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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-37728

 

Donnelley Financial Solutions, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

36-4829638

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

35 West Wacker Drive,

Chicago, Illinois

 

60601

(Address of principal executive offices)

 

(Zip code)

(800) 823-5304

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock (Par Value $0.01)

 

DFIN

 

NYSE

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-Accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

As of October 28, 2022, 29,103,898 shares of common stock were outstanding.

 

 

 


 

 

DONNELLEY FINANCIAL SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

 

TABLE OF CONTENTS

 

 

 

 

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

3

Part I

FINANCIAL INFORMATION

 

 

Item 1:

Condensed Consolidated Financial Statements (unaudited)

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021

 

4

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021

 

5

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

 

6

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

 

7

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021

 

8

 

Notes to Condensed Consolidated Financial Statements

 

10

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3:

Quantitative and Qualitative Disclosure About Market Risk

 

41

Item 4:

Controls and Procedures

 

42

 

Part II

OTHER INFORMATION

 

 

Item 1:

Legal Proceedings

 

42

Item 1A:

Risk Factors

 

42

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

 

42

Item 3:

Defaults Upon Senior Securities

 

42

Item 4:

Mine Safety Disclosures

 

42

Item 5:

Other Information

 

42

Item 6:

Exhibits

 

43

Signatures

 

47

 

 

2


 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Donnelley Financial Solutions, Inc. and subsidiaries (“DFIN” or the “Company”) has made forward-looking statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company. These statements may include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and variations of such words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are not guarantees of future performance. These forward-looking statements are subject to a number of important factors, including those factors discussed in detail in “Item 1A: Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022 (the “Annual Report”), in addition to those discussed elsewhere in this Quarterly Report, that could cause the Company’s actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:

the adverse impacts of the pandemic resulting from a novel strain of coronavirus, known as COVID-19 (“COVID-19”), and other global public health epidemics on the Company’s business and operations, including demand for DFIN services and products, and the Company’s ability to effectively manage the impacts of the coronavirus pandemic on its business operations;
the volatility of the global economy and financial markets, and its impact on transactional volume;
failure to offer high quality customer support and services;
the retention of existing, and continued attraction of additional clients;
the growth of new technologies with which the Company may be able to adequately compete;
the Company’s inability to maintain client referrals;
the competitive market for the Company’s products and industry fragmentation affecting prices;
the ability to gain client acceptance of the Company’s new products and technologies;
delay in market acceptance of the Company’s services and products due to undetected errors or failures found in its services and products;
failure to maintain the confidentiality, integrity and availability of systems, software and solutions;
failure to properly use and protect client and employee information and data;
the effect of a material breach of security or other performance issues of any of the Company’s or its vendors’ systems;
factors that affect client demand, including changes in economic conditions, national or international regulations and clients’ budgetary constraints;
the Company’s ability to access debt and the capital markets due to adverse credit market conditions;
the effect of increasing costs of providing healthcare and other benefits to employees;
changes in the availability or costs of key materials (such as ink and paper);
failure to protect the Company’s proprietary technology;
ability to maintain the Company’s brands and reputation;
the retention of existing, and continued attraction of, key employees, including management;
funding obligations arising from multiemployer pension plans obligations of the Company’s former affiliates;
the effects of operating in international markets, including fluctuations in currency exchange rates; and
the effect of economic and political conditions on a regional, national or international basis.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of the Quarterly Report should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. Except to the extent required by law, the Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this Quarterly Report to reflect any new events or any change in conditions or circumstances other than to the extent required by law.

3


 

 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Operations

(in millions, except per share data)

(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

Tech-enabled services

 

$

87.4

 

 

$

142.1

 

 

$

312.4

 

 

$

394.6

 

Software solutions

 

 

69.5

 

 

 

69.3

 

 

 

210.9

 

 

 

196.2

 

Print and distribution

 

 

31.8

 

 

 

36.3

 

 

 

142.6

 

 

 

169.7

 

Total net sales

 

 

188.7

 

 

 

247.7

 

 

 

665.9

 

 

 

760.5

 

Cost of sales (a)

 

 

 

 

 

 

 

 

 

 

 

 

Tech-enabled services

 

 

35.3

 

 

 

39.6

 

 

 

113.2

 

 

 

123.3

 

Software solutions

 

 

29.0

 

 

 

26.9

 

 

 

85.1

 

 

 

76.5

 

Print and distribution

 

 

19.6

 

 

 

26.6

 

 

 

96.2

 

 

 

121.1

 

Total cost of sales

 

 

83.9

 

 

 

93.1

 

 

 

294.5

 

 

 

320.9

 

Selling, general and administrative expenses (a)

 

 

63.8

 

 

 

77.0

 

 

 

205.5

 

 

 

225.6

 

Depreciation and amortization

 

 

11.7

 

 

 

10.0

 

 

 

33.6

 

 

 

29.9

 

Restructuring, impairment and other charges, net

 

 

2.6

 

 

 

3.3

 

 

 

4.6

 

 

 

6.9

 

Other operating income, net

 

 

 

 

 

(0.7

)

 

 

(0.2

)

 

 

(0.7

)

Income from operations

 

 

26.7

 

 

 

65.0

 

 

 

127.9

 

 

 

177.9

 

Interest expense, net

 

 

2.3

 

 

 

5.9

 

 

 

5.9

 

 

 

17.1

 

Investment and other income, net

 

 

(2.8

)

 

 

(1.7

)

 

 

(3.3

)

 

 

(4.0

)

Earnings before income taxes

 

 

27.2

 

 

 

60.8

 

 

 

125.3

 

 

 

164.8

 

Income tax expense

 

 

8.0

 

 

 

18.6

 

 

 

33.7

 

 

 

44.5

 

Net earnings

 

$

19.2

 

 

$

42.2

 

 

$

91.6

 

 

$

120.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.64

 

 

$

1.25

 

 

$

2.93

 

 

$

3.57

 

Diluted

 

$

0.62

 

 

$

1.22

 

 

$

2.81

 

 

$

3.48

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29.8

 

 

 

33.7

 

 

 

31.3

 

 

 

33.7

 

Diluted

 

 

30.9

 

 

 

34.7

 

 

 

32.6

 

 

 

34.6

 

 

(a)
Exclusive of depreciation and amortization

See Notes to the Unaudited Condensed Consolidated Financial Statements

4


 

 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net earnings

 

$

19.2

 

 

$

42.2

 

 

$

91.6

 

 

$

120.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

(1.7

)

 

 

(0.7

)

 

 

(2.1

)

 

 

(0.2

)

Adjustment for net periodic pension and other postretirement benefits plans

 

 

0.5

 

 

 

0.6

 

 

 

1.8

 

 

 

2.0

 

Other comprehensive (loss) income, net of tax

 

 

(1.2

)

 

 

(0.1

)

 

 

(0.3

)

 

 

1.8

 

Comprehensive income

 

$

18.0

 

 

$

42.1

 

 

$

91.3

 

 

$

122.1

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

5


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Balance Sheets

(in millions, except per share data)

(UNAUDITED)

 

 

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

10.8

 

 

$

54.5

 

Receivables, less allowances for expected losses of $17.5 in 2022 (2021 - $12.7)

 

 

210.8

 

 

 

199.1

 

Prepaid expenses and other current assets

 

 

27.5

 

 

 

23.5

 

Assets held for sale

 

 

2.6

 

 

 

2.6

 

Total current assets

 

 

251.7

 

 

 

279.7

 

Property, plant and equipment, net

 

 

17.7

 

 

 

18.7

 

Operating lease right-of-use assets

 

 

36.4

 

 

 

42.6

 

Software, net

 

 

72.4

 

 

 

63.7

 

Goodwill

 

 

409.0

 

 

 

410.0

 

Other intangible assets, net

 

 

8.0

 

 

 

8.7

 

Deferred income taxes, net

 

 

30.5

 

 

 

31.7

 

Other noncurrent assets

 

 

25.1

 

 

 

28.2

 

Total assets

 

$

850.8

 

 

$

883.3

 

LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

42.1

 

 

$

36.3

 

Operating lease liabilities

 

 

16.6

 

 

 

17.9

 

Accrued liabilities

 

 

163.2

 

 

 

207.2

 

Total current liabilities

 

 

221.9

 

 

 

261.4

 

Long-term debt

 

 

191.7

 

 

 

124.0

 

Deferred compensation liabilities

 

 

18.5

 

 

 

19.8

 

Pension and other postretirement benefits plans liabilities

 

 

36.2

 

 

 

40.6

 

Noncurrent operating lease liabilities

 

 

31.5

 

 

 

39.4

 

Other noncurrent liabilities

 

 

19.5

 

 

 

21.1

 

Total liabilities

 

 

519.3

 

 

 

506.3

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

Authorized: 1.0 shares; Issued: None

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

Authorized: 65.0 shares;

 

 

 

 

 

 

Issued and outstanding: 36.9 shares and 29.3 shares in 2022 (2021 - 35.9 shares and 33.0 shares)

 

 

0.4

 

 

 

0.4

 

Treasury stock, at cost: 7.6 shares in 2022 (2021 - 2.9 shares)

 

 

(208.0

)

 

 

(57.1

)

Additional paid-in capital

 

 

274.7

 

 

 

260.6

 

Retained earnings

 

 

343.0

 

 

 

251.4

 

Accumulated other comprehensive loss

 

 

(78.6

)

 

 

(78.3

)

Total equity

 

 

331.5

 

 

 

377.0

 

Total liabilities and equity

 

$

850.8

 

 

$

883.3

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

6


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Cash Flows

(in millions)

(UNAUDITED)

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net earnings

 

$

91.6

 

 

$

120.3

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

33.6

 

 

 

29.9

 

Provision for expected losses on accounts receivable

 

 

6.2

 

 

 

2.2

 

Impairment charge

 

 

 

 

 

2.8

 

Share-based compensation

 

 

13.9

 

 

 

14.2

 

Deferred income taxes

 

 

0.4

 

 

 

6.6

 

Net pension plan income

 

 

(0.7

)

 

 

(3.2

)

Amortization of right-of-use assets

 

 

12.1

 

 

 

12.9

 

Other

 

 

0.5

 

 

 

0.3

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(20.5

)

 

 

(73.5

)

Prepaid expenses and other current assets

 

 

(3.3

)

 

 

(11.6

)

Accounts payable

 

 

4.9

 

 

 

(7.5

)

Income taxes payable and receivable

 

 

(1.7

)

 

 

5.3

 

Accrued liabilities and other

 

 

(44.2

)

 

 

21.2

 

Operating lease liabilities

 

 

(14.7

)

 

 

(15.7

)

Pension and other postretirement benefits plans contributions

 

 

(1.2

)

 

 

(1.0

)

Net cash provided by operating activities

 

 

76.9

 

 

 

103.2

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures

 

 

(39.4

)

 

 

(28.2

)

Other investing activities

 

 

 

 

 

0.9

 

Net cash used in investing activities

 

 

(39.4

)

 

 

(27.3

)

FINANCING ACTIVITIES

 

 

 

 

 

 

Revolving facility borrowings

 

 

270.0

 

 

 

278.0

 

Payments on revolving facility borrowings

 

 

(202.5

)

 

 

(278.0

)

Debt issuance costs

 

 

 

 

 

(2.8

)

Treasury share repurchases

 

 

(150.0

)

 

 

(26.5

)

Proceeds from exercise of stock options

 

 

0.3

 

 

 

2.2

 

Finance lease payments

 

 

(1.4

)

 

 

(0.4

)

Net cash used in financing activities

 

 

(83.6

)

 

 

(27.5

)

Effect of exchange rate on cash and cash equivalents

 

 

2.4

 

 

 

0.9

 

Net (decrease) increase in cash and cash equivalents

 

 

(43.7

)

 

 

49.3

 

Cash and cash equivalents at beginning of year

 

 

54.5

 

 

 

73.6

 

Cash and cash equivalents at end of period

 

$

10.8

 

 

$

122.9

 

Supplemental cash flow information

 

 

 

 

 

 

Income taxes paid (net of refunds)

 

$

34.4

 

 

$

32.0

 

Interest paid

 

$

4.9

 

 

$

11.0

 

See Notes to the Unaudited Condensed Consolidated Financial Statements

7


 

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended September 30, 2022 and 2021

(in millions)

(UNAUDITED)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2022

 

 

36.9

 

 

$

0.4

 

 

 

6.6

 

 

$

(175.6

)

 

$

270.2

 

 

$

323.8

 

 

$

(77.4

)

 

$

341.4

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19.2

 

 

 

 

 

 

19.2

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.2

)

 

 

(1.2

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.4

 

 

 

 

 

 

 

 

 

4.4

 

Common stock repurchases