What happened?
Shares of financial regulatory software provider Donnelley Financial Solutions (NYSE: DFIN) jumped 13.4% in the afternoon session after the company reported third-quarter results above analyst expectations and fourth-quarter revenue guidance above estimates. According to a company press release, Donnelley Financial Solutions reported adjusted earnings per share of $1.07, above the consensus estimate of 84 cents and up from 86 cents a year earlier. Net sales rose 5.5% to $185.0 million, above the consensus estimate of $179.9 million. GAAP net earnings were $21.3 million, or 85 cents per diluted share, compared with a net loss of $40.9 million, or $1.49 per diluted share, a year earlier. Adjusted EBITDA was $54.4 million, and the adjusted EBITDA margin expanded about 120 basis points to 29.4%. Software solutions sales rose 5.0% and accounted for 51.5% of net sales. For the fourth quarter, the company projected net sales of $175 million to $180 million, above the consensus estimate of $170.9 million, and an adjusted EBITDA margin of 26% to 27%.
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What is the market telling us
Donnelley Financial Solutions’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. But moves this big are rare even for Donnelley Financial Solutions and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 8 months ago when the stock gained 14.1% on the news that the company reported fourth-quarter earnings and revenue that significantly surpassed analyst expectations. The financial compliance software provider posted revenue of $172.5 million, an increase of 10.4% from the same quarter in the previous year and well above forecasts. This growth was driven by higher activity in capital markets and increased sales of its software solutions. Profitability also saw a notable improvement, with adjusted earnings of $0.70 per share, which was substantially higher than the consensus estimate of $0.41. Furthermore, the company's adjusted EBITDA, a measure of operational profitability, increased to $45.8 million. While the company's revenue guidance for the upcoming quarter was slightly below analysts' estimates, the strong performance in the reported quarter appeared to drive the positive investor reaction.
Donnelley Financial Solutions is up 33% since the beginning of the year, and at $60.68 per share, it has set a new 52-week high. Investors who bought $1,000 worth of Donnelley Financial Solutions’s shares 5 years ago would now be looking at an investment worth $1,584.
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