"The Insider by DFIN" is a series of video interviews featuring the latest trends, topics and key perspectives on the global capital markets.
Join DFIN President and CEO Dan Leib as he shares his insights on DFIN’s transformation and future growth strategy in this special podcast edition of The Insider by DFIN.
Dana Barrett - Welcome to the Insider by DFIN, I'm Dana Barrett, and joining me today is DFIN's CEO and President, Dan Leib. Dan, how are you?
Dan Leib - I'm well, how are you?
Dana Barrett - Good, thank you for taking some time to chat with me today. I really appreciate it.
Dan Leib - My pleasure.
Dana Barrett - And of course, as you are the President and CEO, I want to talk about the big picture, of DFIN of course, where you guys are coming from, where you're headed, but before we do any of that can we just kind of get to know you a little better? Can you share a little bit of your background with DFIN and Donnelley before that?
Dan Leib - Sure, absolutely. I joined RR Donnelley in 2004, and moved through a variety of finance roles, culminating in the CFO role in 2011, and then upon the spin, I became the CEO of DFIN.
Dana Barrett - So what was the reasoning for the spin at the time?
Dan Leib - So it was really to unlock value. It was the quintessential, some of the parts exceeding the whole different businesses. We had grown through acquisition and so different businesses with different growth dynamics and different capital needs.
Dana Barrett - And so the idea for this portion, the DFIN portion, was to go software.
Dan Leib - Go software, invest more in the business, Donnelley, RR Donnelley historically paid a much larger dividend. This business would not pay a dividend. It would redirect cash to initially cut down on debt and deliver, and then move cash into investment for growth.
Dana Barrett - So I know that when sometimes when companies do these kinds of spinoffs, they may just go right to the software piece. But you guys have a little bit of a different strategy coming into this, correct?
Dan Leib - We did. We identified the growth from software, the growth from services right away. We also identified that we have a really good business, and we have really good sales relationships, really good customer domain expertise, SEC domain expertise, strong service organization. So we felt like we had time, and the time afforded us the opportunity to make this really sustainable. So we're always trading off speed of action with getting it ingrained in the organization and making this just sustainable, and so it becomes second nature.
Dana Barrett - So were some of the software products that now make up the suite of offering from DFIN already in existence but needed to sort of go further?
Dan Leib - Some were in existence, some are new, and even those that were in existence there was a lot of up-scaling in the case of ActiveDisclosure, we started over. Essentially, and just built a brand-new product. We knew what the market need was, and we felt that we could have an existing product and then build a new one and port people over to the new product.
Dana Barrett - So I feel like I wanted to ask the basic. So how's it going?
Dan Leib - It's going really well.
(Dana laughs)
Dan Leib - I mean, we've been fortunate as I mentioned. So, we entered with a very strong business, very strong people. Our markets are naturally moving towards higher value software offerings which is a great thing. So we are pushing our clients a bit but they're also pushing us and so it's going really well.
Dana Barrett - - And I would imagine that the reputation of RR Donnelley over the years just bolsters everything you are doing now as DFIN, correct?
Dan Leib - So it's a double-edged sword. So everyone knows RR Donnelley. Been around about 60 years at this point. But that came with it a legacy of you are a printing company and so even today, I think one of the things that we benefited from was our customer base looked at Donnelley as us and so we wanted to keep the Donnelley name, the rebranding of DFIN was a way to keep the name, but also identify that and signal to the market that it’s a different DFIN. Dana Barrett - It's a newer, emerging. Dan Leib - Exactly. New and improved Dana Barrett - Yes, new and improved, I like that. Yeah, absolutely. So I know part of the strategy also has been some really great partnerships. So, can you talk a little bit about that part of the strategy and where that's headed? Dan Leib - Absolutely, and one of the interesting things on partnerships is they need to be bidirectional. So both parties need to benefit. I'd also say, we did a lot of work, right? Pre-spin and after spin to understand where we make our money, why our clients use us, what are the critical strengths assets, and beyond assets, the capabilities that we could leverage into a digital world and based on that, that then defines why we exist for our clients and from there, we can go to broadening out our offering via partnerships. But we also recognize that we can't have too many partnerships. We'd rather have fewer high impact partnerships. So if you look at our partnership roster today, it's really top of the line, blue chip, from Cision, to Diligent, to NetSuite Oracle, to FloQast. I mean, these are fantastic brand names and they give us credibility and we also in the markets in which we play, give them credibility. Dana Barrett - Yeah, it's interesting that you brought up the bidirectional aspect of it because I was talking with the folks from NetSuite and I was sort of asking about the partnership and even just as I was researching it, you could see that it made total sense. Dan Leib - Right. Dana Barrett - That if you guys are talking to a younger company that's pre-IPO, they don't have a system like NetSuite yet they need it, but they come to you because they want IPO. Dan Leib - Exactly. Dana Barrett - And then the reverse. Dan Leib - Right, and so what differentiates us from our competitors is we take clients from private through the transaction, into compliance, keep that relationship ongoing, and then we help with growth. So M&A, different growth initiatives and so having partnerships like that, and I think the reality is partnerships are challenging. Right and so- Dana Barrett - Yes they are. Dan Leib - So they are can of all sorts. So there can be instances where if set up wrong, it's zero sum and that's not great for anyone and so what we really-
Dana Barrett - It actually do, it could be worse, right. You could actually damage each other. Dan Leib - - Exactly, and so what's really been important is not just the product offerings but are both parties entering the partnership with the same perspective and the same desires and we've really done well with these current set of partnerships. Dana Barrett - Yeah, that certainly seems that way and I like the ideas that you don't want to partner with everybody. That you're very careful about who you're working with.
Dan Leib - Yep, it's going to be one plus one equally more than two. Dana Barrett - Yeah. Dan Leib - Absolutely, okay. Dana Barrett - I like that. Well, since you started numbering, let's talk about the 44 and 24, the strategy of moving at a certain pace to get to this software company and it's very catchy. Dan Leib - It is. Dana Barrett - But the numbers have already changed in your life. Dan Leib - The numbers have changed. Dan Leib - What I would say if we take this step back and the transformation, and we talk about this often, is everyone loves transformation until you realize that transformation takes a lot of change and so initially- Dana Barrett - And nobody likes change. Dan Leib - Wow, right, many don't. Change is hard. Change is hard for sure and so initially when we spun out, I think there was a perspective if we just had better product, that would be necessary and it is necessary, but it's not sufficient and I think folks thought it was sufficient. It's not. And so we need to change across the ecosystem. And it’s things, as mundane is the way we bill our clients. But it's not just in billing. It's the way it goes upstream in a quote to cash, how we quote our clients, and it's how we service our clients, and it's creating a much less or more frictionless experience for our clients. So when we often talk to clients, now we talk about our stronger financial performance, our stronger products, and all of those play together to then allow us to invest more and offer clients more. But along the lines of that, what folks don't see initially is all this below the water type of activity on transforming what I would term the innards of the company. You think about a company that, well, we weren't, as old as RR Donnelley, we certainly were an older line company with a manufacturing service and software offering. So we had a lot of very complex systems. So we've been making ourselves less complex, redesigning systems and processes, bringing in people from the outside to compliment the people from the inside that know the business really well. And all of that has gone into the transformation, so- Dana Barrett - And correct me if I'm wrong, but making some strategic acquisitions along the way, too. Dan Leib - So we’ve actually been a net seller. We did acquire eBrevia but we also sold a business which was lying with solutions. Dana Barrett - Oh, interesting. Dan Leib - But I think that’s representative of we’ve been also a net hire and at the same time reorganizing other parts of the business.
And that’s the hard part of this, which is we’re growing and we’re shrinking in different parts of the business, and we’re acquiring and we’re divesting, and it’s all geared towards being on strategy understanding what makes us relevant for our clients, what gives us permission to sell to our clients. And so, when we did the math around the transformation, we came to 44 and 24. We're going to have 44% of our revenue from software products in the year 2024. When we spun out in 2016, we were at 14%. So it's quite a change. But what I always say is it's 44 and 24, semicolon, with a financial profile that matches such a company. It's not just about growing software revenue. It's about getting those economics that go along with it and those economics are what allow us to continue to invest in our people, continue to invest in our products, and continue to offer return for shareholders as a public company. With our new updated outlook, we're actually ahead of plan. So it's now 47 in 24, which isn't as catchy, so- Dana Barrett - The marketing people don't like that. Dan Leib - The marketing people don't like it. Dana Barrett - Stop doing so well. Dan Leib - We'll keep that. (Dana laughs) Dan Leib - And now it's actually 55 to 60% in 26. Dana Barrett - And so that basically though what you're saying is it's going well enough with on the whole rest of it. Dan Leib - Exactly. Dana Barrett - And to exceed it. Dan Leib - Right, right. Dana Barrett - But it sounds like if you had to pump the brakes at some point a little bit to preserve the business and I don't mean preserve, but to make sure you're doing everything right. That's an option too. Dan Leib - Absolutely, yeah. We've built a tremendous amount of financial flexibility. So via at the spin, since the spin we've we paid down about 550 million of debt. We were almost, we have a marginal amount of debt at this point and we've accelerated investment back into software growth. We've accelerated investment into some of these transformation initiatives, and we're in a great spot where in this economy, the dollars of investment aren't the limiting factor. It's finding skilled talent to execute against it and that's a great place to be. Dana Barrett - So since you brought up talent, can we talk a little bit about all the various stakeholders in this transformation and how they're sort of experiencing it? So you've got employees, customers, how are they viewing this from the outside? What's your take on that? Dan Leib - Sure, yeah. So, I always say we have three. My job is to allocate resources amongst our three main constituents which are employees, clients, and shareholders. There's a balance, right? I think when I look at the employee base, we've rolled out, we've improved our benefits year over each year that we've been in existence. We've added a lot of recognition for performance-based recognition for employees. We've redesigned our entire value proposition for employees from time off, to the four mentioned benefit plans, to a new compensation structure, to new job opportunities and so we really are mapping out and communicating to employees, “If you come work at DFIN, here’s what you can expect from us”, and that really resonates in this environment. IWe've gone to a fully flexed work environment outside of manufacturing and that's been a really good strategic hiring initiative for us. Dana Barrett - I mean that one of the three pillars is so important right now. I mean, we all know we're in the middle of this. Dan Leib - Absolutely. Dana Barrett - Great resignation. People want different things out of work than they used to, so. Dan Leib - Yeah, and I think people coming out of the, when the pandemic hit, we asked everyone to go home, everyone to keep working hard, everyone to keep being productive and our team, I can't speak for every other company, really stepped up, really did a great job, and we owe them that respect of saying, you did it for us.
Now, if that’s an environment that works for you, keep working in that environment. We do have office space if people want to come into the office, but if they don’t, they can keep working in the environment in which they’ve been successful. Dana Barrett - What do you think the future holds on that front? Some kind of balance, right? Between the two- Dan Leib - It’s a balance. Dana Barrett - It has to be, doesn’t it? Dan Leib - Yeah, it’s a balance. I think there is a cultural, potential cultural, give back and so it be much more intentional about getting people together and we’ve been trying different things. I don’t have the answers. Dana Barrett - You don’t have the magic answer? Dan Leib - No. Dana Barrett - You did. Dan Leib - If I did, right. (Dana laughs) Dan Leib - We have closed the number of offices rather and taken advantage of the market with the knowledge that if we do need to take more space, because it makes sense in the future, there’ll be more commercial real estate available. Dana Barrett - Of course, of course. All right, so in the other two pillars, the shareholders and the clients talk about their experience a little bit.
Dan Leib - Yeah, so shareholders, and it’s interesting. When we spun out, we took the position of we are going to invest heavy to make this transformation and we had some periods of time that were a bit more challenging from a financial performance perspective, and we mapped it out for the leadership team and said, "Look, this will be the investment period, and then you're going to see the return period." We probably got a little bit lucky with the markets cooperating and timing well with that. But we have seen that and so last year, our stock returned 180%. This year we're tied to or part of our business is tied to the transactions markets. So our stock has come down as have many other software providers, many other general providers, but shareholders have done pretty well. The other thing we've done is we've also stepped up more recently, our share buybacks, because we think our stock at recent prices is a pretty good value. Dana Barrett - Yeah, that makes a lot of sense. So, all in all, you're ahead of target. Things are going well with the transformation. It's not ever going to be 100%, is it? Is that the goal, 100% software, no services? Dan Leib - No, no. Dana Barrett - So there's always going to be some portion. Dan Leib - Right, and so we were big on saying, and you know it's a being deliberate to get a message of we are changing. So from 14% to 44% is a big change. Dana Barrett - Significant. Dan Leib - Significant change. Dana Barrett - For sure. Dan Leib - The other way of calling a 44 and 24, which again the marketing people wouldn't let me go with, which was 56% not software in 24. So there is a very important part of our business and it's one of the other things that differentiates us from our clients is we can serve our clients in the manner in which they want to be served and that traditional part of our offering is critically important and that traditional part then feeds into the software part over time. But you can then play both sides of it and operate a very profitable business in both areas. Dana Barrett - Yeah, I think a lot of companies will tend to treat their former services business like it's a legacy thing, and it's sort of phasing out. I like the fact that you're asserting that's not the approach here and there’s always a need for that human expertise, that service that never goes away. Dan Leib - Yeah, and it goes back to our assessment at the beginning, that this change did not need to be at a pace. We weren't trying to run away from something. We were trying to move towards something, and I think the pace that we've had has been really helpful. When we go through transformation initiatives, we don't look at why things were the way they were. We look forward to, we look at what they could be. Dana Barrett - Yeah, yeah, absolutely. Well, listen, Dan, before we wrap it up, anything else you want to share? I mean, I've got you in the seat, so this is it. Dan Leib - - No, I would just say, I'm extremely happy with what we've achieved, and I think for me, the best news is that the opportunity in front of us far exceeds what we've already achieved. Dana Barrett - Awesome, well, Dan, thank you so much for spending a few minutes. I really, really appreciate it. Dan Leib - Thank you. Dana Barrett - This has been the Insider by DFIN, we'll see you next time.
This has been the Insider by DFIN. We'll see you next time.
