Donnelley Financial Grows Software Sales as Print Slides
Donnelley Financial Solutions posted a third straight quarter of net sales growth as software revenue hit a record $99.4 million, even as print and distribution sales fell 15%.
Donnelley Financial Solutions (DFIN) reported total net sales of $224.2 million for the second quarter of 2026, up 2.8% from a year earlier, marking the third consecutive quarter of consolidated growth following a 10.4% increase in the fourth quarter of 2025 and a 2.2% increase in the first quarter of 2026. The financial-communications and compliance software provider also reported Adjusted EBITDA margin of 36.7%, up 170 basis points from a year earlier, extending a run of year-over-year margin expansion that began with a 350-basis-point gain in the fourth quarter of 2025.
The growth continues to run through the company's shift toward software. Software solutions net sales reached a record $99.4 million, up 7.8% from a year earlier, and now account for 44.3% of total net sales, up from 42.3% a year earlier. That growth rate slowed slightly from the 8.4% pace posted in the first quarter, when software made up 44.6% of sales. Within software, ActiveDisclosure sales grew roughly 29% year-over-year, an acceleration from the roughly 21% growth reported in the first quarter. Capital Markets - Software Solutions grew 11.2% year-over-year, while Investment Companies - Compliance and Communications Management sales fell 10.8%, the weakest performance among the company's segments.
Print and distribution net sales, the company's legacy business, fell 15.0% to $34.6 million, a steeper decline than the 4.2% drop reported in the fourth quarter of 2025. The divergence between the two businesses underscores the pace of the shift toward software: gross margin expanded to 59.6% from 57.0% a year earlier, with non-GAAP gross margin rising to 66.0% from 63.7%.
Net earnings rose 0.8% year-over-year to $36.4 million, a sharp deceleration from the first quarter's 8.1% increase to $33.5 million. The slower earnings growth came despite higher after-tax charges tied to share-based compensation and restructuring, which totaled $8.1 million in the quarter versus $6.0 million a year earlier, and an effective tax rate that climbed to 30.1% from 25.9%.
Cash generation improved markedly from the first quarter. Operating cash flow swung from a $5.6 million use of cash in the first quarter to $74.7 million in the second quarter, up 9.2% from a year earlier, while free cash flow rose to $61.2 million from negative $16.0 million in the prior quarter. Adjusted EBITDA rose to $82.3 million from $70.6 million sequentially. Gross and net leverage eased to 0.8x and 0.7x, respectively, after climbing to 0.9x and 0.8x in the first quarter from 0.7x and 0.6x at the end of 2025.
Donnelley continued to repurchase shares at pace, buying back 763,451 shares for $34.7 million at an average price of $45.48, following $28.3 million in repurchases in the first quarter. Diluted shares outstanding fell to 25.3 million, down 10.3% from a year earlier, after the board authorized a new $150 million repurchase program in April 2026 that replaced a prior program with just $25.5 million remaining. Remaining authorization under the new program stood at $125.4 million as of June 30, 2026.
For the third quarter, Donnelley guided to total net sales of $175 million to $185 million and Adjusted EBITDA margin of 26% to 28%, both well below the second quarter's actual results, reflecting the seasonal decline in capital-markets transactional activity. Transactional revenue was "better-than-expected" in both the first and second quarters amid an active market, but the guidance implies a sequential step-down in transactional revenue to $45 million to $50 million.
The company also disclosed the appointment of Ken Napolitano as Chief Revenue Officer during the quarter to lead a sales transformation effort, a leadership change not mentioned in prior quarterly releases. Second-quarter results carried no repeat of the $82.8 million non-cash pension settlement charge that produced a $40.9 million GAAP net loss in the third quarter of 2025, a one-time item that has not recurred in the three quarters since.