Executive Summary / Key Takeaways

• Donnelley Financial Solutions (DFIN) is successfully executing a strategic transformation into a software-centric provider of financial regulatory and compliance solutions, with software sales comprising 52% of total sales in Q3 2025.
• The company delivered strong financial performance, including double-digit software growth and significant adjusted EBITDA margin expansion, demonstrating resilience despite a soft capital markets transactional environment and a secular decline in print services.
• Strategic investments in core software platforms like ActiveDisclosure, Arc Suite, and the newly rebuilt Venue Virtual Data Room, alongside the introduction of ArcFlex for alternative investments, are enhancing DFIN's competitive moat and driving future growth.
• DFIN maintains a disciplined capital allocation strategy, prioritizing organic investments and share repurchases, further bolstered by the successful termination of its legacy pension plan in Q3 2025.
• While near-term capital markets transactional revenue faces headwinds from market volatility and the recent U.S. government shutdown, DFIN's strong market position and recurring software revenue base are expected to provide stability and capture latent demand upon market normalization.

Setting the Scene: DFIN's Evolution in Financial Compliance

Donnelley Financial Solutions, Inc. (DFIN), founded in 1983 and spun off in 2016, has fundamentally reshaped its business to become a leading global provider of innovative software and technology-enabled solutions for financial regulatory and compliance needs. The company serves a diverse client base, including public and private companies, mutual funds, and other regulated investment firms. DFIN's overarching strategy centers on a profound transformation into a software-centric enterprise, leveraging its deep regulatory expertise and a unique hybrid model that combines advanced software with high-touch tech-enabled services.

The industry landscape is rapidly evolving, driven by a pervasive digital transformation in financial compliance. Clients are increasingly migrating from traditional physical print and distribution methods to digital solutions, demanding greater use of structured, machine-readable data like iXBRL, summary documents, and layered website disclosures. This trend creates significant opportunities for DFIN, allowing it to offer new value-added functionalities and accelerate its transition from print to software. DFIN's historical journey, particularly its "44 in 24 strategy" launched in May 2020 to double software sales mix, has been instrumental in shaping its current strategic responses. By the end of 2024, software solutions constituted 42.2% of total net sales, marking the first time this segment became the largest component of DFIN's overall revenue mix.

In this dynamic environment, DFIN operates alongside formidable competitors such as Broadridge Financial Solutions , SS&C Technologies Holdings , and Envestnet (ENV). While Broadridge offers broader investor communication tools and a robust global network, and SS&C excels in comprehensive fund administration and data management, DFIN distinguishes itself with specialized expertise in SEC filing and compliance management. DFIN's market positioning emphasizes niche, tech-enabled risk solutions, providing a unique value proposition in specialized compliance workflows. Its strengths in proprietary software for data extraction and validation enable notably faster processing in regulatory tasks compared to more generalized platforms offered by some rivals.

Technological Edge: The Engine of Transformation

DFIN's strategic transformation is powered by continuous investment in its core technology platforms: ActiveDisclosure, Arc Suite, and Venue Virtual Data Room. These platforms are not merely tools; they are the foundational elements of DFIN's competitive moat, designed to meet the complex and evolving demands of financial regulatory compliance.

ActiveDisclosure, DFIN's flagship compliance software, has demonstrated robust growth, with sales increasing approximately 26% in Q3 2025. This acceleration is driven by the continued adoption of subscription service packages and the migration of traditional compliance activities, such as IPO registrations and annual proxy documents, directly onto the software platform. The platform's ability to facilitate these complex filings in a hybrid model, combining software with DFIN's unmatched service offering, provides a tangible benefit of enhanced efficiency and control for clients. ActiveDisclosure's position as "the most advanced specifically designed disclosure tool" is a key differentiator, leading to improved revenue retention rates and higher subscription value per client.

The Arc Suite platform, a comprehensive cloud-based solution for investment companies, is another critical technological asset. It includes modules like ArcDigital, ArcPro, ArcRegulatory, and ArcReporting, enabling self-service storage, management, editing, tagging, and submission of regulatory information. The Tailored Shareholder Reports (TSR) regulation, effective July 2024, significantly benefited Arc Suite, generating approximately $6 million in software revenue in full year 2024 and an expected $11 million to $12 million in recurring software revenue on a full-year basis. In Q3 2025, DFIN launched ArcFlex, a new Arc Suite module tailored for alternative investment companies, addressing the growing private funds market with customized financial and regulatory reporting solutions. This demonstrates DFIN's agility in leveraging its platform to capitalize on new market opportunities and regulatory changes.

Venue Virtual Data Room, following a comprehensive rebuild, was launched in Q3 2025. The new Venue offers a modern architecture, streamlined navigation, intelligent permissioning, and real-time insights, designed to speed due diligence and simplify collaboration for M&A, capital raising, and IPO work. Its redesign directly addresses client demands for a data room that is "genuinely faster to set up, easier to govern, and reliable at deal speed". Its connectivity with ActiveDisclosure further streamlines SEC filings, providing a cohesive solution for complex transactions. The modern architecture positions Venue to efficiently add further capabilities, strengthening its position as a data room of choice for corporate transactions.

DFIN's commitment to innovation extends to its R&D initiatives, which focus on applying automation and AI-driven tools, including commercial AI solutions and its own agentic AI development. These investments aim to streamline workflows, improve productivity, and support profitable growth, ultimately scaling existing products and accelerating time-to-market for future offerings. This technological leadership contributes directly to DFIN's competitive moat, enabling higher average selling prices, lower operational costs, and better margins, thereby solidifying its market positioning and long-term growth strategy.

Financial Performance: A Story of Resilience and Growth

DFIN's financial performance in Q3 2025 and year-to-date 2025 underscores the success of its strategic transformation, demonstrating resilience despite persistent market headwinds. For the three months ended September 30, 2025, total net sales were $175.3 million, a decrease of 2.3% from the prior year. However, this consolidated figure masks a significant underlying shift: Software Solutions net sales grew by 10.3% to $90.7 million, representing approximately 52% of total sales in the quarter. This growth was primarily driven by ActiveDisclosure, which saw a 26% increase in net sales, and Arc Suite, which grew by 10%.

Conversely, tech-enabled services net sales decreased by $6.6 million, largely due to lower capital markets transactional and compliance volumes, while print and distribution net sales fell by $6.1 million, impacted by declining investment companies compliance volumes and the broader secular shift away from physical documents. Despite these declines in traditional segments, DFIN's income from operations for Q3 2025 increased significantly by 54.9% to $28.2 million, primarily due to lower selling, general, and administrative (SGA) expenses of $6.7 million and reduced cost of sales of $3.4 million, reflecting effective cost control initiatives and operational efficiencies.

For the nine months ended September 30, 2025, total net sales decreased by 5% to $594.5 million. This was mainly due to a $30 million drop in tech-enabled services and a $20.5 million reduction in print and distribution, partially offset by a $19.4 million increase in software solutions net sales. The software growth was fueled by Arc Suite (up $13 million) and ActiveDisclosure (up $9 million). The company's adjusted EBITDA margin reached 35% in Q2 2025, the second highest in its history, and stood at 29.1% on a trailing four-quarter basis, illustrating the enhanced profitability derived from its evolving sales mix and disciplined cost management.

DFIN's liquidity and capital resources remain robust. As of September 30, 2025, the company reported $154.7 million in total debt and $132 million in non-GAAP net debt, with a healthy non-GAAP net leverage ratio of 0.6x. A significant financial de-risking event occurred in Q3 2025 with the successful termination of its primary defined benefit pension plan, which had been frozen since 2011. This involved a $12.5 million cash contribution and resulted in an $82.8 million non-cash pre-tax settlement charge, ultimately removing approximately $10 million of net liability from the balance sheet and enhancing financial flexibility. DFIN's capital deployment strategy prioritizes organic investments in its transformation, followed by opportunistic share repurchases. In Q3 2025, the company repurchased 659,000 shares for $35.5 million, with $114.5 million remaining on its authorization. Management has consistently stated that they are "more aggressive at lower prices" for share repurchases, reflecting confidence in the company's long-term value.

Competitive Positioning: DFIN's Stance in a Dynamic Market

DFIN maintains a strong competitive position in the specialized financial compliance and software market, leveraging its deep regulatory expertise and proprietary technology to differentiate itself from rivals. While larger players like Broadridge Financial Solutions (BR) offer broader investor communication tools and SS&C Technologies Holdings (SSNC) provides comprehensive fund administration, DFIN's focus on SEC filing and compliance management through platforms like ActiveDisclosure and Arc Suite provides a distinct edge.

DFIN's ActiveDisclosure is recognized as "the most advanced specifically designed disclosure tool", offering superior efficiency in data handling, document assembly, and regulatory submission. This technological advantage, coupled with decades of serving SEC clients, fosters strong customer loyalty and recurring revenue streams. The company's unique hybrid model, which seamlessly integrates its software solutions with high-touch tech-enabled services, is a key differentiator. As management noted, "We're the only ones that can do that and over time this will create an even stronger foundation for sustained growth". This capability allows DFIN to cater to evolving client preferences for self-service while providing expert support for complex regulatory requirements.

In the capital markets transactional space, DFIN maintains a high market share for large, high-quality IPO and M&A transactions. However, the company has strategically chosen to be selective in the SPAC market, deprioritizing lower-quality deals that carry higher collections risk due to factors like depleted trusts and poor financing. This disciplined approach, while potentially impacting transactional revenue in the short term, aligns with DFIN's focus on sustainable profitability and risk management. As Eric Johnson stated, DFIN's share in the SPAC market has declined because "58% of the year-to-date deals are nano microcap companies, 25% are trading below the $5 per share, 33% are international... And 50% of the SPACs have been public for over 3 years, so they're struggling to find a target". This selectivity helps DFIN maintain its focus on higher-value engagements.

While direct quantitative comparisons of market share across all niche competitors can be challenging to ascertain, DFIN's consistent growth in its software segments and strong profitability margins suggest effective competition. Its R&D investments, particularly in advancing its single compliance platform and developing solutions for new regulations, are crucial for maintaining its technological lead against competitors who may have broader R&D budgets due to larger scale. DFIN's ability to quickly adapt its platforms to new regulations, as demonstrated with the Tailored Shareholder Reports solution, further solidifies its competitive standing.

Outlook and Risks: Navigating the Future

DFIN's outlook is characterized by a continued commitment to its software-centric transformation, balanced against the inherent volatility of capital markets and the secular decline in traditional print services. For the fourth quarter of 2025, DFIN projects consolidated net sales between $150 million and $160 million, with an adjusted EBITDA margin in the range of 22% to 24%. This margin guidance, at its midpoint, represents an approximate 300 basis point increase year-over-year, partly benefiting from a $2.8 million stop-loss reimbursement for healthcare expenses received in Q4 2025.

A significant near-term challenge is the U.S. federal government shutdown, which began on October 1, 2025. This shutdown has curtailed the SEC's ability to review and accelerate registration statements, impacting IPO and M&A activity. DFIN's Q4 2025 guidance for capital markets transactional sales reflects this, estimating a range of $30 million to $40 million, which is a sequential decline of approximately $7 million from Q3 2025 attributed solely to the shutdown. While transactions approved before the shutdown are expected to proceed, most in-process deals are likely to be delayed, potentially pushing closures into 2026. However, DFIN remains well-positioned to capture this "latent demand" once regulatory operations normalize.

Longer-term, DFIN remains focused on its strategic objective of deriving approximately 60% of its total sales from Software Solutions by 2028, alongside achieving an adjusted EBITDA margin of 30% plus by the same year. Capital expenditures for full year 2025 are projected between $65 million and $70 million, primarily directed towards software development and advancing its single compliance platform. This investment supports the development of solutions for new regulations and incremental use cases, reinforcing DFIN's technological roadmap.

The secular decline in print and distribution revenue is an ongoing risk, with DFIN anticipating a 5% to 6% annual reduction in demand for printed products. However, the company's strategy of shifting clients to software solutions and tech-enabled services mitigates this impact. Potential changes to SEC reporting frequency, such as a shift from quarterly to semiannual reports, are also being monitored. DFIN believes its subscription-based ActiveDisclosure model, which prices on software delivery rather than per filing, provides insulation against such changes.

Conclusion

Donnelley Financial Solutions is a company in the midst of a profound and successful transformation, evolving from a traditional print and services provider to a software-centric leader in financial regulatory compliance. This strategic pivot, underpinned by continuous investment in proprietary technology like ActiveDisclosure, Arc Suite, and the new Venue Virtual Data Room, is driving significant improvements in its financial profile, marked by double-digit software growth and expanding adjusted EBITDA margins. Despite facing cyclical headwinds in capital markets transactional activity and the secular decline in print, DFIN's operational efficiencies, disciplined cost management, and strategic focus on high-quality, recurring revenue streams demonstrate remarkable resilience.

The company's deep regulatory expertise and unique hybrid service model provide a strong competitive moat, enabling it to differentiate itself in a dynamic market. While near-term challenges, such as the U.S. government shutdown, introduce some uncertainty, DFIN's robust balance sheet, proactive capital allocation, and clear technological roadmap position it to capitalize on latent market demand and evolving regulatory landscapes. For discerning investors, DFIN presents a compelling narrative of a company effectively executing its strategic vision, leveraging technological leadership to deliver sustainable, profitable growth and long-term shareholder value in the essential realm of financial compliance.