What happened
Donnelley Financial Solutions (DFIN 0.83%) saw its stock price soar during trading on Wednesday. It was up nearly 24% at around 10:45 a.m. ET and at around 2:30 p.m. ET it was still up roughly 19% to around $40 per share.
On what was a good day for the markets overall, Donnelley Financial got an added boost from a strong second-quarter earnings report, released Wednesday.
So what
Donnelley Financial Solutions is a leader in providing risk management and data analytics solutions for public companies and investment management clients, which includes some 700 of the Fortune 1000. In short, it helps companies stay in compliance with Securities and Exchange Commission (SEC) regulations. It is the world's largest EDGAR filer, filing roughly 160,000 documents through that SEC portal per year.
In the second quarter, Donnelley smashed consensus estimates, posting net sales of $266 million, down 0.5% from a year ago, and net earnings of $46 million, up 7% year over year. Earnings per share (EPS) was up 15% year over year to $1.46. Analysts were expecting $221 million in revenue, $27 million in earnings, and $0.80 in EPS.
The company saw significant revenue gains in software solutions, or its software-as-a-service (SaaS) offerings, which jumped 8% year over year. The increase reflects the company's transition away from print products to SaaS and tech-enabled services, which now account for the bulk of revenue.
"During the second quarter, we made continued progress toward becoming a software-centric company," President and CEO Daniel Lieb said in a statement. "Total software sales grew nearly 8% compared to the second quarter of 2021 and made up 26.9% of total second quarter net sales, an increase of 200 basis points from last year's second quarter sales mix." He added that recurring compliance products saw sales rise 13% in the quarter.
Now what
The transition has also had the effect of lowering expenses, as the net cost of sales was $112 million, down 5% year over year. For the first six months, net cost of sales is down 7%. That has helped the company boost its free cash flow by 48% year over year to $31 million.
Donnelley is down about 15% year to date, a far cry from last year when it was up 178%. Donnelley benefited last year from a record year for special purpose acquisition company (SPAC) deals, which involves a lot of filing and compliance. While the SPAC market has cooled, Donnelley has been able to perform fairly well due to its focus on becoming software-centric and its cost controls. It is also cheap with a price-to-earnings (P/E) ratio of 8.
