments there related to different tax legislation, et cetera, can impact that rate.

Okay. Okay. That's helpful. So even though it's -- you guys settled the pension formally in the fourth quarter, it was a tax noise item in the third quarter.

So we -- Kyle, just to be clear, that was -- we settled in the third quarter.

Okay. You announced it in the fourth quarter, at least but yes. Okay. all right. That is super helpful. And then I wanted to kind of follow up on Venue, and I realize it's probably a little hard to answer. But is there any way you guys could maybe tease some or parse out some of the momentum that you guys are seeing in Venue? Like what's -- if there's any way you guys could separate the benefits from the redesigned product versus activity potentially picking up, like which one you feel or whether it's qualitative feedback or anything like that, like what do you guys feel has been the bigger driver of the better performance and everything there? And how should we think? Or in past product refreshes, like how long has it taken to get more traction and such, that would be helpful.

Yes. I'll start and then, Craig, if you want to jump in. I think when you look at Venue, obviously, we showed the growth this quarter. But if you take a longer-term view of Venue, we grew in the mid-20% range last year. we were overlapping a quarter in Q3 that was right along those growth rates. So I would say sales execution has been the key component to driving the growth that we've seen. That team has done a really nice job in terms of, as Craig talked about, generating new opportunities and converting those opportunities.

With respect to the new product, I would say it had a very, very modest impact in Q3. We would expect more of an impact in Q4 and then certainly, the bulk of the impact of the new product to start to hit in 2026. So I think the impact of the new product, the better days due to that product are on the horizon here for us.

Craig?

Yes. I will build on the Horizon part, which is our results to date are based on execution. The earlier results in the year were a function of Liberation Day, which sort of froze the market. Now we see that have absorbed and the M&A opportunities are certainly increased. When we launched the new version of Venue, it launched in the first weeks of October. These launch events continue today. So the perspective look is that what you're seeing is primarily a result of execution prelaunch. Certainly, we have a product that we think is the most purpose-built based on decades of experience.

Again, clients are loving it. We expect this new product launch is going to strengthen us as the data provider -- data room provider of choice. It will be in future quarters. Our Venue team is going to continue to deliver excellence given the nature of Venue, we're going to focus on what's got us here, sales execution, taking share, price and then now we're supported by a great new product.

Okay. That's super helpful. And then if I could squeeze one last one in here. Are you guys thinking about capital allocation at this point, you guys have taken a lot of the uncertainty or volatility out of the pension liability at this point. Cash flow continues to improve, at least the market doesn't seem to be giving guys credit for at least like a strong pipeline and whenever the shutdown gets resolved, we'll have a resurgence in activity. But I guess, like how are you guys kind of thinking and kind of rank to order like uses of excess cash flow between buybacks and other uses? Any color there, I think, would be helpful for everyone on the call.

Yes, sure. Thanks, Kyle. So no change relative to what we've been doing historically. We've said often the #1 priority is having the financial flexibility to execute the transformation and our strategy. To your point, we are -- have quite a bunch or quite a bit of financial flexibility and capacity. And yes, we -- as evidenced in the last quarter, as evidenced back in April, we've been very aggressive in buybacks at the appropriate times. And we think about priorities, it's the strategy, it's maintaining that financial flexibility, being opportunistic around share repurchases and disciplined and then we're looking at ways of accelerating organic or inorganic investment in the business, but only to accelerate the strategy.

[Operator Instructions] And there are no questions at this time. I will now turn the conference back over to Dan Leib for closing remarks.

Great. Thank you, and thank you, everyone, for joining, and we look forward to speaking with you soon. Thanks.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Lacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Second Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mike Zhao, Head of Investor Relations. You may begin.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions Second Quarter 2025 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results, copies of which can be found in the Investors section of our website at dfinsolutions.com.

During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further detailed in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other filings with the SEC.

Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Dan Leib, Dave Gardella and other members of management.

I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. We delivered solid second quarter results, highlighted by record quarterly software solutions net sales, strong adjusted EBITDA margin and increases in both operating cash flow and free cash flow, all in the context of a challenging yet improving environment. We posted approximately 8% sales growth in our software solutions, including approximately 15% sales growth in our recurring compliance software offerings, all while continuing to drive operating efficiencies and investing further in our transformation. Our second quarter results once again demonstrated the resilience of our operating model and the sustainability of our performance as our business mix continues to evolve.

As we entered the second quarter, difficult operating conditions persisted for much of April, most acutely in our capital markets transactional offerings due to market uncertainty. As the quarter progressed, we saw improving trends, not only in market activity, but also with respect to our own results. This stabilization supported a strong sequential rebound in transactional activity and related results from April to May as well as from May to June. We are encouraged by the positive trajectory within the second quarter.

A key area that reflects the success of our execution in the second quarter was our strong adjusted EBITDA margin performance. While the second quarter is a continuation of a prolonged multiyear downturn in capital markets transactional activity, our business remains fundamentally and substantially more profitable than it had been historically. Our second quarter adjusted EBITDA margin of 35% was the second highest quarterly EBITDA margin in our history, and trailing 4-quarter EBITDA margin is 29.1% despite the ongoing headwinds of a weak transactional market.

Another area I would like to highlight is continued momentum in our software offerings, where we delivered year-over-year net sales growth of approximately 8% despite a slight decline in our largest software offering, Venue, which faced a tough comparison, having grown 38% in last year's second quarter. Software solutions made up 42.3% of total second quarter net sales, up approximately 700 basis points from last year's second quarter sales mix. As a reminder, the second quarter, largely due to the annual meeting and proxy season, historically represents our largest quarter overall, yet represents a seasonal low for software as a percentage of revenue. On a trailing 4-quarter basis, software solutions comprised 45.1% of total net sales, an increase of approximately 610 basis points from the second quarter 2024 trailing 4-quarter period.

Our second quarter software solutions net sales growth continues to be led by the performance of our recurring compliance and regulatory-driven products, ActiveDisclosure and Arc Suite, which grew approximately 15% year-over-year in aggregate. Importantly, ActiveDisclosure and Arc Suite each posted double-digit sales growth for the third consecutive quarter. For ActiveDisclosure, this growth was driven by the momentum in services revenue as a result of the continued adoption of our service package offerings, combined with the migration of certain traditional compliance activities to software, a trend we expect to continue going forward.

In the case of Arc Suite, the improved growth rate was primarily driven by the Tailored Shareholder Reports regulation. Consistent with our expectation, we have realized software solutions net sales of approximately $11 million related to the TSR regulation since the effective date of July 2024. As we overlap the incremental year-over-year benefit from the Tailored Shareholder Reports regulation in the third quarter, we expect Arc Suite to exhibit a more normalized growth profile beginning in the third quarter. As an end-to-end software solution for investment company, financial and regulatory reporting, Arc Suite is well positioned to capture additional growth as the industry increasingly looks to improve efficiency, automate processes and comply with evolving regulatory requirements.

As it relates to Venue, following a moderate decline in the first quarter, sales accelerated in the second quarter and were nearly flat compared to last year's second quarter. The resilient level of underlying activity taking place on the platform, including activity from a large project, combined with improved go-to-market execution, enabled Venue to mostly offset the impact of several large projects, which benefited last year's second quarter results. We remain encouraged by Venue's strong performance, which reflects strong sales execution across Venue's broad application within the M&A ecosystem that serves both announced and unannounced deals across public and private companies. This results in more resilient, stable demand than our transactional offerings, which primarily serve public company, M&A, IPO and debt transactions.

Our continued revenue mix shift towards software solutions was by a reduction in print and distribution net sales, which declined by approximately $14 million or 26% compared to the second quarter of 2024. This reduction was mostly realized in the printing and distribution of corporate proxy statements and annual reports as well as lower print volumes as a result of the tailored shareholder reports regulation, which significantly reduced page counts for mutual fund reports.

On a trailing 4-quarter basis, print and distribution revenue is $117 million and makes up approximately 16% of our trailing 4-quarter sales. As we continue to execute our strategy to transform DFIN into the leading provider of compliance and regulatory solutions served predominantly via software and services, we remain on target to deliver our latest 5-year plan, which was updated in February of last year.

Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our second quarter results and our outlook for the third quarter. Dave?

Thanks, Dan, and good morning, everyone. As Dan noted, we continue to experience positive momentum in the adoption of our software solutions for which sales increased approximately 8% year-over-year, including approximately 15% net sales growth in our recurring compliance software products. Despite a very weak capital markets transactional environment, our software performance enabled us to deliver another quarter of improved sales mix, strong adjusted EBITDA margin and year-over-year improvements in both operating cash flow and free cash flow.

As Dan commented earlier, following a very soft start to the quarter, driven by heightened market volatility and economic uncertainty, our results improved sequentially throughout the quarter as market conditions gradually stabilized and deal activity began to recover. On a consolidated basis, total net sales for the second quarter of 2025 were $218.1 million, a decrease of $24.6 million or 10.1% from the second quarter of 2024. The decrease in consolidated net sales was driven by lower volume in our Compliance and Communications Management segments, which decreased by $31.2 million in aggregate with compliance revenue across the capital markets and investment companies businesses accounting for approximately $19 million of that decline.

The reduction in compliance revenue was mostly reflected in lower print and distribution volume related to both the ongoing decline in this area, consistent with recent trend as well as the timing impact of certain investment companies print volume that shifted from the second quarter into the first quarter of this year. In addition, total event-driven transactional revenue declined approximately $13 million year-over-year, primarily a result of the depressed level of capital markets transactional activity during the quarter. These declines were partially offset by growth in software solutions net sales, which increased $6.6 million or 7.7% compared to the second quarter of last year.

Second quarter adjusted non-GAAP gross margin was 63.7%, approximately 70 basis points lower than the second quarter of 2024, primarily driven by lower capital markets transactional volume, partially offset by higher software solutions net sales, the impact of cost control initiatives and price uplifts. Adjusted non-GAAP SG&A expense in the quarter was $62.6 million, a $6.4 million decrease from the second quarter of 2024. As a percentage of net sales, adjusted non-GAAP SG&A was 28.7%, an increase of approximately 30 basis points from the second quarter of 2024. The decrease in adjusted non-GAAP SG&A expense was primarily driven by a reduction in selling expense related to lower sales in certain areas, the impact of cost control initiatives and lower bad debt expense, which continued to normalize in the second quarter.

Our second quarter adjusted EBITDA was $76.3 million, a decrease of $10.9 million or 12.5% from the second quarter of 2024. Second quarter adjusted EBITDA margin was 35%, a decrease of approximately 90 basis points from the second quarter of 2024, primarily driven by lower capital markets transactional volume, partially offset by higher software solutions net sales, cost control initiatives and lower selling expense as a result of the decrease in sales volume.

Turning now to our second quarter segment results. Net sales in our Capital Markets Software Solutions segment were $59.1 million, an increase of $1.8 million or 3.1% from the second quarter of last year driven by ActiveDisclosure, which was up $2.2 million year-over-year, partially offset by a slight decline in Venue. During the second quarter, ActiveDisclosure sales grew approximately 11%, a continuation of the stronger growth trend we experienced over the last 2 quarters, primarily driven by the continued adoption of ActiveDisclosure Services packages and the ongoing migration of certain activities historically performed on our traditional services platform to ActiveDisclosure. We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth.

During the second quarter, Venue posted $37.3 million in revenue, aided by a large project that partially offset last year's several large projects and was down approximately 1% year-over-year against the robust performance from last year's second quarter when Venue achieved record quarterly revenue and grew approximately 38%. In addition, Venue delivered strong sequential improvement in revenue, increasing approximately 22% from the first quarter. Adjusted EBITDA margin for the segment was 37.9%, an increase of approximately 90 basis points from the second quarter of 2024, primarily due to the increased sales and cost control initiatives.

Net sales in our Capital Markets Compliance and Communications Management segment were $93.5 million, a decrease of $20.3 million or 17.8% from the second quarter of 2024, driven by lower transactional revenue as well as a reduction in compliance volume, part of which was related to lower print and distribution consistent with recent trend. In the second quarter, we recorded $34.8 million of capital markets transactional revenue, which was at the low end of our expectation and down $10.4 million from last year's second quarter, resulting in the lowest level of quarterly transactional revenue in our history.

Following a modest rebound in the first quarter, global equity deal volume declined sharply in April as a result of escalating market volatility and macroeconomic uncertainty. Following the slow start to the quarter, market conditions gradually improved with modest upticks in activity levels during May and June, resulting in sequential improvement as the quarter progressed. That said, overall transactional activity in the second quarter remained well below historical norms with regular way IPO transactions that raised over $100 million and large public company M&A deals below last year's levels.

Capital Markets compliance revenue decreased by $9.9 million, primarily due to lower proxy statement and annual report volume and the related printing and distribution, consistent with our experience during last year's proxy and annual meeting season. In addition, the weak transactional environment resulted in lower market demand for certain event-driven filings such as 8-K and special proxies associated with corporate transactions.

Finally, as I commented earlier, certain traditional compliance activities shifted to ActiveDisclosure during the second quarter. Adjusted EBITDA margin for the segment was 39.4%, a decrease of approximately 80 basis points from the second quarter of 2024. The decrease in adjusted EBITDA margin was primarily due to lower sales volume, partially offset by lower bad debt expense, lower selling expense and cost control initiatives. Net sales in our Investment Company Software Solutions segment were $33.1 million, an increase of $4.8 million or 17% versus the second quarter of 2024, primarily driven by incremental revenue from our Tailored Shareholder Report solution. On a trailing 4-quarter basis, total Arc Suite reached approximately $126 million in net sales and grew approximately 17% compared to the trailing 4 quarters as of last year's second quarter, driven by growth in subscription revenue, including the impact of the Tailored Shareholder Report solution.

As Dan noted, based on the midyear 2024 effective date, we will overlap the growth from this new regulation in the second half of the year. And as such, we expect a more normalized growth rate beginning in the third quarter. Adjusted EBITDA margin for the segment was 42.9%, an increase of approximately 370 basis points from the second quarter of 2024. The increase in adjusted EBITDA margin was primarily due to operating leverage and the increase in net sales and price uplifts, partially offset by higher service-related costs associated with the Tailored Shareholder Reports offering.

Net sales in our Investment Companies Compliance and Communications Management segment were $32.4 million, a decrease of $10.9 million or 25.2% from the second quarter of 2024, primarily driven by lower print and distribution volume, which accounted for $9.6 million of the year-over-year decline. Second quarter print and distribution revenue within this segment was impacted by the timing shift into this year's first quarter of certain volume related to Tailored Shareholder Reports for the regulated insurance market as well as lower page counts related to Tailored Shareholder Reports for the mutual fund industry.

As a reminder, the Tailored Shareholder Reports regulation eliminated the demand for full-length shareholder reports at the fund level and replaced them with 2- to 4-page summary documents at the share class level, resulting in a net reduction in print. With the second quarter being a peak period for mutual fund compliance, the year-over-year reduction on the overall page count was significant in the second quarter as a result of the TSR regulation. We expect this dynamic will become less meaningful in the second half of the year as we overlap last year's second half impact of this regulation. Going forward, we expect a broader secular decline in the demand for printed products will continue to result in lower print and distribution revenue within this segment.

Adjusted EBITDA margin for the segment was 38.9%, approximately 340 basis points lower than the second quarter of 2024. The decrease in adjusted EBITDA margin was primarily due to the impact of lower sales volume, partially offset by cost control initiatives. Non-GAAP unallocated corporate expenses were $9.7 million in the quarter, an increase of $0.5 million from the second quarter of 2024, primarily due to higher investments aimed at accelerating our transformation and higher health care expense, partially offset by cost control initiatives.

Free cash flow in the quarter was $51.7 million, $14.9 million higher than the second quarter of 2024. The year-over-year increase in free cash flow was primarily driven by favorable working capital and lower capital expenditures, partially offset by lower adjusted EBITDA. On a year-to-date basis, the strong free cash flow generation during the second quarter enabled us to achieve positive free cash flow through the first half of the year. For reference, our cash flow is seasonal with the majority of it generated in the second half of the year.

We ended the quarter with $190.1 million of total debt and $156.3 million of non-GAAP net debt, including $77 million drawn on our revolver. As of June 30, 2025, our non-GAAP net leverage ratio was 0.7x.

Regarding capital deployment, we repurchased approximately 787,000 shares of our common stock during the second quarter for $34.3 million at an average price of $43.56 per share. Year-to-date through June 30, we've repurchased approximately 1.6 million shares for $76.1 million at an average price of $46.18 per share. During the second quarter, the Board of Directors authorized a new share repurchase program of up to $150 million with an expiration date of December 31, 2026. This repurchase authorization, which commenced on May 16, 2025, replaced the prior authorization, which was nearly fully utilized. As of June 30, 2025, we had the full $150 million remaining on the new authorization.

We continue to view organic investments to drive our transformation, share repurchases and net debt reduction as key components of our capital deployment strategy and will remain disciplined in this area. As it relates to our outlook for the third quarter of 2025, we expect consolidated third quarter net sales in the range of $165 million to $175 million and adjusted EBITDA margin in the range of 23% to 25%, which at the midpoint is similar to last year's third quarter, where we posted adjusted EBITDA margin of approximately 24%. Compared to the third quarter of last year, the midpoint of our consolidated revenue guidance of $170 million implies a reduction of $9.5 million or 5.3% as lower print and distribution sales and lower capital markets transactional sales are expected to more than offset growth in software solutions.

We expect Venue to be approximately flat to last year's third quarter, similar to the year-over-year change we reported in the second quarter. Further, our estimates assume capital markets transactional net sales in the range of $35 million to $40 million, which at the midpoint is down approximately $8 million from last year's third quarter.

And with that, I'll pass it back to Dan.

Thanks, Dave. Our performance in the second quarter offers a further proof point that DFIN continues to become more durable and structurally resilient as we execute our strategy. The stability of our revenue base, driven by a high proportion of recurring and reoccurring compliance-related offerings provides a solid foundation even in turbulent times. Although capital markets transactions remain well below historical levels, we are encouraged by the recent uptick in activity levels.

With a strong balance sheet, robust free cash flow and disciplined capital allocation, we are confident in our ability to execute our strategy and deliver long-term value to all stakeholders. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world. Now with that, operator, we're ready for questions.

[Operator Instructions] Your first question comes from the line of Charlie Strauzer with CJS Securities, Inc.

So if we look at the Q3 guidance and the granularity of the transactional guidance within that, maybe you can shed a little bit more light on the assumptions behind that and kind of like what the deal environment is looking like currently for both IPOs and M&A, especially M&A given the change in administration?

Yes. Thanks, Charlie. It's Dave. I'll start and Craig may want to add a little bit of color here. I think when you look at our guidance for transactional sales for Q3, right, the range of $35 million to $40 million, that's sequential growth over Q2 and up to about 15% at the high end of that range. As you know, and we've talked about before, this is the area where we have the least visibility in terms of timing of getting the deals done.

So while we feel good about the underlying trend in market activity, I'd say, as it relates to the guidance, trying not to get too far over our skis here. I think probably the most positive is regardless where transactional revenue comes in, we're very happy with the margins and cash flow that we're delivering. Obviously, you could see that in the Q2 results, the year-to-date results as well as our guidance for Q3. With respect to the market activity, M&A, IPO, Craig, I'll let you comment there.

Yes. Charlie, thank you for the question. I'll provide some context on Q2 and then talk about what we're seeing in July in relation to the guidance. Transactional offerings are always subject to uncertainty and the market backdrop varied materially over the course of the quarter, as you heard us discuss. The tariff announcement had a significant short-term impact, followed by the sequential improvement. This bears out in the flow of IPOs in the quarter. Of the 14 total IPOs greater than $100 million, there was 1 in April. There were 5 in May, there were 8 in June. This was the same number, 14 of IPOs in Q1. So there was no growth quarter-to-quarter.

DFIN was happy to support Circle, which was the largest IPO over $1 billion, a huge pop, the largest increase ever for $1 billion IPO, and it was the largest certainly of the first half year. We supported many others. For the first half of 2025, there were 30 IPOs compared to 35 in the first half of the prior -- 2024, so a decrease of 14%. DFIN supported 4 of the 5 largest in the first half. But then to your point, you see the resurgence. So the IPO index, Renaissance's IPO index was up 16%. So there is a renewed investor appetite.

So I'll talk about July for IPOs. Assuming Figma and Shoulder price today, there'll be 27 IPOs pricing in the quarter compared to 14 in July of '24. But if you exclude small international deals, there's 10. So this compares to 7. And if you cut that to $100 million IPOs and above, both this year and last July had 7. So July will have fewer IPOs than the prior month of June. And one theme we're seeing is that the IPO market rebounding is at lower valuations. So companies are accepting down rounds. Hinge Health is an example of that. And the final note on Shoulder, again, pricing today below their range at $15.

Another metric we watch is the number of companies that are publicly filed. So that stands at 19. So these are on file and communicating publicly with the SEC. This is not a robust number by historical standards. And then as well, DFIN has a robust pipeline of companies who file confidentially, but not publicly as well as a pipeline of RFPs. So the market is continuing to build. If I think about M&A, certainly, it was building kind of same thing without -- throughout Q2. So you had fewer deals, but larger deals on a year-over-year basis. There's a lot of optimism in M&A as well, whether that's spend, whether it's consolidation with companies who are looking to cut costs such as Union Pacific, Northrop, whether it's AI, we're certainly seeing that from an opportunity perspective.

So I think if you wrap it all together, it's building momentum, but risks remain. We have rate pressures. We have trade policy shifts, headline risks. We've seen the tweet can change things very quickly. And then as well, Q3 is a headwind because of the calendar. The summer months of August and Labor Day have not historically been favorable to deals. So we're planning on a modest increase. We are going to continue to see the stabilization that we think we saw in May and June. And our guidance balances the enthusiasm for the second half with the realities of building a pipeline and revenue recognition. As Dave said, we've demonstrated we're ready for any market, we're going to deliver no matter what the market means for us.

Great. That's very helpful. And just looking at the nontransactional segments, as we think about guidance in general, what assumptions should we be using when we model out the quarter?

Yes, Charlie, I think we didn't give too much detail here. But I think when you look at some of the software products, right, which is where we've seen the growth in the first 2 quarters, right? ActiveDisclosure has posted 11% year-to-date growth. And so that's been a really strong area for us, and we expect that to continue to grow going forward. As we mentioned in the prepared remarks, the growth in Arc Suite has been outsized in the first part of the year, in part because of the timing of the launch of the Tailored Shareholder Reports regulation, right? So that started in Q3 of last year. We'll be overlapping some of the growth we achieved last year in Arc Suite. So that will be tempered a bit.

And then Venue has got pretty tough comps throughout the year, right? We saw some outsized growth. As we mentioned, even Q2 was down a bit, but that's coming off a quarter that grew at 38% last year. And so I think when you look at kind of the Venue being flattish in Q2 -- sorry, in Q3 relative to last year is probably a reasonable assumption there.

And then on the traditional compliance, right, so the compliance and communications management nontransactional piece, that will continue to be challenged from a print count perspective. As you know, we've seen that trend for a while and would expect that trend to continue. But there, again, even as it relates to Tailored Shareholder Reports, where we saw a drop in overall print demand related to that regulation, that impact started in the back half of last year offsetting the growth on the software side.

Great. And looking at your long-term goals that you've had out there, can you just remind us some of the assumptions behind that -- those goals?

Yes. So it's really, I think, at the highest level, it's continuing to execute the change in mix, right, growing the recurring and reoccurring software offerings, continuing to expand margin in large part due to the operating leverage on that growth. And then from a capital markets transactional perspective, at the time, we made the assumption that there would be not much of a change in the overall level of capital markets transactional revenue. Obviously, that's come down quite a bit actually since last February. And so that's an area that it's cyclical. It's -- we do a good job in terms of maintaining or growing our market share, but can't really impact the overall demand there.

And then I would say the last thing in terms of the revenue mix, we do assume and we talked a little bit about it today, some of the sales that are currently in the Compliance and Communications Management segments transitioning to software. And we've seen that happen over the last several quarters, whether it be some of the structured forms, proxy work, et cetera, continuing to migrate toward, we would say, in the near term, a hybrid model that would be leveraging the software and then also the tech-enabled services behind that. But eventually migrating to software, continuing to expand margins and then probably from a cash flow perspective, converting EBITDA to free cash flow at about 45% or greater.

Got it. And just speaking of cash flow, when you look at the strong performance of cash flow in the quarter, and then look at the full year, are you expecting full year free cash flow to be up year-over-year?

So we're obviously ahead of where we were on a year-to-date basis. I think when you look at -- we've talked about over the last several years really as the top line is proportionately more software solution sales, more long-term contracts, more pay in advance that our cash flow would become less seasonal than it has been historically. And so I think what we're starting to see is the cash flow being less seasonal, which is giving us a bit of a head start. At the highest level, if I had to say what would cash flow look like on a full year basis, I'd say pretty similar to last year.

Got it. And then just lastly, just going back to the deal environment, are you maintaining a good share of the deals that are out there? And if you lose a deal to another competitor, what are the reasons behind that? Maybe you're working with them, the companies or the issuers to -- they use a different vendor for the print and distribution and formation of the documents. And then on the back end, you pick up the software side. Are you seeing any kind of situations like that?

Yes, I'll start and then, Craig, if you want to jump in. I think I would describe it as we're happy with our overall share performance. I think -- and Craig can get into some of the nuances here, as Craig commented on even with the overall improving market backdrop in terms of the number of deals. I think when you start to look at some of the characteristics of the deals that have been in the market, smaller foreign deals or even smaller domestic deals, SPACs, et cetera, our market share in some of the lower-end deals isn't typically as high as it is for the larger high-profile deals. And so I think when you look at overall share, it's about what we would expect, but we're really happy with how we're performing in our sweet spot. Craig?

To build on that, trans share is going to fluctuate quarter-to-quarter. Our strength is in the $1 billion, $2 billion M&A deals, large IPOs raising over $100 million, even de-SPACs that have upgraded to have a substantive acquisition and the upgrade includes an upgraded deal team. So where we really win is when these deal teams that are familiar with DFIN, our service, our technology, whether that's traditional or software come into play on these deals, we're really doing well. So you saw that play out in the first half of the year.

If you look at priced IPOs as a barometer 171, 63 were SPACs. So of the 108 total priced, excluding SPACs, there were only 30 that were over $100 million. So there was still a lot of fundraise like deals in there. Our share of those over 100 was our historic average, which is around 60%. So as you unpack what's happened in the first half of the year and even in Q2, it is comprised of a lot of nanoompany, international, smaller places that we don't play.

Question comes from the line of Kyle Peterson with Needham.

Yes, I just wanted to, I guess, follow up a little bit on the outlook with the capital markets guide, I guess, it was a little softer than we were expecting given that there does seem to be an improving pipeline. I know you mentioned that the confidential filings seem like they're -- they do seem to be picking up. Is some of that activity converting and closing? Is some of that in the outlook for 3Q? Or are you guys taking a more conservative outlook in the guide for cap markets?

Yes, Kyle, as I said earlier, I think when you look at that $35 million to $40 million range, at $40 million, that's up roughly 15% relative to the Q2 number. I guess I would describe it this way without getting into the details of any particular deal would be to say that if the trend that we saw in Q2 in terms of the intra-quarter improvement from month-to-month, if that trend continues, I would say we would be at the high end of the guidance, potentially above if that trend continues. So we're just taking a look at the improvement, again, given the lack of visibility in terms of the exact timing, as I said to Charlie, just trying not to get too far over our skis there.

Okay. That is helpful. And then I guess as a follow-up on capital allocation it sounds like based on the authorization. It sounds like it's still full after it's authorized like halfway through the quarter. So it seems like you guys kind of front-loaded buybacks this quarter. Do you still think that, that will be an important part of the toolkit moving forward? Or are you guys being sensitive around valuation and where the stock is at? Like how should we think about the buyback, especially given that we have bounced off the post- liberation day lows?

Yes. So I think as we said in the prepared remarks that we view share repurchases as a key component of capital allocation. To your point, and also consistent with what we've done historically and said that our path would be forward, right, is that at the higher prices, we're less aggressive, at the lower prices, we're more aggressive, and that will continue to be the path forward.

Yes. And I think it's -- one thing to add there, as we've said before, the highest and best use of capital is for us to execute and/or where possible, accelerate the transformation. That said, the business generates quite a bit of cash. And so to Dave's point, we consider the organic investment into growth and the transformation as the highest use. And then we look at the buybacks given stock price with employing a grid. So even I think the Q2 is a great example where we were extremely aggressive early on at much lower prices.

And then the third is debt pay down. And in that context, making sure that we're not getting out and levering up too much on the buyback side as we see performance over time. And so the program over time, and we go back to when we initiated this several years ago, we bought obviously much more aggressively at significantly lower prices than where we are today, and that's how we think about it going forward.

Okay. That's helpful. And then last one for me, I guess, just do you have any update on the pension? I think you guys were planning on doing kind of an annuitization and kind of converting that over just to clean up the balance sheet a little bit. Any update on either the expected timing or cash impact or anything that we should be mindful of as that process continues?

Yes. So the update on timing, that process is underway. Things are coming out, I'd say, generally in line with kind of the assumptions we made going into it. We still haven't gone out to annuitize the plan and work with the insurers to take that over. That will happen during the third quarter. And so on the Q3 call, potentially before then, we'll have additional news to share in terms of the cash outlay and what that looks like.

We have no more questions. This concludes our Q&A session. I would now like to turn the conference over to Dan Leib for closing remarks.

Great. Thank you, Lacy, and thank you, everyone, for joining. We look forward to talking to you in a few months and seeing you in the interim.

That concludes today's call. You may disconnect.