Donnelley Financial Solutions Q3 2025: Contradictions Emerge in Pension Settlement, Government Shutdown Impact, and ActiveDisclosure Growth

Date of Call: October 29, 2025

Financials Results

• Revenue: $175.3M, down $4.2M or 2.3% YOY
• Gross Margin: Adjusted non-GAAP gross margin 62.7%, approximately 100 basis points higher than Q3 2024

Guidance:

• Consolidated Q4 net sales expected to be $150M–$160M (midpoint ~$155M, ~1% decline YoY).
• Adjusted EBITDA margin expected 22%–24% (midpoint ~23%, ~300 bps improvement vs prior-year Q4); guidance reflects ~$2.8M stop-loss reimbursement.
• Capital markets transactional net sales estimated $30M–$40M (midpoint down ~ $2.7M YoY; sequential decline of ~ $7M vs Q3, attributed to the government shutdown).
• Assumes pre-shutdown approved transactions proceed; new deal activity is mostly delayed; Venue growth expected to continue.

Business Commentary:

* Software Solutions Growth: - Donnelley Financial Solutions (DFIN) reported 10.3% year-over-year growth in Software Solutions net sales in Q3 2025, with Software Solutions representing approximately 52% of total sales. - The growth was driven by the continued shift towards a favorable sales mix, with recurring Compliance software products like ActiveDisclosure and Arc Suite contributing significantly.

• Adjusted EBITDA and Margin Expansion:
• The company's adjusted EBITDA increased by 14.6% year-over-year to $49.5 million in Q3 2025, with an adjusted EBITDA margin expansion to 28.2%.

• The margin expansion was due to higher Software Solutions sales, cost control initiatives, and lower selling expenses despite lower capital markets transactional volume.

• Capital Markets Transactional Revenue Decline:

• DFIN experienced an 8% reduction in event-driven transactional revenue, primarily due to lower volume for foreign issuer transactions on U.S. exchanges.

• The decline was partly offset by stronger U.S. IPO volume, but the overall transactional revenue decrease was driven by a soft market for foreign issuance transactions and large public company M&A deals.

• U.S. Government Shutdown Impact:

• The U.S. government shutdown resulted in a delay in positive momentum for capital markets deal activity, impacting IPO activity and other transactions.
• The shut down has delayed the timing of transactions but is not expected to alter the underlying demand for DFIN's services, with anticipated normalization when regulatory operations resume.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a "continued shift toward a favorable sales mix driven by double-digit growth in our SaaS offerings," reported "strong year-over-year growth in adjusted EBITDA and adjusted EBITDA margin expansion," and delivered adjusted EBITDA margin of 28.2% while software sales grew ~10.3% YOY, indicating confidence in transformation despite shutdown headwinds.

Q&A:

• Question from Charles Strauzer (CJS Securities, Inc.): Maybe we can just pick up on the government shutdown discussion... any metrics you can give us around the impact to margins in Q4?
  Response: Guidance already factors shutdown impact; Q4 midpoint margin ~23% (~300 bps YoY improvement), with roughly half the improvement from the $2.8M stop-loss recovery and the rest from ongoing margin expansion; capital-markets transactional volume is the main swing factor.

• Question from Charles Strauzer (CJS Securities, Inc.): Shifting gears to the talk about SEC reporting frequency from quarterly to potentially semiannual. How are you thinking about that?
  Response: We're monitoring the proposal and its many unknowns, but ActiveDisclosure is a subscription-priced product (not per filing), which provides insulation from changes in reporting frequency.

• Question from Peter Heckmann (D.A. Davidson & Co.): On the resurgence of SPAC IPOs, how much of DFIN not being retained is by choice vs. competitive pressure on lower-end IPOs?
  Response: We're selective on SPACs, targeting quality deals; our share fell because many recent SPACs are nano/microcap, low-priced, international, or lower-quality—areas often served by other providers; we win follow-on reporting work on ActiveDisclosure after quality deals close.

• Question from Peter Heckmann (D.A. Davidson & Co.): On Venue and October activity—are you seeing benefits from larger M&A deals and what's the timing for slowdowns/catch-up given government reviews?
  Response: Venue momentum reflects strong underlying activity and sales execution; new product launched in early October but meaningful impact is expected in Q4 and more in 2026; the shutdown delays deal closings and catch-up may extend into 2026.

• Question from Kyle Peterson (Needham & Company, LLC): The tax rate this quarter—was there a one-time benefit related to the pension settlement or other discrete items affecting the tax rate?
  Response: The Q3 pretax pension settlement (~$82.8M) produced an after-tax impact (~$60.3M) that weighed on the GAAP tax rate; non-GAAP excludes that item though small legislative/timing items can affect the non-GAAP rate.

• Question from Kyle Peterson (Needham & Company, LLC): On Venue momentum—can you parse benefits from the redesigned product versus activity pickup; timing to get traction?
  Response: Q3 Venue growth was mainly driven by sales execution; the redesigned Venue had only a modest Q3 impact (launched in early October); material benefits are expected in Q4 and primarily in 2026 as adoption scales.

• Question from Kyle Peterson (Needham & Company, LLC): How are you prioritizing capital allocation given reduced pension volatility and improving cash flow—buybacks vs. reinvestment?
  Response: No change to priorities: maintain financial flexibility to execute the transformation, be opportunistic with share repurchases, and pursue disciplined organic/inorganic investments only when they accelerate the strategy.

Contradiction Point 1

Pension Settlement and Financial Flexibility

It involves changes in pension settlement plans and their impact on financial flexibility, which affects the company's capital allocation decisions and long-term strategy.

How are you thinking about capital allocation now that pension liability uncertainty is resolved? - Kyle David Peterson (Needham & Company, LLC, Research Division)

2025Q3: Our priorities remain maintaining financial flexibility, being opportunistic with share repurchases, and disciplined in investments that accelerate our strategy. Pension settlement enhances financial flexibility, allowing for continued strategic investments and share buybacks. - Daniel N. Leib(CEO)

What is the update on pension annuitization and its balance sheet impact? - Kyle David Peterson (Needham & Company, LLC, Research Division)

2025Q2: The process is underway, with the annuitization expected to occur during Q3. More details on the cash outlay and impact will be shared in the Q3 call or before. - David A. Gardella(CFO)

Contradiction Point 2

Capital Markets Transactional Sales

It involves expectations and forecasts for capital markets transactional sales, which are crucial for revenue projections and investor expectations.

Are there any metrics on the impact of the government shutdown on Q4 margins? - Charles S. Strauzer (CJS Securities, Inc.)

2025Q3: Our guidance for capital markets transactional sales in Q3 is a range of $35 million to $40 million, reflecting sequential growth from Q2. - David A. Gardella(CFO)

Can you detail the assumptions behind the Q3 transactional guidance and assess the deal environment for IPOs and M&A in light of the administration change? - Charles S. Strauzer (CJS Securities, Inc.)

2025Q2: Our guidance for transactional sales in Q3 is a range of $35 million to $40 million, reflecting sequential growth from Q2. - David A. Gardella(CFO)

Contradiction Point 3

Impact of Government Shutdown on M&A Timing

It involves the impact of the government shutdown on M&A timing, which can affect the company's revenue and client acquisition strategies.

Are you seeing benefits from increased large M&A activity in banking sectors, and how is the government shutdown affecting M&A timing? - Peter Heckmann(D.A. Davidson & Co., Research Division)

2025Q3: The shutdown exacerbates an already complex regulatory environment, delaying larger M&A deals, particularly in sectors where the Health Insurance Portability and Accountability Act (HIPAA) applies. The market should resume post-government opening, though there will be a lag before full recovery. - Craig Clay(CMO)

Can you clarify the assumptions behind your Q2 guidance? - Dave Gardella(CFO)

2025Q1: The macroeconomic environment remains uncertain due to various factors, including geopolitical unrest, interest rates and inflation, and the potential impacts of regulatory changes. We remain closely monitoring these developments and their impact on our business. - Dave Gardella(CFO)

Contradiction Point 4

Impact of Government Shutdown on Financials

It involves differing explanations of how the government shutdown affects financial results, potentially impacting investor expectations and financial planning.

Can you provide metrics regarding the impact on Q4 margins from the government shutdown? - Charles Strauzer(CJS Securities, Inc.)

2025Q3: Our fourth quarter adjusted EBITDA guidance reflects a recovery of approximately $2.8 million due to a stop-loss reimbursement. - David Gardella(CFO)

Can you explain the key drivers for the difference between results and guidance? - Charles Strauzer(CJS Securities)

2024Q4: The main variance was in capital markets transactional revenue, which was $10 million below expectations. - David Gardella(CFO)

Contradiction Point 5

ActiveDisclosure Growth and Competitive Advantages

It involves the growth and competitive advantages of ActiveDisclosure, a key product for the company, which can influence investor perceptions and market positioning.

Can you provide metrics on the impact of the government shutdown on Q4 margins? - Charles Strauzer(CJS Securities, Inc.)

2025Q3: Our Active clients increased by 14% year-over-year. Subscription revenue was up 33% year-over-year, and traditional document filing and printing revenue was down 9% year-over-year. - Craig Clay(CMO)

What drove the significantly higher margins compared to revenue and expense guidance? - Charles Strauzer(CJS Securities Incorporated)

2025Q1: Active clients increased by 15% year-over-year. Subscription revenue increased 34% year-over-year, while traditional document filing and printing revenue was down 10% year-over-year. - Dave Gardella(CFO)