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Donnelley Financial Solutions, Inc. (DFIN) Q4 2020 Earnings Call Transcript

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DFIN earnings call for the period ending December 31, 2020.

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Donnelley Financial Solutions, Inc. (DFIN 3.11%)
Q4 2020 Earnings Call
Feb 25, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Donnelley Financial Solutions Fourth Quarter Earnings conference call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Justin Ritchie, Head of Investor Relations. Thank you. Please go ahead.

Justin Ritchie -- Senior Vice President, Investor Relations

Thank you. Good morning, everyone, and thank you for joining the Donnelley Financial Solutions Fourth Quarter 2020 Results Conference Call. This morning, we issued our fourth quarter earnings release, a copy of which can be found in the Investors section of our website at investor.dfinsolutions.com. During this call, we'll refer to forward-looking statements that are subject to uncertainty. For complete discussion, please refer to the cautionary statements included in our earnings release and further details on our annual report on Form 10-K and other filings with the SEC.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP financial information provides you with useful supplementary information, concerning the company's ongoing operations as an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes open. Additional detailed reconciliations of GAAP to non-GAAP financial information are included in the earnings release issued today. I'm joined this morning by Dan Leib, Dave Gardella, Craig Clay, Eric Johnson and Kami Turner.

I will now turn the call over to Dan.

Dan Leib -- President and Chief Executive Officer

Thank you, Justin, and good morning, everyone. Before I comment on our results, I'd like to introduce two of the people that Justin just mentioned, Craig Clay and Eric Johnson. Craig is the President of our Capital Markets business, and Eric is the President of our investment companies business. With Tom Juhase moving into an advisory role as of year-end, Craig and Eric, who now report directly to me, will be on our calls going forward. I'd like to thank Tom for the leadership he provided to define and the insight he added on these calls, and I look forward to Craig and Eric sharing their insights with you as we continue to transform DFIN.

Turning now to our financial results. We finished the year by delivering strong fourth quarter results, highlighted by record quarterly software solutions net sales of $54.2 million or nearly 26% of our total net sales in the quarter. Overall, our consolidated net sales grew by over 10% as compared to last year's fourth quarter. Excluding print and distribution, our remaining net sales grew approximately 20%, as the strong rebound that began in the third quarter in our transactional offerings as well as in our software solution sales continued.

We also posted record quarterly operating cash flow and free cash flow of $101.7 million and $95.1 million, respectively. Fourth quarter non-GAAP adjusted EBITDA margin was 16.6%, an improvement of approximately 290 basis points from last year's fourth quarter, continuing a trend of year-over-year improvement that now stands at six straight quarters. The improvement was primarily driven by a better business mix, along with the significant impact of permanent cost reductions. Dave will provide more details on our quarterly results shortly, but it's fair to say I'm pleased with our performance, and more importantly, the momentum I'm seeing in our software solutions and capital markets transactional offerings heading into 2021.

Regarding 2020, we delivered outstanding performance for the year, despite the impacts of the COVID pandemic as well as a prolonged slump in M&A activity that started in 2019 and continued through the first three quarters of 2020, until activity levels rebounded at the end of the year and now into 2021. Net sales were $894.5 million in 2020, representing year-over-year growth of approximately 2%. Excluding print and distribution, our net sales grew 10% as we drove strong transactional and software sales through the back half of the year.

Full year 2020 software solutions net sales totaled approximately $200 million, which was an annual record. Our 2020 software solutions net sales growth was led by our recurring compliance offerings, most notably ArcSuite and ActiveDiscolusre, growing over 9% year-over-year. Full year 2020 non-GAAP adjusted EBITDA totaled $173.4 million, up $36.4 million or nearly 27% compared to the previous year. Our non-GAAP adjusted EBITDA margin expanded to 19.4% in 2020, a year-over-year improvement of approximately 370 basis points. This improvement is well ahead of our long-term target, again, driven by the continued improvement of our business mix and our diligent cost control.

The company's increased profitability, along with reduced capital expenditures and cash interest, helped to drive record annual free cash flow of $123.1 million. Strategic capital allocation enabled us to repurchase both debt and equity at attractive prices during 2020, while simultaneously reducing net debt by $121.9 million during the year, resulting in year-end net leverage of 0.9 times. 2020 was a great year for DFIN.

While the financial performance in 2020 was strong, I'm equally proud of how the team accelerated the pace of our business transformation throughout the year, especially considering that we are operating through an unprecedented business environment due to the ongoing COVID-19 pandemic. For example, in our investment companies business, we signed the largest software solutions customer contract in the company's history, as a key customer significantly expanded their global deployment of our ArcReporting solution. We also launched ArcRegulatory, our global regulatory platform, which offers a full suite of cloud-based reporting solutions to meet the complex regulatory demands.

Finally, we launched our digital, our digital content distribution solution, providing clients with a software-based solution to manage the complexities of content management and digital distribution in a post-SEC Rule 30e-3 and 498A environment. Switching to our capital markets transactional business. We reacted quickly to the changing environment in early 2020, transforming our production, platform and service delivery model to adapt to our clients' need for a fully virtual experience, and by doing so, supported the first all virtual IPO on the New York Stock Exchange.

The capital markets team also rapidly adapted to the sharp acceleration of stack filings during 2020 by creating a custom offering, leveraging ActiveDiscolusre and significantly increasing our SPAC market share. These are only a few of the many business wins we produced during the year, and the result of all of our efforts is that DFIN is extremely well positioned heading into 2021. Staying with ActiveDiscolusre for a moment. We are very excited about the recent launch of our new ActiveDiscolusre platform.

New AD, a key component in delivering our "44 in '24" strategy. Born in the cloud and reimagined from the ground up, this new platform transforms financial and regulatory reporting with seamless integration, simple and fast onboarding and an array of intelligent core tagging and filing tools. Easy to get started, intuitive to use and backed by the unparalleled support of beefed experts, Nu AD includes the collaboration tools and fast financial data linking our clients need without extra add-ons and hitting costs and represents a significant step forward for the marketplace in SEC compliance.

We believe that is the perfect product fit for a market that is looking for a solution focused solely on SEC compliance, and we are building off the strong positive feedback from our early adopter clients. There is much more to come regarding throughout 2021.

Before I return to provide an update on our "44 in '24" strategy, including our longer term objectives, I would like to turn the call over to Dave to provide more detail on our fourth quarter financial results and our outlook for the first quarter. Dave?

David Gardella -- Chief Financial Officer

Thank you, Dan, and good morning, everyone. Before I discuss our fourth quarter financial performance, I'd like to recap a few housekeeping items. First, as discussed throughout the year, we are using the regulatory changes that are reducing mutual fund and variable annuity print demand as a catalyst to accelerate our mix shift toward our software and tech-enabled solutions offerings.

This more proactive approach has changed our longer-term growth outlook for the traditional investment company's offerings. Given this change in expectations, as part of our annual goodwill impairment analysis, we recognized a noncash goodwill impairment charge of $40.6 million during the fourth quarter for fully impaired goodwill in the investment company's compliance and communications management segment.

Next, regarding our segment results in 2021. We are near complete on implementing our plan to consolidate our manufacturing footprint in preparation for the regulatory changes that will impact demand for print and distribution starting this year. These actions will permanently and significantly reduce the fixed costs in the company. In managing the business, the fact is that no costs are fixed in the mid to long-term, and we consistently look for opportunities to reduce all costs. There are certain expenses for centralized overheads that are allocated to the four operating segments based on various drivers, including net sales and headcount on a proportionate basis.

While we expect overall EBITDA margin to increase in 2021, a portion of these allocated expenses will shift out of our investment company's compliance and communications management segment in 2021 and into the other three segments, due in large part to the significant expected drop in print and distribution net sales and headcount in this segment. We will update you each quarter as to the impact on the segment results, but I wanted to mention it here in advance. In addition, we recorded $15.6 million in restructuring charges in 2020. Most of this restructuring was related to the consolidation of our print platform that I just noted and enables us to minimize the impact of the expected step down in print revenue to the regulatory changes that are effective in 2021.

Lastly, regarding the multi-employer pension plan liability related to the second quarter bankruptcy of LSC Communications, we expect to work through the arbitration process with R.R. Donnelley to finalize the allocation of this liability between the companies. As of the end of the year, we had $15.2 million accrued related to the contingent liability as well as our estimated share of required payments until a final allocation is determined. These expenses associated with this liability are recorded within SG&A in the corporate segment and are excluded from our non-GAAP results.

Turning now to our consolidated financial results. Net sales for the fourth quarter of 2020 were $210.3 million, an increase of $20 million or 10.5% from the fourth quarter of 2019. Software Solutions net sales in the fourth quarter increased by $4 million or 8% compared to the fourth quarter of 2019, primarily due to the continued adoption of our Software Solutions across the portfolio. Tech-enabled services sales increased by $23.2 million or 27.6%, primarily due to the increased capital markets transactional and compliance activity. Print and distribution revenue decreased by $7.2 million or 12.9%, primarily due to the lower demand for printed materials within investment companies for both compliance and commercial printing.

Fourth quarter non-GAAP gross margin was 47.8% or approximately 980 basis points higher than the fourth quarter of 2019, primarily driven by a favorable business mix, featuring increased higher-margin tech-enabled services and software solution sales combined with overall lower print volume and the impact of ongoing cost control initiatives, partially offset by an increase in incentive compensation expense associated with the strength of the company's full year financial performance. Non-GAAP SG&A expense in the fourth quarter was $65.5 million, an increase of $19.5 million compared to the fourth quarter of 2019.

As a percentage of net sales, non GAAP SG&A was 31.1%, an increase of approximately 690 basis points from the fourth quarter of 2019. The increase in non-GAAP SG&A was primarily due to higher incentive compensation expense associated with the strength of our full year financial performance. In addition, higher benefits related costs, the increase in net sales and changes in the business mix also resulted in higher SG&A, which was partially offset by our ongoing cost control initiatives. Our fourth quarter non-GAAP adjusted EBITDA was $34.9 million, an increase of $8.8 million or 33.7% from the fourth quarter of 2019.

First quarter non-GAAP adjusted EBITDA margin was 16.6%, an increase of approximately 290 basis points from the fourth quarter of 2019, again, primarily driven by the impact of ongoing cost control initiatives, operating leverage on higher sales and a more favorable sales mix, partially offset by increases in incentive compensation and employee benefits expense. Turning now to our segment results. Net sales in our capital markets Software Solutions segment were $36.1 million in the fourth quarter of 2020, an increase of 11.1% from the fourth quarter of 2019, primarily due to increased Venue data room activity, new wins and upselling of existing eBrevia clients, continued client growth and active disclosure as well as price increases.

We were particularly pleased to see Venue sales increased 10.4% from the fourth quarter of 2019, as the improving M&A environment we saw late in the third quarter continued into the fourth quarter. Non-GAAP adjusted EBITDA margin for the segment was 20.8%, an increase of 20 basis points from the fourth quarter of 2019. The increase in non-GAAP adjusted EBITDA margin was primarily due to operating leverage benefits on the increased net sales as well as the impact of operating efficiencies, partially offset by higher incentive compensation expense.

Net sales in our capital markets, compliance and communications management segment were $108 million in the fourth quarter of 2020, an increase of 37.9% from the fourth quarter of 2019, primarily due to increased capital markets transactional and traditional compliance activity. We continue to see year-over-year growth in transactional sales in the fourth quarter, primarily driven by the continued strength in IPO activity with IPO market pricings up significantly from the fourth quarter of 2019.

Similar to the third quarter, stacks continued to drive an outsized portion of the IPO market. Fourth quarter M&A filings also increased year-over-year with larger filings, a sweet spot for DFIN being particularly strong as the pickup in deal announcements we noted on our third quarter earnings call started to translate into increased filings in the fourth quarter. After a strong start to the year, debt-related transactional activity was softer in the first quarter as both domestic and EMEA debt offering slowed. A compliance sales were up in the quarter, primarily due to increased market share of SEC compliance filings, solid year-over-year growth in proxy sales as well as increased 8-K activity related to the new Fast Act mandate.

A quick note on our market share. 2020 marks the second consecutive year that we have increased our share of SEC compliance filings after several years of share declines, yet another major milestone for DFIN in 2020. Transactional filing was also strong during the year, up over 2019 nearly across the board. Non-GAAP adjusted EBITDA margin for the segment was 35.4% in the fourth quarter of 2020, an increase of 790 basis points from the fourth quarter of 2019. The increase was primarily due to the influx of high-margin transactional sales, along with the impact of ongoing cost control initiatives, partially offset by higher incentive compensation expense.

Net sales in our investment Software Solutions segment were $18.1 million in the fourth quarter of 2020, an increase of 2.3% from the fourth quarter of 2019, with growth driven by the continued demand for our new ArcDigital offering. Growth in this segment was lower than what we have seen recently, due in part to a large onetime ArcPro services engagement in last year's fourth quarter. Non-GAAP adjusted EBITDA margin for the segment was 16.6% for the fourth quarter of 2020, a decrease of approximately 490 basis points from the fourth quarter of 2019. The decrease was primarily due to higher incentive compensation expense, partially offset by the impact of our ongoing cost control initiatives.

Net sales at our investment companies, compliance and communications management segment were $48.1 million in the fourth quarter of 2020, a decrease of 22.2% from the fourth quarter of 2019, primarily due to lower commercial printing sales from contracts we exited relating to the rightsizing of our manufacturing platform in addition to lower mutual fund compliance print volume. Non-GAAP adjusted EBITDA margin for the segment was negative 6.7%, a decrease of approximately 570 basis points from the fourth quarter of 2019.

The decrease in non-GAAP adjusted EBITDA margin was primarily due to the lower overall print volume and higher incentive compensation expense related to the strength of the consolidated financial performance of the company, partially offset by the impact of ongoing cost control initiatives. As I mentioned earlier, we are implementing our plan to consolidate our manufacturing footprint, which will permanently and significantly reduce the fixed cost in this segment going forward. Given this, we expect this segment to return to profitability. Our fourth quarter 2020 non-GAAP unallocated corporate expenses were $10.6 million, an increase of $5.3 million from the fourth quarter of 2019.

The increase was primarily due to increased incentive compensation and higher benefits-related costs, partially offset by the impact of ongoing cost control initiatives. Free cash flow in the quarter was $95.1 million, a quarterly record. And full year cash flow was $123.1 million, an increase of $113.4 million over full year 2019. The full year increase was primarily due to higher adjusted EBITDA, lower interest expense and reduced capital expenditures. In addition, an overall reduction in working capital benefited full year 2020 free cash flow. We ended the year with $230.5 million of total debt and $73.6 million of cash on hand, resulting in $156.9 million of non-GAAP net debt.

In addition, we had nothing drawn on and full access to our $300 million revolver. As of December 31, 2020, our non-GAAP net leverage ratio was 0.9 times, down 1.1 times compared to December 31, 2019. We repurchased approximately 90,000 shares of our common stock during the quarter for $1.3 million. For the full year 2020, we repurchased just over 1.1 million shares of common stock for $10.3 million, an average price of $8.92 per share. As noted in our earnings release and as part of their ongoing evaluation of DFIN's various capital allocation options, our Board of Directors recently approved a $50 million common stock repurchase program that expires December 31, 2022, replacing our existing $25 million plan, which was set to expire on December 31, 2021.

This repurchase program demonstrates management's as well as the Board's confidence in our strategy and the expected financial performance. We plan to be opportunistic with repurchasing shares in 2021 as part of a broader capital allocation strategy that will also feature additional debt reduction and a refinancing of our high coupon notes, which are callable later this year. At the same time, we will maintain our disciplined approach on capital spending and M&A. Next, I wanted to provide some color around guidance as well as our outlook for the first quarter. As Dan mentioned earlier, we are very pleased with our tremendous 2020 results.

However, as I have noted several times over the last few years, the transactional pieces of our business are challenging to forecast regardless of the economic environment but we're not providing comprehensive guidance for full year 2021, we will provide some components to facilitate your modeling. I'll summarize these items now. As Dan will detail later in his remarks, we expect total Software Solutions net sales to grow by at least 10% in 2021, coming off a strong second half in 2020 with additional momentum expected from the recent launch of New AD. Regarding the upcoming regulatory change that will reduce demand for print in 2021, we continue to expect a reduction in print-related net sales of approximately $130 million to $140 million in 2021.

And specific to this net sales reduction, we continue to expect a reduction in non-GAAP adjusted EBITDA of approximately $5 million to $10 million. Depreciation and amortization is expected to be in the range of $40 million to $45 million, down from $50.9 million in 2020 as the acquisition-related intangibles from a 2010 acquisition are fully amortized as of December 31, 2020. Interest expense is expected to be approximately $22 million. Our full year non-GAAP effective tax rate is expected to be in the range of 29% to 31%. We expect capital expenditures to be approximately $45 million from $31.1 million in 2020, as we plan to increase the internal investment in our Software Solutions offering in the near-term to further accelerate our "44 in '24" strategy.

Dan will provide more context on this increased investment in his remarks shortly. Regarding our outlook for the first quarter, we are expecting net sales to be in the range of $200 million to $220 million, down approximately 3.6% year-over-year at the midpoint due to the significant reduction in print and distribution for the regulatory changes related to SEC Rules 30e-3 and 498A, nearly offset by continued strength in our transactional and software offerings.

Given this positive mix shift in net sales with less print and more software, as well as increased transactional activity, we expect our non-GAAP adjusted EBITDA from both a dollar and margin perspective to improve substantially when compared to the first quarter of 2020. Included in this expectation and supported by what we've seen through the first two months of the year, we anticipate that we will continue to benefit from a favorable sales mix while also realizing benefit from the cost control initiatives we put in place during 2020.

I'll now pass it back to Dan, who will provide an update on our "44 in '24" strategy, including our long-term objectives. Dan?

Dan Leib -- President and Chief Executive Officer

Thank you, Dave. Before we open it up for Q&A, I would like to discuss further our "44 in '24" strategy. In May of last year, I introduced our goal of doubling the proportion of our sales mix derived from software over the next five years, moving from 22% of sales from Software Solutions in 2019 to 44% in 2024. Growth in our software offerings, strong tech-enabled service offerings and a shrinking print and distribution offering result in continued strong adjusted EBITDA, adjusted EBITDA margin and cash flow performance.

As I detailed in my opening remarks, we have made excellent progress in terms of enhancing product development velocity, introducing three new software products to market over the last 15 months, while also expanding various key customer relationships across our product portfolio. Building off already strong software solutions sales growth in the second half of 2020, these product introductions and expanded relationships as well as the potential for a rebound in M&A in 2021, a key driver of venue growth, positions us well to increase our software solution sales growth back to double digits in 2021.

While on the print and distribution side, we remain on track to execute our print platform optimization efforts in concert with the rollout of SEC Rules 30e-3 and 498A, which, when combined with our proactive exit from nonstrategic, low-margin commercial print contracts, significantly reduces our expected print and distribution sales starting this year. The combined impacts of these efforts have us on track with, if not ahead of, where we thought we would be heading into Year two of our "44 in '24" journey.

In fact, we are currently estimating that Software Solutions net sales will make up over 30% of total net sales in 2021, with print and distribution falling to a little over 20%, which will mark the first time in the company's history that software sales will exceed print sales, a major milestone in our transformation. Given the significant progress we made against our "44 in '24" operating objectives in 2020 as well as our outstanding financial performance, we are updating our longer-term financial objectives heading into 2021, and we'll include these updated targets in our investor presentation.

Let's start with our longer-term organic revenue growth target. As business mix continues to improve and with the reduced headwind from print and distribution sales, we continue to expect that we will return to sustained consolidated organic revenue growth in 2022, following the regulatory-driven reduction in print and distribution sales. Regarding Software Solutions sales specifically, we expect Software Solutions annual net sales growth to return to 10% starting in 2021. With this acceleration in Software Solutions sales growth, we continue to expect Software Solutions to make up at least 44% of total sales by 2024, with print and distribution sales expected to drop down to the mid-teens.

In terms of profitability, we made significant progress in this area in 2020, improving non-GAAP adjusted EBITDA margin by approximately 370 basis points year-over-year, which is well ahead of our initial goal of 75 basis points per year and putting us close to our original longer-term target of 20% by 2024. Due to our overachievement in 2020, we are updating our longer-term margin goal and now expect to op at or above 20% non-GAAP adjusted EBITDA margin starting in 2021, with the intent of continuing to improve margin from this level over time, while also investing for growth.

As I mentioned earlier, our improved profitability, stronger business mix, lower cash interest and disciplined capital spending produced record annual free cash flow in 2020, again, well ahead of our expectations heading into the year. Going forward, we will continue to focus on driving free cash flow, targeting to convert our EBITDA to adjusted free cash flow at an average of at least 40% annually, which, for context, is our average annual conversion rate since the spin. One last comment on longer-term targets. As Dave mentioned earlier, we are very excited about the wealth of internal investment opportunities we have currently.

And given the accelerated progress we saw in 2020 in terms of profit and cash flow growth, we are planning to increase our investment in annual capital spending to approximately 5% to 6% of net sales over the next few years, to ensure we can continue to drive the top line growth we are targeting. As a reminder, the vast majority of our capital spending relates to the capitalization of software development costs.

Like all our capital allocation decisions, you can expect us to remain disciplined in our approach to internal investment allocating funding only to projects that we expect will produce superior returns to investors over the long term. In closing, we entered 2021 with strong end markets and are keenly focused on continuing to drive our "44 in '24" strategy and the resulting financial profile. Our various operational successes in 2020 prove that we are delivering the right solutions in the moments that matter and creating exceptional value for our clients, while the stellar financial performance in 2020 shows how those successes can translate into superior returns for our shareholders. I'm more confident than ever in our future.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Pete Heckman. Please go ahead, your line is open.

Pete Heckman -- D.A. Davidson -- Analyst

Good morning, gentlemen. Thanks for all the information on the quarter and the outlook. Dan, could you revisit a comment that you just made? I want to make sure that I heard it correctly. I mean, clearly, the company has made some sustainable reductions in the cost base. But our assumption was that you really over -- outperformed in 2020, and we were expecting EBITDA margins to fall in 2021. You made a comment as regards 2021 just a few minutes ago, and I missed it. It sounded to me like you were expecting that in kind of a base case 2021 EBITDA margins could be up year-over-year?

Dan Leib -- President and Chief Executive Officer

Yes. Thanks, Pete. Yes, that's correct. When we look at the reduction in revenue coming in print and distribution of the $135 million at the midpoint and the $5 million to $10 million of EBITDA coupled with where we're seeing growth, namely software solutions and then entering 2021 with a pretty robust transactions market, we feel we have the opportunity to expand margins in 2021.

Pete Heckman -- D.A. Davidson -- Analyst

That's great. That's impressive. All right. And then great job on getting the net leverage down significantly over the last three or four years. How does that change your thoughts about capital allocation and the kind of the target leverage that you think about running the business at?

Dan Leib -- President and Chief Executive Officer

Sure. Thanks. Yes. So I'll take a first crack, and then, Dave, if you want to jump in. But it's an important question and one that we discuss internally and with our board frequently. Certainly, we're pleased that our performance has put us in the position to have the amount of financial flexibility that we do. And we do have a lot of our revenue that's recurring, but we also understand the cyclicality of some of the markets we play in. As Dave has mentioned previously, the transactions turn off and on very quickly. So even taking that into consideration, we've created a great balance sheet. The cash does not burn a hole in our pocket. So, when we think of capital allocation, you saw we increased our buyback. It starts with looking at our business and the assets that we own. We model out several years forward, look at intrinsic value, the typical financial metrics, nothing unique there. I think what is unique within our business is the transformation that is under way and well in progress. And so we have over $200 million of software revenue growing in the 10-plus percent range, and that adds a lot of value when we look at comparable market multiples. The largest part of the revenue is software revenues, roughly 2/3 is recurring compliant SaaS revenue, primarily ArcSuite and ActiveDiscolusre. Venue and eBrevia make up the most of the rest, and they have really attractive financial profiles and value as well.

So we look at it, capex is the other place, you saw in 2021 that we're increasing capex. We view capital, and that's -- we're increasing that. It's primarily software development and where we're making the increase is in software development, and it's variable. And so we're thrilled with our internal development effort in terms of great product design, development velocity -- velocity rather. And so we've opened the spigot there a bit. We think the markets for existing products, ability to add functionality capabilities to serve our clients in additional markets or offerings is really strong. And so I would say that even though we're planning to ramp up capex, we're only going to spend where we have good projects. I think 2020 was a great example. We had more dollars allotted. We were unconstrained by our balance sheet and cash flow yet we remain very disciplined on projects and dollars that we approved and ultimately spent. And so we've built a culture here of not confusing activity with progress.

And then moving on M&A. M&A does remain very expensive, despite our enhanced financial flexibility. We look at M&A based on intrinsic value of the asset and what it means to us. We also recognize at current prices, many are priced for perfection or beyond. So -- well, we've looked at a ton of opportunities over the past four years or four plus years. If you look at M&A, we've been a net seller. Debt paydown will continue. And so if I were to summarize it, maybe give a little more than you ask for. But if I were to summarize it, I would say more of the same, continue to drive performance, generate cash, and be very disciplined and thoughtful on how we deploy your capital to grow the business profitably.

Pete Heckman -- D.A. Davidson -- Analyst

Got it, got it. And just on a housekeeping basis, those term notes, $230 million in notes, I think in the quarter, those can be called in October, at what, 102?

David Gardella -- Chief Financial Officer

That's correct.

Pete Heckman -- D.A. Davidson -- Analyst

Great. All right. Wonderful, thanks.

Operator

[Operator Instructions] Your next question comes from Charles Strauzer from CJS Securities. Your line is open.

Charles Strauzer -- CJS Securities -- Analyst

Hi, good morning.

Dan Leib -- President and Chief Executive Officer

Good morning, Charlie.

Charles Strauzer -- CJS Securities -- Analyst

If you could maybe explain a little bit more on the guidance, if you could? You talked about EBITDA improving substantially year-over-year, maybe you can quantify that. And also maybe give us some sense on the different segments, how we should think about that for Q1 and how that should shape up for the year as well from both a top line and profitability perspective? Thanks.

David Gardella -- Chief Financial Officer

Yes. Sure, Charlie. So as I noted, we're expecting an uplift to margin, and it's really driven by the shift in the revenue mix, as Dan commented earlier, really two specific aspects of that. The first is less print and more software and tech-enabled services. And then the second is the higher proportion of the capital markets transactional revenue. You look at the way we started the year, our January results support this. We don't have February results yet, but the trend has continued. I'd also say, in addition to that, we did a great job in 2020 reducing the cost structure. Most of that reduction was not reflected until the second quarter in 2020. So we'll also see the benefits of those actions. I guess more specific to the margin, last year, we reported 13.6% in the first quarter. And I'd say if current trends continue through March, I see EBITDA margin exceeding 20%. So call it, low to mid-20s from a margin perspective. And again, all contingent on the stronger mix continuing. And as we said, the toughest part to predict is really the capital markets transaction market. We have strong activity there, but the timing of exactly when those will hit is not certain.

Charles Strauzer -- CJS Securities -- Analyst

Got it. And perhaps maybe just a little bit more commentary by the segments in Q1 in terms of the contribution from each of the segments and also the margin outlook there, too.

David Gardella -- Chief Financial Officer

Yes. So to my comments, obviously, the transactional revenue and capital markets would hit within capital markets, compliance and communication management. So that's the area we'd expect to see the most expansion. Also, with the software growth, we would expect to see operating leverage there in the two software segments. And then on the investment companies, compliance and communications management, a couple of different things going on there. One, with the drop in print, you have negative operating leverage. And I commented on this in my prepared remarks, but one of the things that will affect all the segments is the way some of the shared costs get allocated. We have certain expenses for centralized functions and there are areas like IT, finance, procurement, HR, just to name a few.

And those get allocated to the four operating segments. There's a variety of drivers that we use to allocate these costs to the different segments, most of them are really based on a combination of net sales and headcount. And so what I would say is, given the significant drop that we expect to see in investment companies, compliance and communications management, net sales related to this regulatory impact. We'll be shifting probably about $11 million of cost out of that segment, and that will go to the other three segments, roughly $3 million to $3.5 million will get pushed to each of the two software segments and then the remaining $4 million to $5 million will go to capital markets, compliance and communications management. And those are -- just to clarify, those are full year numbers. And again, it's a zero-sum game, really just a question on how the segments share certain of those centralized costs.

Charles Strauzer -- CJS Securities -- Analyst

Got it. And then just one more question on the Q1 guidance, the $200 million to $220 million there, how much does that reflect kind of the lost print, if you will?

David Gardella -- Chief Financial Officer

Yes. So obviously, with the regulatory impact that's hitting this year. We haven't specifically broken out the print detail relative to the first quarter of 2020. I would say we're certainly expecting that to decline and then, again, mostly offset or nearly offset by the transactional activity and the growth in the software revenue.

Charles Strauzer -- CJS Securities -- Analyst

And so just looking at the comps, kind of year-over-year, we assume the back half of 2021 will be a tougher comp versus last year obviously?

David Gardella -- Chief Financial Officer

Yes, and it's a great point. I would go back to my comments about having a lack of visibility. I think probably a good example, less than a year ago, when we were trying to understand the potential impact that the pandemic would have, we certainly would have expected a substantially weaker transactional environment during 2020. And obviously, we're pleasantly surprised by the strength of the markets there. It's certainly hard to predict what the second half of '21 will look like. But to your point, we'll definitely be comping against a very strong second half.

Charles Strauzer -- CJS Securities -- Analyst

Got it. Great, thank you very much.

Operator

There are no further questions at this time. I will now turn -- we have a question from Raj Sharma from B.Riley Securities. Your line is open.

Raj Sharma -- B.Riley Securities -- Analyst

Hello, good morning.

David Gardella -- Chief Financial Officer

Good morning, Raj.

Raj Sharma -- B.Riley Securities -- Analyst

Great results, congratulations. I think congratulations also on the continued efforts to cut down costs and improve margins. I just wanted to follow-up on the guidance for the year. There's not much of a revenue guidance, but you did say print is going to be down $130 million from fiscal '20 levels?

David Gardella -- Chief Financial Officer

That's right. Yes.

Raj Sharma -- B.Riley Securities -- Analyst

And then software services is up 10%, right, or double digits? And then tech-enabled will be leaving out because that's all transactional based?

Dan Leib -- President and Chief Executive Officer

It's -- I wouldn't say it's all transactional based, but certainly, the transactional piece, again, as we pointed to several times, not only in the past, but also on this call, it's the hardest to predict. And that's really the biggest variable that from a predictability standpoint, we don't have great insight to what the balance of the year will look like on the transaction side.

Raj Sharma -- B.Riley Securities -- Analyst

Right. So it is what it is. It is what transactions turn out to be in the US and globally that will happen for the year. Now for the guidance for the first quarter, are you assuming transactions sort of sequentially up or is there any...

Dan Leib -- President and Chief Executive Officer

Yes. Yes. To my earlier comments, what we saw in January supports that. We haven't closed February yet, but the activity level remains high on transactional, and then we'll see where March comes out, right? We have a lot in the pipeline still. One of the challenges on transactional is also the timing on when these deals will hit and when we'll ultimately recognize revenue. And so I would say if that trend continues and that mix remains favorable like that, that was my earlier comment around margins potentially reaching kind of low 20%.

David Gardella -- Chief Financial Officer

And just to add to that is, it's great to see Venue respond with a stronger M&A market. We've lived through a fairly weak M&A market, despite the fact that IPOs have been really hot. And so you saw Venue with strong growth starting in Q3, continuing in Q4 to the 10.4% in Q4, and that will be sensitive to the M&A market as well. I think in Q1, we had last year one or two larger projects, but a strong M&A market will certainly be helpful for Venue.

Raj Sharma -- B.Riley Securities -- Analyst

Right. And on that front, any sort of change in pricing relative to IPO versus SPACs? And also about your market share, so market share is holding up in deals are greater than $100 million in the funds transaction side?

David Gardella -- Chief Financial Officer

Yes. So we continue to have strong market share. I think when you look at the activity in 2020, a lot of what drove the IPO pricings was the SPAC market. And typically, we historically have had lower market share there, but have really increased that in 2020. So I think when you look at the overall, we increased our share in SPAC IPO, we increased our share in non-SPAC IPO, but given the mix, I think probably our overall share is down. But certainly -- on the IPO side, but certainly happy that individually, when we look at SPAC and non-SPAC that we're doing very, very well there.

Dan Leib -- President and Chief Executive Officer

Yes. And those SPACs obviously result in de-SPACs, so that's being well positioned on the M&A side as well.

Raj Sharma -- B.Riley Securities -- Analyst

Got it. And then on the compliance, you mentioned the compliance side, revenues in the fourth quarter were up year-on-year. I understand there's seasonality there on the fourth quarter. Any color on why they were higher than expected? Am I thinking correctly?

David Gardella -- Chief Financial Officer

Well, yes, from -- I don't think seasonality would play into a year-over-year comparison. But certainly, we commented on market share being slightly up, some additional 8-K volume, etc.

Dan Leib -- President and Chief Executive Officer

Right. Yes, this is it to add to that. Some of that compliance share is driven on the transactional side. So just -- and Dave, which is the 8-K piece involved in the robustness that you saw on the trans side.

Raj Sharma -- B.Riley Securities -- Analyst

Got it. And then just a couple more. I understand your comments, Dan, about your -- our capital allocation. So as you understand it correctly, it's no real big M&A. Basically, the new capex is going to be our internal software product development to grow on in areas related to compliance management?

Dan Leib -- President and Chief Executive Officer

Yes. So we continue to look at M&A aggressively, but we're disciplined on what things are worth and so -- to us, right, what it means for our business. But yes, we've increased -- we see great opportunity in our internal development both for Venue as well as for the compliance platforms. One of the things I think Dave may have referenced earlier on the investment company side is well, the print is going away, the $135 million next in 2021. We're extremely well positioned for our total compliance management product, which leverages our software. And so we've -- that's -- we're investing behind those software products to drive the growth. But relative to capital allocation, I think you've got it right, which is we'll continue to look at M&A, but we're realistic about the price of the multiples.

Raj Sharma -- B.Riley Securities -- Analyst

That's all, guys. Again, congratulations for wonderful job on transforming the company and pushing up cash flows. Thank you. I'll take it off here.

Dan Leib -- President and Chief Executive Officer

Thank you, Raj.

Raj Sharma -- B.Riley Securities -- Analyst

Thank you again.

Dan Leib -- President and Chief Executive Officer

Sure.

Operator

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

Dan Leib -- President and Chief Executive Officer

Great. Thank you very much, and thank you for everyone for joining us. And we will speak to you again in May.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Justin Ritchie -- Senior Vice President, Investor Relations

Dan Leib -- President and Chief Executive Officer

David Gardella -- Chief Financial Officer

Pete Heckman -- D.A. Davidson -- Analyst

Charles Strauzer -- CJS Securities -- Analyst

Raj Sharma -- B.Riley Securities -- Analyst

More DFIN analysis

All earnings call transcripts

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