Hey, everyone, and thank you for joining us at the 28th Annual Needham Growth Conference. Today's our first in-person day, and I'm happy to have you all here. I'm excited to have with us Donnelley Financial Solutions, and we have CEO Dan Leib, CFO Dave Gardella, and then Mike Zhao, IR, in the audience, so we'll kick it off with a fireside chat, and I think to start, just in case some investors are not as familiar with the story, could you begin with a quick high-level overview and provide a brief background of the company?
Sure. So thank you. And first off, thank you all for joining us. So we help clients comply with regulations, and those are primarily SEC regulations. It's across transactions as well as compliance. If you think about the business and who our clients are, so it's public corporations, it's pre-IPO corporations, and then it's mutual funds, ETFs, and other regulated insurance companies. The business, we help in a couple of different ways, increasingly more with software. So the business has made quite a change since we spun out and became a public company in 2016. We have migrated, and our business now is just under 50% software. There is the balance, which is what we call tech-enabled services, and that a big piece of that will continue to make the migration over to software. Importantly, it's not really software capabilities as the limiting factor. It's really client preference.
So we serve across both the do-it-for-me as well as do-it-yourself. We have three main software products that we'll talk about later. And we've really gone through quite a bit of cultural change as we've made that migration to serving increasingly with software.
Great. Thanks. And then next, can you discuss some of the end markets where you are most active and what the competitive dynamics are like? Who are your customers, and who are you primarily competing against here, and what's enabled you to maintain such a strong market share?
Sure. So we can split the business into compliance and transactions. So for compliance for corporations, you can think about 10-Ks, 10-Qs, proxy statements. There's, in any time there's a deal being done, there are compliance requirements around it. And the business is increasingly more around the compliance area. So the event-driven revenue, we would say, is now about 25% of the overall business, 75% of our revenue base is recurring or reoccurring. And across the products, we have three main software products: ActiveDisclosure, which is geared towards corporate compliance. We have a Venue data room, which helps with completing deals. And then for mutual funds and ETFs, we have ArcSuite, which is a product that is geared towards financial reporting, prospectuses. We have a total compliance management offering as well for funds and insurance companies.
Relative to where we've been successful and why, we do have strong market share across our offerings. We are number one, two, or three in each of the offerings in which we play. Part of that is having really good software at this point. We've rebuilt much of our software solutions in the last few years. We also have very strong capabilities in our sales force, and so great distribution channel relationships across corporations, funds, third-party administrators, the investment banking community, and then influencers are also law firms. So we have strong relationships there. We're also breadth of offering. So coming from where we were, where we were largely Tech-Enabled Services, in many cases, as folks are migrating over to software, we can serve them with service packages and help them along managing the process.
And then when we ultimately get all the way over to SaaS, we have very strong software offerings. From a competitive set, we have a pretty diverse competitive set. It's different in the data room space, and it's different from data room to corporate compliance, and it's different from corporate compliance to fund compliance. And it's everyone from diversified providers to point solutions. And as I mentioned, we think for us, the core capabilities, good software, great distribution channel, and tremendous domain expertise across our service organization, which is really helpful for our clients.
Great. And I know management has previously highlighted the long-term target of deriving roughly 60% of total sales from software solutions by 2028. Can you discuss how you plan to achieve this and where you are seeing the most success currently?
Sure, Ross. I'll take that one. I think when you look at our total software offering, as Dan mentioned, it's just under 50% now. That's grown from, call it high teens, from the time we spun out in 2016. And it's really been a combination of taking market share, increasing prices, and then there's still some ongoing transition from some of the traditional offerings onto the software platform. I think when we look ahead to that 60% mark, it's really more of the same, more market share, continuing to get these price increases year in and year out, and then some transition from the traditional offerings onto the software platform. I think the one new area of opportunity for us is really exploring some non-SEC use case markets.
We now have the total compliance platform that was really the foundation of the new ActiveDisclosure product, and we'll be able to leverage that going forward for some incremental growth.
Great. And so thank you for discussing the software solutions. I'd like to move over to your second largest offering, which is the tech-enabled services. So what drives the business here, and how is it different from the software solutions offerings?
Yeah. So this is the piece that what we would call the traditional business, and Dan mentioned the kind of do-it-for-the-clients rather than the self-service model. So we employ some proprietary software working with our clients, whether they're the mutual fund clients, corporations, or some of the advisors, law firms, bankers, etc., in helping prepare and ultimately file the compliance and/or transactional documents around a deal. So you can imagine in an IPO transaction, the lawyers, the advisors working on documents, their preference right now is to leverage the model where we do it for them, the tech-enabled services model. There's some of that that's on the software platform today, and we think that'll continue to transition. But as of now, it's a real competitive advantage for us.
So it sounds like that's definitely still a major part of the business, even with the transition going on.
It is.
And so then I think the last piece there is the print and distribution, which is a smaller part of your overall business, but this is an area that remains important for the company. Can you explain this part of the business and why you think it remains popular with some of your customers?
Yeah. And so print is clearly the smallest part. It's about 15% of our total revenue, and that's been coming down year in and year out. You go back again to when we spun off in 2016, print was about 40% of our total revenue. We've, I think, through a combination of regulatory change and de-emphasizing the selling of the print product, have really shrunk that down. At the same time, when you look at from a margin perspective, we've increased gross margins from, call it, low 20% up to mid-40s%. And that's really a combination of a couple of things. One, we exited a handful of print facilities. We're down to a single digital print facility. And then for our long-run print, we outsource that to the trade. And it's a 100% variable model.
So when you think about some of the seasonality and cyclicality of print, whether it's transactions or printing proxy statements, owning those assets just to be able to produce in certain periods doesn't really make sense. And so this variable cost model has really helped us drive margin.
Great. Thanks for explaining that. So it sounds like that's still going to be an important segment, at least in the midterm.
Yeah. It's certainly a piece of the offering. I guess you think about from an output perspective, some of it's required by regulation, some of it's end customer preference. It's not a business in and of itself, but it's certainly part of the chain.
Absolutely, and then switching gears a little bit, now that the government shutdown is in the rearview mirror and capital markets activity appears to be heating up again with the potential for lots of pent-up demand in early 2026, can you tell us how this will benefit Donnelley, and which areas of the business do you expect to see upside related to capital markets?
Yeah. And it's really, and I'll hit on some of the areas that we talked about, right? So the tech-enabled services, there is a print component. We have very strong market share as it relates to the capital markets transactional environment. And I guess probably a blessing and a curse. Over the last couple of years, it's been more of a curse. When you look at where our revenue sits, it's well below $200 million, I think $160-some million on a trailing basis. That's more than $100 million off the long-term average. And so given our market share, given our client relationships, we certainly stand to benefit from an improvement in the market. And when you think about how that translates into profitability, we would generally think about the incremental margins on that, call it $100 million of delta in revenue there in the 50%-60% range.
So, pretty significant profitability impact potential. And then, when you think more broadly about what we've seen in the markets recently, 2025 was an interesting year. We started to see a little bit of momentum in Q1. And then, of course, with Liberation Day in Q2 was a bit of a setback, although month to month in Q2, we started to see some improvement. That improvement continued into Q3, and then we get to the government shutdown that you referenced. And so that was disappointing to have a bit of a setback to start the quarter, the fourth quarter. But from a market perspective, with the government shutdown ending, we've seen a really nice bounce back in the overall market. And that momentum continuing into this year would certainly be helpful.
Great. Yeah, so it sounds like capital markets activity in 2026 could be really beneficial.
Yeah. Let's hope.
Yeah. I mean, yeah, you never know what can happen, but hope for the best and then you touched on it earlier a little bit, but we know that regulations are constantly changing and can be difficult to follow sometimes. Could you help out investors by trying to quantify some of the opportunities you see from any recent regulatory changes?
Yeah, sure. So we think about the regulatory from an SEC perspective. This past year, we had, and it goes back 18 months, the Tailored Shareholder Reports regulation, which benefited us in 2024 for half a year, and then we got the full year impact in 2025. There are not a ton of regulations on the docket at this point. There's always some small ones that we'll benefit from. EDGAR Next is a security regulation that helps corporations file with the SEC in a more secure way. We are helping facilitate that for our clients. There'll be things like that. There's always some small changes. To Dave's point on our opportunity from an expansion perspective and growth perspective is both market share and organic, as well as organically entering new markets and building off of the strong client base that we have.
And so historically, we've had that opportunity to do that in year. We also rolled out within our Venue data room product a brand new product in the fourth quarter of 2025. So that helps us, well, it doesn't expand the overall size of the market. It certainly helps us address different aspects of the existing market in a more effective way.
Great. Thank you. I think the next question is one we have to ask. It comes up all the time at conferences and on earnings calls. Can you discuss how Donnelley is leveraging artificial intelligence across its product suite and internal operations? Specifically, what opportunities and risks does AI pose to the business?
Sure. Yeah, so to your point, question comes up all the time, ton of internal discussion at the board level and down through the management team and deeper in the company, and we look at it, it's multi-layered, right?, so first of all, we're helping clients comply with regulations, so security is really important. Accuracy is critical, so those are foundational pieces, and then we look at it split, and it's symmetrical, right? Our expectation of our vendors is that they're helping us in AI with our business processes, and for anything that is proprietary and unique, we may be building some tools to help us drive efficiencies in the organization, take advantage of the latest technology, whether or not that is artificial intelligence or otherwise, and then the symmetrical piece, our clients are looking for us within our products.
So for a few years now, we've invested in artificial intelligence. We've made one public announcement, which was Active Intelligence, which allows our clients to more effectively do benchmarking against peers, benchmarking and disclosures against themselves, more efficiently manage documents and content. And so that's a foundational piece. And then within each product, we're looking at and have rolled out some functionality that utilizes artificial intelligence. But it's, I would say, a very balanced approach. From threats, opportunities, I think that speaks to much of the opportunity. And then you look at threats, and there are aspects of the business or small components, the same things that we're looking at to drive efficiencies that could be threats, but we look at what we're doing as significantly broader.
So while we could drive one component to be more efficient and that could help a competitor if it wasn't us that developed it, we think we'd be able to take advantage of the same technology. And our offerings are intertwined and much broader.
Yeah. So it sounds like from a competitive dynamic perspective, you and the competitors can probably do a lot of the similar things, but then you have an outside advantage. So really, there's actually a tailwind for you with AI compared to your competitors.
Yeah. I think that's exactly right, and then on the internal efficiency, there's a lot of opportunity.
Yeah. Great. And then speaking of internal efficiency, Donnelley has done a great job of improving margins. How have you been able to drive this leverage, and how much more juice is there on the margin front moving forward?
Yeah. Great question. I think when you look at EBITDA margins, they've gone from, call it mid-teens, up to close to 30% now, and our long-term guidance is to be north of 30%, and it's really a combination of several factors, some of which we talked about earlier in terms of variabilizing the cost structure in the areas that are more cyclical. Certainly, the business mix shifting away from print and service to more software-based, and the operating leverage that you get on the software revenue definitely has an accretive impact to margin, and then I would say the last two factors, in no particular order, just kind of the ongoing focus on disciplined cost management and really looking at the cost structure across the organization, always fine-tuning it, always trying to figure out better ways, leveraging AI, leveraging some other technology in terms of driving internal productivity.
And then certainly on the pricing side. And a lot of this is also tied to the shift toward the software business. Tends to be more long-term contracts with annual price escalators. And so that certainly helps the overall margin profile.
Okay, so it sounds like your long-term target of reaching the 60% of sales from your software business is actually going to help improve margins overall down the road.
Yeah. And I would say there are two factors there. One is just the overall operating leverage on the software piece drives margin. One aspect that we didn't talk about yet was the component of the, call it the compliance and or the tech-enabled services that's transitioning over to software. What we've seen so far is from an overall revenue perspective that activity moving from this traditional service model over to software typically comes over at less than dollar for dollar on a revenue basis. But the profit dollars are the same or higher. And so from a margin perspective, it's actually an improvement in overall profit margin.
Great. Thank you. That's really helpful. And so our last question here, can you tell us about Donnelley's capital allocation strategy? How do you guys balance ongoing share buybacks with potential M&A? And if M&A does come on the horizon, what would be attractive in a potential target?
Yeah. Yeah. So I would start out at a higher level, I think, from all capital deployment. And it's organic investment. It's the operating cost structure, etc. We look at every dollar we're spending. We take a very disciplined approach. I think specific to the question, when you look at what we've been able to do with organic investment relative to some of the valuations for assets that would be a good strategic fit for us, you can't make the economics work just given the high valuations of any of those assets. And then again, looking at what we've been able to do organically, we have a lot of confidence in the internal team and the investments we're making. Hypothetically, if there were an acquisition that would come up, it would be more the same, right?
More being able to drive that software business, help us more fully penetrate, get into adjacent markets. We haven't seen anything at this point. The adjacent markets will definitely be a growth focus for us. But again, we're going to take a broader, higher-level view and balance that between investing organically, and if there are M&A opportunities, we'll certainly evaluate that.
Yeah. So it sounds like you're not really hunting for M&A, but you're trying to really have a balanced approach to make sure.
Balanced. I think balance is the way to say it.
Great. That's good to hear. And then before I open up for questions, I just want to know, is there anything that you're really excited about in 2026 and beyond? And are there any areas within the Donnelley story that you think investors are missing and should focus on more closely?
Yeah, sure. So several things extremely excited about. We've talked about, since we spun, we've talked about the transformation of the business in three chapters. One was establishing the foundation. The second was fundamental transformation. And the third is sustained growth. And we are now closing chapter two, which has really been functionalizing the business, professionalizing processes, resourcing, all of those things. And increasingly, as we move to the tail end of chapter two, we've been focusing much more on growth opportunities across the business. And the reason that the chapters, as the metaphor, the structure allow us to focus on growth is we've done the foundational work. So we've rebuilt some of the products. Dave referenced the compliance platform that we have allows us to get into market quicker.
And so the opportunities Dave referenced, one was expansion, utilizing our capabilities, our domain expertise, and then leveraging off of the large installed base of clients that we have to offer them additional modules that append logically onto a compliance filing for SEC's, SEC filings, or of the like. And there's a lot of those sorts. We provide some today, like via partnership, like SOX compliance or compliance, Office of the CFO type of responsibilities. Another area that we've talked about and we rolled out a new offering called ArcFlex is an offering to serve the private funds market, which we think is a great opportunity getting a lot of client interest. There is not a broad regulatory framework. Private markets are quite large. So the regulatory framework will help folks transact.
Even absent a robust framework, we're hearing from our clients they need more robust offerings than just spreadsheets. And so that's been helpful for us. We're getting a ton of interest. We've had a few folks transact as they're becoming more. I've said regulatory, but I'll use even standards. And it can be as simple as an internal standard at one of our clients. They'll start to be able to employ software more robustly. So that's the second one. And the third one, which I referenced earlier, was the rebuild of Venue that was rolled out in the fourth quarter of 2025. It really positions us nicely to address a larger part of the market.
Great. I was wondering if you could kind of quantify some of that private markets opportunity. What do you see it growing to, and what's the rough timeframe there?
Yeah. We are doing a lot of work on it. We have some internal estimates, but nothing we would put out publicly today.
Gotcha. It's worth trying. Thank you. And with that, I'd like to open it up to the audience if anyone has any questions.
I don't know if I read a story a couple of weeks ago. Jamie Dimon says he's going to stop you. That struck me as a little bit of a big deal, but I couldn't figure out if it was a dollars and cents argument or a political argument. I was wondering if you had any enlightenment on that, and then as a corollary, he said that he had AI stuff to take it internally. As the market becomes dominated by larger and larger companies, does that affect you guys in any way?
Sure. Yeah. So I think what you were referring to is comments about not utilizing shareholder advisory services. We don't provide those services. That offering is shareholder voting guidelines and governance. We also have some of those services ourselves, but that's not our business that we're in.
Did you think it was tall as a censor, or is it politics?
I can't comment. I think that we see as a public company, some of our shareholders have their own groups that offer their own advisory and governance and how they vote their shares. Others rely more heavily on third parties. But I don't know in the instance of JP Morgan. I think to your second part of the question, the larger companies and as businesses get larger, we're very well positioned. Those are some of our larger clients that we have very strong relations with. So we think what we do provides a lot of value and is something that folks want to make sure is done efficiently, correctly. And so we think we're well positioned.
Great. I'll ask one more question that I'm kind of curious about. Could you maybe dive a little deeper into your three core products, I'd call them, the Venue data room, ActiveDisclosure, and ArcSuite? You kind of talked about the end markets where they're used. Maybe you could talk about some more of the competitive dynamics and how they are differentiated.
Yeah, sure. So I think when you look at, I'll start with Venue data room. We're number three in that market. Two other competitors are significantly larger than us there. I think when you look at, and Dan mentioned, the release of the new Venue product in the last quarter, already getting some nice traction. So feel good about the opportunity ahead there. And again, the primary use case we talked about is M&A for Venue. But there are other areas of the market where the data room can be used. I think if you go to ActiveDisclosure, probably the main competitor there is Workiva. And when you look, again, ActiveDisclosure, newest technology in the market, really showing some nice growth over the last couple of years. And we feel good about the prospects going forward.
And I think similarly, when you look at ArcSuite, very entwined with our clients' back office functions, again, provide a lot of value there. I think that business probably tends to be more sticky, more stable, and really what will drive kind of that when we've seen in certain years outsized growth, really regulatory driven, right? So the most recent Dan reference with Tailored Shareholder Reports over the last couple of years has really helped drive some of the growth in ArcSuite. Yeah. The one thing I'll add, which cuts across the compliance offerings, so if you think about what we're doing for compliance, it's largely content management, document composition, data tagging, filing, and then each of the products also has unique capabilities. So it can be calculations specific to a market, etc.
So what we've been building over several years is a compliance platform that takes the common services and centralizes those so that in the instance of filing with the SEC, if there is a change made, we only need to make that change once. And products can call on that service and utilize it. And yet we can keep the market-centric or market-specific functionality embedded in the product. And that's really been helpful for us as new regulations come about for us to be faster to market and also get into market more efficiently. So it lowers the bar on entering new markets or providing new offerings that require some of those or all of those capabilities.
All right, so I know also we don't have any other questions. If not, I have a few more things I was interested to ask about, so I noticed you talked about private markets and didn't get too much there, unfortunately, but are there any other kind of new areas looking to enter in the near future?
Yeah. So I'll start, if you mind. There are. I mean, as I talked about the chapters and dedicating more resource, there are more ideas than going to be ability to do it well. And so we're spending a lot of time to make sure that we do the appropriate amount of diligence ourselves before we're spending significant money. We obviously spend some seed money exploring markets and such. But nothing I would talk about it in the context of the new Venue and there's additional investment going on there. The ActiveDisclosure and the ability to increase use cases around Office of the CFO, ArcSuite, we're doing a lot of work and including work on private markets. And then overarching over everything would be spending and exploration on AI.
All right. So I think also I'm curious, is there anything that keeps you guys up at night that you're worried about, maybe in the mid to long term?
Yeah. I mean, the short answer is no. I would say probably the biggest variable in our business is obviously the capital markets transactional side. But again, we're at a historical low in terms of our revenue and our margin profile, cash flow still very, very strong. And so maybe what keeps me up is the excitement about the potential for the capital markets activity to come back.
Yeah.
Yeah. And I would also say I sleep fairly well. Having a large dog in our bed isn't helpful. But similarly, I think, and that's a change re lative to 10 years ago when we spun out. I think we have fantastic employees and associates that work in our company that do a great job. I think we've got things operating really well. And that's really helpful. That said, we do, to Dave's point, have some offerings that are more sensitive to economic cyclicality, much less than ever before. And I feel like the business is substantially more stable because of the actions we've taken, because of the areas that we've invested and grown relative to history. But we still have some volatility still caused by cyclicality.
Yeah. I would just add a much cleaner balance sheet as well.
Yeah. Absolutely.
Great. So those are all the questions I have. Is there anything else from the audience? Great. I think we can wrap it up. Yeah.
All right. Thank you.
Thank you very much.