Donnelley Financial Solutions Inc (DFIN) 2022 Q4 法說會逐字稿

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Fourth Quarter and Full Year 2022 Financial Results Conference. Today's conference is being recorded. (Operator Instructions)

At this time, I'd like to turn the conference over to Mike Zhao, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions' Fourth Quarter and Full Year 2022 Results Conference Call. This morning, we released our earnings report, including a supplemental trending schedule of historical results. copies of which can be found in the Investors section of our website at dfinsolutions.com.

During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further details in our most recent annual report on Form 10-K and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin.

We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I'm joined this morning by Dan Leib, Dave Gardella, Craig Clay, Eric Johnson, Floyd Strimling and Kami Turner.

I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. Our fourth quarter performance further demonstrated the resiliency of our operating model and the sustainability of our adjusted EBITDA margin performance in a difficult operating environment. During the fourth quarter, we navigated a transactions market that remained very challenging. As a result of strong execution, we delivered an adjusted EBITDA margin of 23.4% in the quarter despite capital markets transactional revenue being down nearly 50% from the fourth quarter of 2021.

Consistent with our performance throughout 2022, our fourth quarter adjusted EBITDA margin performance, which reflects our evolving sales mix, permanent changes to our cost structure and continued cost discipline is significantly higher than historical quarters with similar overall and transactional revenues. Our fourth quarter performance is a further validation of our strategy as well as our proven ability to sustainably operate at a higher level of profitability across a range of market conditions. Dave will cover the fourth quarter results in more detail shortly.

Reflecting on the full year of 2022 against the backdrop of the combination of market volatility, macroeconomic headwinds and geopolitical uncertainty, we delivered strong full year results. Despite Capital Markets transactional revenue being down nearly $170 million or 41% for the year, we delivered $218.3 million of adjusted EBITDA and an adjusted EBITDA margin of 26.2%, both of which are significantly higher than historical periods with similar overall and transactional revenues.

In fact, our full year 2022 adjusted EBITDA and adjusted EBITDA margin are each the second highest in the history of the company exceeded only by the record results in 2021 that were driven by a much more robust transactions environment. Our focused execution to improve our sales mix and manage our costs in a disciplined manner has resulted in DFIN becoming fundamentally more profitable.

Our strong profitability combined with robust cash flow generation provided us the financial flexibility to increase organic investment in software development to drive growth, repurchased 4.7 million shares during the year and end the year with non-GAAP gross and net leverage well below 1x. In 2022, we made continued progress in our journey towards becoming a software-centric company.

For the full year, we achieved record Software Solutions net sales of $279.6 million, an increase of approximately 4% from 2021. Despite the negative impact of the weak transactional market on venue, our data room offering. Software Solutions net sales represented nearly 34% of our full year net sales, up from 27% of total net sales in 2021. Software sales comprising more than 1/3 of our total sales in 2022 compared to just 14% of total sales in 2016 is a significant proof point of our transformation and sets us on the right path to achieve our goal of driving 55% to 60% of total sales from software by 2026.

The primary driver of full year software sales growth was the performance of our recurring compliance and regulatory-driven software products, which in aggregate grew 11% versus full year 2021. These compliance software offerings, which include ActiveDisclosure and Arc Suite, continue to gain scale in 2022 and reached approximately $171 million in total net sales, representing approximately 61% of our overall Software Solutions net sales. To illustrate this progress, total compliance software generated less than $70 million of net sales in 2016.

Over the course of the last 6 years, through new product introductions such as new AD and ArcDigital total compliance management, increased go-to-market investments and expansion of our partner ecosystem, we have grown the compliance software platform by more than $100 million to $171 million today, which translates into an annualized growth rate of approximately 16%. The sustained level of double-digit growth in recurring compliance software is an important step in the transformation of our business mix and financial profile to become more predictable and resilient.

ActiveDisclosure, a key component of the compliance software offering, purpose-built for SEC reporting for corporations grew 14% in 2022. I am pleased with ActiveDisclosure's recurring subscription revenue base, which grew 19% year-over-year despite the impact of SPAC liquidations, which negatively impacted the growth rate in recurring subscription revenue. I am also pleased with the progress we made in 2022 to transition customers from our legacy AD3 platform to new ActiveDisclosure.

At the end of 2022 in less than 2 years since its launch, only approximately 15% of our ongoing client base remains on legacy AD3, a significant milestone that has enabled us to achieve higher price levels and longer-term commitments, resulting in strong annual recurring revenue. Based on the strong progress we have made thus far, as of year-end 2022, the cumulative subscription contract value sold on new ActiveDisclosure reached nearly $110 million.

We remain on track to decommission legacy AD3 by the end of the first half of 2023, which will allow us to shed the duplicative costs associated with operating 2 platforms. Prior to that point, we expect to transition the majority of the remaining legacy AD3 customers onto the new ActiveDisclosure platform. As we've noted in the past, we expect our customer churn rate to be temporarily elevated, recognizing that we would not convert all our legacy AD3 customers to new ActiveDisclosure, and we have seen that play out in 2022.

While the churn impact is more than offset by price uplifts and longer-term contracts, we expect higher retention rates when we complete the transition in the first half of 2023, consistent with what we are experiencing on the new ActiveDisclosure offering. Overall, I am pleased with the progress we have made in driving toward a single ActiveDisclosure platform, while at the same time, creating a strong foundation for new active disclosure. Arc Suite, our market-leading compliance software offering to mutual funds and other regulated investment companies delivered solid full year net sales growth of 12% or 13% growth on a constant currency basis.

I'm encouraged by the solid subscription revenue growth across our ArcPro and ArcRegulatory solutions, helping to more than offset a normalized demand profile for ArcDigital total compliance management solution, which had a very strong adoption in 2021, following its introduction in response to regulatory change. Arc Suite possesses the characteristics of a best-in-class enterprise software offering. With a high component of recurring subscription revenue, which makes up nearly 90% of total revenue as well as long-term contracts with average contract terms in excess of 3 years.

Turning to our transactions-driven software, Venue, which experienced tremendous growth last year as a result of a robust capital markets transaction environment. Compared to a very strong 2021 when venue sales were up 46% versus the prior year, full year 2022 vendor sales were down 6%, performing significantly better than its primary use case M&A. But the global M&A market down over 20% year-over-year in 2022, the level of underlying activity taking place on our virtual data room platform remained resilient. Perhaps more significantly, under a very challenging M&A environment, menu delivered just under $100 million in net sales in 2022.

For context, Venues 2022 net sales were nearly 40% higher than net sales reported in 2019 and 2020 of $71 million and $72 million, respectively. Given the higher levels of transactional activity in both 2019 and 2020, venues growth is a great testament to our sales execution and market share gains. Overall, I'm encouraged by the performance of our software solutions portfolio in 2022 and believe both our recurring compliance and transactional software products are well positioned for the future. The progress we made throughout 2022 to scale our portfolio of recurring compliance software solutions combined with opportunities for new SEC regulations, which I touched upon previously, position us well to achieve our long-term goals.

Let me highlight one of the regulatory tailwinds we see on the horizon. Tailored shareholder reports, which we believe is a regulation that can unlock additional revenue opportunities for DFIN both in terms of increased adoption of software solutions as well as higher consumption of tech-enabled services within the Investment Company's segment. Late last year, the SEC released its final ruling on tailored shareholder reports, which has a compliance date of July 2024. The new regulation, which applies to mutual funds and exchange-traded funds, requires the creation and distribution of tailored reports that highlight key information, such as fund expenses, performance and portfolio holdings on a semiannual basis.

These concise financial reports, which feature increased adoption of graphic and stylistic presentation aim to make the information more effective for the average retail investor and will replace detailed disclosures being distributed today. This rule carries 3 important measures that directly impact the content creation and production requirements for our clients. First, the rule requires a tailored shareholder report to be produced and filed at the share class level versus at the fund level where it's done today with multiple share classes per fund, on average, the new rule significantly increases the volume of reports a fund has to create and distribute to shareholders.

Second, unlike the current Form N-CSR reports which are filed only in EDGAR HTML, the regulation introduces iXBRL tagging, requiring the tailored shareholder reports to the iXBRL tagged inserted into Form N-CSR and then filed. Third, the regulation requires a layered disclosure, whereby the summary document is linked to a more comprehensive disclosure.

The key changes introduced by this rule require new levels of automation and workflow along with industry-specific technology, making the DFIN platform and excellent foundation for the industry solution. Specifically, new active disclosure was designed and built to integrate our Arc Suite capabilities to create a future state single platform for all compliance solutions, serving corporations, mutual funds, exchange-traded funds and regulated insurance companies.

The platform combines foundational and market-specific capabilities across composition, tagging, filing and regulatory and financial reporting into a single platform. This platform in conjunction with our deep domain service expertise allows us to address clients' needs under the tailored shareholder reports regulation.

Finally, the requirements of this rule are a great fit for our digital distribution platform to support our clients with web hosting, e-delivery, digital output and distribution of required reports. Tailored shareholder reports is just one of several new regulations that our clients turn to DFIN to help them operationalize pay versus performance and as the ruling becomes more well defined, the Financial Data Transparency Act, are both good examples of this. We are excited by the opportunity presented by tailored shareholder reports as well as other opportunities on the horizon for future regulatory changes to expand the uses of our software and services as we assist our clients with their regulatory requirements.

In addition to the progress we made towards becoming a software-centric company, I'd be remiss not to highlight the continued success we are having in improving the profitability of our investment companies Compliance and Communications Management segment. Through a combination of exiting low-margin contracts, aggressively managing the cost structure and aligning our pricing with the value we deliver to clients, our 2022 adjusted EBITDA increased by over $20 million, nearly doubling what we delivered in 2021.

Further, adjusted EBITDA margin more than doubled in 2022, increasing by more than 1,600 basis points to 29.1%. As further evidenced, in 2020, adjusted EBITDA margin in this segment was approximately 6%. Before turning things over to Dave, I wanted to provide a quick update on our strategic priorities for this year. As I have stated previously, our strategy to be the market-leading provider of regulatory and compliance solutions is unchanged. We remain committed to executing our strategy to support our clients as they navigate an increasingly complex regulatory and compliance landscape.

In 2023, you can expect our primary focus to remain on accelerating our business mix shift by continuing to grow our recurring SaaS revenue base while maintaining share in our core traditional businesses, including transactions. We will continue to invest in our regulatory and compliance software platform to ready ourselves to capitalize on the demand from future new regulations and non-SEC use cases. In addition, we will continue to aggressively manage our costs and drive operational efficiencies. Finally, we will remain disciplined in the allocation of capital in order to maintain our financial flexibility to execute our strategy. I'm confident that if we do these things well in 2023, we will create increased value to all our stakeholders, our clients, employees and shareholders.

Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our fourth quarter results and our outlook for first quarter. Dave?

Thank you, Dan, and good morning, everyone. As Dan noted, we delivered strong fourth quarter adjusted EBITDA margins in the context of a very weak capital markets transactional environment. The volume of capital markets deal activity remained substantially below last year's levels as the market softness in the first 3 quarters of 2022 deteriorated further in the fourth quarter. In fact, the fourth quarter of 2022 had the fewest number of priced IPOs and completed M&A transactions of any quarter in the year.

Despite the very challenging demand environment, our focused efforts to execute our strategy have enabled DFIN to become fundamentally more profitable with adjusted EBITDA margins nearly 1,000 basis points higher compared to the fourth quarter of 2019, which had slightly higher levels of overall sales and transactional sales. On a consolidated basis, net sales for the fourth quarter of 2022 were $167.7 million, a decrease of $65.1 million or 28% from the fourth quarter of 2021. The parts of our portfolio, most leveraged through corporate transactions, specifically capital markets, transactional and the Venue data room businesses drove the vast majority of the year-over-year decline.

In aggregate, capital markets transactional and Venue bedroom revenue decreased $57 million or 42% versus the fourth quarter of last year. Fourth quarter non-GAAP gross margin was 54.9%, approximately 550 basis points lower than the fourth quarter of 2021, primarily driven by lower sales volume and an unfavorable business mix, both related to lower capital markets transactional activity, partially offset by the impact of ongoing cost control initiatives and lower incentive compensation expense. Adjusted non-GAAP SG&A expense in the quarter was $53.2 million, a $26.1 million decrease from the fourth quarter of 2021.

The decrease in adjusted non-GAAP SG&A is primarily driven by a reduction in selling expenses as a result of lower sales volume, lower incentive compensation expense and the impact of ongoing cost control initiatives. As a percentage of net sales, adjusted non-GAAP SG&A was 31.7%, a decrease of approximately 240 basis points from the fourth quarter of 2021. Our fourth quarter adjusted EBITDA was $39.3 million, a decrease of $22 million or 35.9% from the fourth quarter of 2021. Fourth quarter adjusted EBITDA margin was 23.4%, a decrease of approximately 290 basis points from the fourth quarter of 2021, primarily driven by lower capital markets transactional and venue sales partially offset by lower selling expenses as a result of lower sales volume, lower incentive compensation expense and the impact of ongoing cost control initiatives.

As we noted earlier, our fourth quarter adjusted EBITDA margin is approximately 1,000 basis points higher than our historical margins in quarters with similar overall and transactional revenue. Our focused efforts to reduce fixed costs across the business and to variabilize our cost structure in specific areas have positioned DFIN to be more sustainable and resilient throughout market cycles.

Turning now to our fourth quarter segment results. Net sales in our Capital Markets Software Solutions segment were $43.4 million, a decrease of 14.2% from the fourth quarter of 2021. The decrease in net sales is primarily due to lower Venue data room activity and the disposition of EDGAR Online, partially offset by the increase in our recurring compliance product, ActiveDisclosure.

In the fourth quarter, ActiveDisclosure recurring subscriptions revenue grew 6%, while total revenue, which includes both subscriptions and services, grew 2%. As Dan commented earlier, we are nearing the end of client transitions from AD3 to new AD as the number of clients making the transition decreases the amount of services revenue, part of which is related to customer migrations declined in the fourth quarter.

Additionally, the combination of spec liquidations, normal customer churn and the ongoing weakness in IPO activity resulted in a modest decline in the number of customers on the platform. The decline in services revenue and impact of customer churn was more than offset by price increases on conversions in addition to new customer wins.

Sales of our virtual data room offering venue were down 19.1% compared to the fourth quarter last year, driven by a steep decline in M&A volumes. Robust M&A activity during the fourth quarter of 2021 resulted in record quarterly venue revenue, creating a difficult year-over-year comparison. Similar to what we experienced in the first 3 quarters of this year, venue performed better than the market trend of its primary use case M&A during the fourth quarter.

With the global M&A market down nearly 40% on a year-over-year basis in the fourth quarter, we continue to be encouraged by the resiliency of venue sales. Adjusted EBITDA margin for the segment was 21.2%, a decrease of approximately 210 basis points from the fourth quarter of 2021, primarily due to lower sales volume and unfavorable sales mix and a higher allocation of overhead costs, partially offset by lower selling expenses as a result of lower sales volume, lower incentive compensation expense and price uplift from new AD.

Net sales in our Capital Markets, Compliance and Communications Management segment were $73.4 million, a decrease of $54 million or 42.4% from the fourth quarter of 2021, primarily driven by lower capital markets transactional activity, which accounted for approximately $52 million of the year-over-year sales decline in this segment. Similar to the trends we experienced in the first 9 months of the year, the demand environment for equity transactions remain very challenging in the fourth quarter.

Specifically, the IPO market remained frozen during the fourth quarter with only 3 priced IPOs over $100 million taking place on U.S. exchanges compared to nearly 200 priced IPOs in the fourth quarter of 2021. The M&A market, while more resilient than the IPO market slowed sequentially from the third quarter and was down nearly 40% in the fourth quarter versus last year. Adjusted EBITDA margin for the segment was 31.9%, a decrease of approximately 950 basis points from the fourth quarter of 2021. The decrease in adjusted EBITDA margin was primarily due to the lower transactional sales partially offset by lower selling expenses, lower incentive compensation expense and cost savings initiatives.

Net sales in our Investment Companies Software Solutions segment were $25.3 million, an increase of 9.1% from the fourth quarter of 2021. Excluding the negative impact of foreign exchange rates, net sales increased 10.8% versus the fourth quarter of 2021. The year-over-year growth was primarily driven by subscription revenue in ArcPro and ArcRegulatory, 2 products within our Arc Suite offering.

Additionally, our digital, our total compliance management offering delivered positive year-over-year sales growth in the quarter, an improvement from the more normalized demand profile we saw in the first 3 quarters of the year, following the initial adoption of the solution in 2021. Combined, our Arc Suite products delivered full year net sales growth of 11.7% or 13.4%, including the negative impact of foreign exchange rates.

As Dan mentioned earlier, Arc Suite is well positioned to capture additional demand from new regulations such as tailored shareholder reports to further drive future revenue growth. Adjusted EBITDA margin for the segment was 36.8%, an increase of approximately 1,650 basis points from the fourth quarter of 2021. The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in sales and lower incentive compensation expense, partially offset by higher product development and technology investments.

Net sales in our investment companies, Compliance and Communications Management segment were $25.6 million, a decrease of 19% from the fourth quarter of 2021 as the impact of regulatory changes and a reduction of print sales related to contracts we proactively exited were partially offset by higher service-related revenue and price increases. Adjusted EBITDA margin for the segment was 21.5%, approximately 570 basis points higher than the fourth quarter of 2021. The increase in adjusted EBITDA margin was primarily due to a favorable sales mix, featuring more services and less print price increases and a reduction in overall expense within the segment based on the lower activity level in this segment.

Non-GAAP unallocated corporate expenses were $13.7 million in the quarter, a decrease of $8.9 million from the fourth quarter of 2021, primarily driven by lower incentive compensation expense and the impact of ongoing cost control initiatives, partially offset by an increase in expenses aimed at accelerating our transformation. Free cash flow in the quarter was $58.5 million, a decrease of $4.2 million compared to the fourth quarter of 2021. The reduction in fourth quarter free cash flow is primarily driven by the decline in adjusted EBITDA, partially offset by lower cash payments on interest and taxes and favorable working capital.

We ended the quarter with $169.2 million of total debt and $135 million of non-GAAP net debt, including $45 million drawn of our revolver. From a liquidity perspective, we had access to the remaining $255 million of our revolver as well as $34.2 million of cash on hand. As of December 31, 2022, our non-GAAP net leverage ratio was 0.6x. Regarding capital deployment, we repurchased approximately 0.4 million shares of counted stock during the fourth quarter for $13.7 million at an average price of $37.27 per share.

For the full year 2022, we repurchased approximately 4.7 million shares of common stock for $152.5 million at an average price of $32.21 per share. As of December 31, 2022, we had $124.3 million remaining on our $150 million stock repurchase authorization. As always, we will remain disciplined on all future capital allocation decisions. As it relates to our outlook for the first quarter of 2023, we expect continued weakness in the trajectory of our transactional sales offerings.

The transactional pieces of our business remain challenging to forecast and though we are very well positioned to secure the opportunities when market activity returns, we are planning for ongoing weakness in the near term. With that as the backdrop, we expect consolidated first quarter sales in the range of $180 million to $190 million and non-GAAP adjusted EBITDA margin of approximately 20%.

As it relates to the full year, our 2023 operating plan includes incremental investment aimed toward accelerating our transformation. Our capital spending, which is predominantly related to development of our software products and underlying technology to support new growth and improving operating efficiencies. We expect these to impact each quarter equally throughout the year and as with all investment decisions, we will remain disciplined and take a staged approach to ensure projects are generating returns at or above expected levels.

We expect the benefit of these initiatives will pay off substantially beginning in 2024. With that, I'll now pass it back to Dan.

Thanks, Dave. Our performance in 2022 serves as further proof that our strategic transformation is enabling DFIN to become more profitable, focused and resilient. We executed well in a very challenging market environment, delivering solid financial results while continuing to invest in our aspiration of becoming a software-centric company.

While it is difficult to predict the end of the current downturn in capital markets, our solid financial profile provides us with the foundation to continue to execute our strategic transformation. I am more excited about our future than ever.

Before we open it up for Q&A, I'd like to thank the DFIN employees around the world who have been working tirelessly to ensure our clients continue to receive the highest quality solutions. Now with that, we're ready for questions.

(Operator Instructions) We'll go first to Charles Strauzer at CJS Securities.

This is Stefanos Crist calling in for Charlie. Can you just talk about your visibility in the software business and maybe just thoughts on the growth in the near term?

Yes, sure. This is Dan. I'll start off. So if we look at our compliance offerings, there's great stability in terms of market demand that exists regardless of the economy in which we're operating. And so as we've mentioned, they've grown 16% or so since we spun out on a compounded annual growth rate.

And as we look forward long term, we're in that same teens rate. The one thing we talked -- we talked about 2 things. One, that is a bit of a headwind is within ActiveDisclosure and the final transition from AD3 on to new AD. So we think that's a bit of a headwind. And then the tailwind are some of the regulatory -- new regulations, I should say, that will benefit us, and a lot of that benefit starts to occur towards -- well, more prominently in 2024, there's potential that there's some benefit towards the end of 2023. And then the last piece, which is not insignificant is Venue, which has done a really -- we've done a really nice job of outperforming the broader transactions market, but I would just point out that its major use case is M&A. So that will be impacted by how the M&A market is. But again, if you look at the spread, we've been doing well in a more challenging M&A biome.

Got it. And you mentioned $60 million of CapEx on software or sorry, total CapEx. Could you just break that down into how much is going to be on improving the software offerings?

Yes. Stefanos, this is Dave. Substantially, all of our CapEx is around either specific to product development, and then there's a portion also the underlying IT that supports it. There's very little capital that goes outside the 2 technology areas there.

We'll move next to Pete Heckmann at D.A. Davidson.

A few quick questions. When you think about that increase in operating expenses, how would you kind of quantify that in terms of basis points on EBITDA margins?

Yes. So Pete, I think you're referring to the -- we noted about $25 million in some of that OpEx around accelerating the transformation. Roughly I'd say 2/3 of that is incremental on a year-over-year basis. And then some of it is probably in the base. And so I think the impact on overall margin or basis points is tough to gauge. I think depending, obviously, on what happens with the transactional market in '23, that amount will vary in terms of the impact that it has on margin.

Okay. All right. And then just the divestiture of EDGAR Online, was there any material level of revenue related to that subsidiary?

They we're insignificant. We have -- I think it was about $1.5 million a quarter last year. about $5 million in total?

Okay. Great. And then just lastly, you noted some of the SPAC liquidations. I mean is there a way to think about that? And obviously, the final chapters haven't been written on some of the SPACs that are still looking for deals. But I guess, how are you thinking about maybe your best guess or best estimate in terms of the remaining crop of 2020, 2021 SPACs, having success finding and closing deals versus liquidating and about how much drag do you anticipate that would be on 2023 revenue?

Yes. Sure. This is Craig Clay, I'll start. SPAC IPOs have historically made up a small percentage of our transactional revenue, the bigger opportunity, as we've noted in the past is the leaseback -- so Q4 had 71 SPACs announced their business combinations. It was the most active quarter in 2022. There were 25 in December alone. So as you referenced, about 350 SPACs looking for their business combination according to Dealogic, these SPACs or valuing companies are seeking to take private at their lowest level since the boom began.

So last year, the merger valuation fell to about $200 million from $2 billion. So what this shows is a reset in valuation, but also a progress in the market digesting that SPACs peak -- and certainly, as you referenced, the de-SPAC performance has been challenged. So of the SPAC that completed last year, only 10%, we're trading at $10 million or higher. And this poor market performance did cause a lot of scrutiny. It did have certainly the largest number of redemptions. So Q4 had 96%, which was the worst on record. But when you roll all that together, what you have is some quality deal teams that are still there, that are still looking and we're optimistic that SPACs are going to continue to find their place in the capital market albeit at a lower level than we saw.

And the one thing I would add there is, as it relates to the compliance business specific on AD, we did see, obviously, in '21, a lot of the SPACs coming on to the platform and then with some of the liquidations in '22 and lack of IPO in '22. Our growth rate in AD was really moving up nicely in '21. Obviously, it started to slow in '22 because of that impact in addition to, as Dan mentioned earlier, the transitioning, the remainder of clients off of AD3. And so we'll expect to see that continuing kind of softer trends in the first half of the year as everything kind of resets and then improving starting in the back half.

To maybe provide some additional on the IPO side, for the reasons you know too well, 2022 slowest year for IPO proceeds in 30 years. And it was dominated by real small deals. There were only 16 offerings in the full year that were greater than $100 million. That's the lowest in over 20 years. We're happy that we worked to 16 of those 20 largest deals. And what our clients are telling us right now is that we may see a few highly selective IPOs in the first half, but that can lead to a broader IPO issuance in the second half.

And as we've previously commented, we're encouraged by the pipeline in crosses fields and that pent-up demand for future transactions. We had a little tailwind with the new regulatory approval for direct listings without being limited to the price restriction. So this as yet unused alternative could have a positive for the market, and it's the same amount of work for DFIN. So given all these steps our clients are taking to remain ready to go public, we know that they'll respond quickly when that market opens.

We'll take our next question from Raj Sharma at B. Riley Securities.

I just wanted to understand on your guidance first quarter, can you give us just a little bit more visibility into what is the guidance building in for transactions and for software in -- from your pipeline that you have currently, how do you see that -- do you see certain sectors and transactions doing better than the others? Any sort of color on that would be great.

Yes, Raj. So I think when we look at -- from a transactional perspective, specifically, we're expecting kind of the continued downward pressure, both sequentially and even year-over-year, I think transactional capital markets revenue last year was $51 million or so. And so we're expecting down again relative to that number. I think from a software perspective, again, I commented on AD. So slower growth in the first half and better growth in the second half as things reset. And then I think when you look at the software component within the GIC business more a continuation of what we've been seeing over the last few quarters here. I'd also counted just from a margin perspective that Q1 is typically our lowest margin quarter. And again, given the pressure on transactional, we think in that 20% range or so is likely where we come on up.

Great. And then on the software piece, I know that you commented that this year and probably -- possibly longer term, you're expecting mid-teens growth. How should we see that buildup? And -- but there are headwinds. So you should expect somewhere south of low to mid-teens in growth rate this year, but something picking up with your investments in '24? Is that the way to look into that?

Yes. And we've talked about this in the past, so we do kind of a long-range guidance on that, and that mid-teen is meant to be exactly that. Certainly not going to be quarter-to-quarter or even year-to-year or product by product, right? But in aggregate, we would expect that mid-teen growth. And like you said, there's certain things that we're facing this year that what I alluded to earlier on AD will be a headwind earlier in the year and then kind of resetting to a more normalized trajectory in the back half. certainly, venue has done better than the broader M&A market. But given the lack of activity in M&A and depending on how the year plays out on the transactional side, Venue will be a function of what the M&A market does largely.

And then you referenced some of the tailwinds, and Dan talked about them earlier, specifically around shareholder reports, but that's more of a second half '24 and then there's some other regulatory -- the rules on the horizon that would be

(technical difficulty)

I guess, yes. So I would just add, and Dave hit it on the 2/3 is compliance-driven software, 1/3 is venue. And if you just go back, I think the last few years are instructive as to what the growth rates can look like with a tailwind of regulation back in 2021, we grew at our software over double what our long-term target is. And obviously, we had tailwinds and transactions there as well. So to Dave's point, there's a long-range guidance here because 1/3 of it is less predictable. And then 2/3 is more predictable and becoming a bigger part of the whole as we operate through cycles.

Got it. And then just on print, what's sort of a decline or flat lining? Are you expecting incurred revenues this year?

Yes, Raj. I would say back to kind of the longer-run trend on print, secular decline in the, call it, the 5% range or so. Some of that gets impacted by the transactional environment to the extent there are more or less transactions and printed documents going along with those. And then longer term, we would expect the same thing. The one caveat there would be to the extent that any of the future regulations such as tailored shareholder reports might require some incremental printing that could possibly beat the trend there as well.

Great. And then just lastly, on EDGAR Online, you talk about -- I know that you just mentioned the revenue impact was $5 million. Can you talk about the reason for the disposition and sort of how much was it disposed for? Do you already have that functionality now in the other software pieces?

Yes. So at a high level, declining business, it's not core to our compliance offering was going to require some incremental -- pretty significant incremental investment to maintain it? And just so from an overall economic perspective and as we look at capital deployment, the combination of investing in a nonstrategic declining asset just didn't make sense. And fortunately, we found a buyer, albeit at a pretty low price. But I think relative to the alternatives there, it was a really good outcome for us.

And that does conclude the question-and-answer session. I would like to turn the call back over to Dan Leib for any closing remarks.

Great. Thank you. Appreciate everyone's time this morning, and we look forward to connecting with you over the ensuing months. Thank you.

This concludes today's conference call. You may now disconnect.