DFIN - NYSE

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mike

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions Third Quarter 2025 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules 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, quarterly report on Form 10-Q 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 am joined this morning by Dan Leib, Dave Gardella and other members of management. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. Our third quarter results offered further validation of our strategy, including the continued shift toward a favorable sales mix driven by double-digit growth in our SaaS offerings, strong year-over-year growth in adjusted EBITDA and adjusted EBITDA margin expansion. In addition, we continue to make great progress in modernizing and expanding the adoption of our offerings in the marketplace, highlighted by the launch of our new Venue Virtual Data Room product. Against the backdrop of an improving but still soft capital markets transactional environment, which resulted in an 8% reduction in our event-driven transactional revenue, we delivered solid results, which once again demonstrated the resiliency of our operating model across various market conditions and the sustainability of our performance as our business mix continues to transform. Specific to our third quarter performance, I am pleased with the continued strong demand for our software offerings, where we delivered year-over-year net sales growth of 10.3%, an improvement compared to the growth rate we achieved in the first half of the year. Software Solutions sales represented approximately 52% of total sales in the quarter, a positive proof point of our transformation into a software-centric company. On a trailing 4-quarter basis, Software Solutions sales reached approximately $350 million, growing 8.5% from the third quarter 2024 trailing 4 quarters and accounted for 46.5% of trailing 4-quarter sales, an increase of approximately 640 basis points from the third quarter 2024 trailing 4-quarter sales. This continued positive mix shift positions us well to achieve our long-term target of driving approximately 60% of total sales from Software Solutions by 2028. A major driver of the third quarter software growth was the performance of our recurring Compliance software products. ActiveDisclosure and Arc Suite, which posted approximately 16% sales growth in aggregate, marking the third consecutive quarter of double-digit sales growth across these 2 products. The growth in our recurring Compliance software offerings is led by ActiveDisclosure, which delivered third quarter net sales growth of approximately 26%, an acceleration in growth compared to recent trend. We are encouraged by the continued growth in ActiveDisclosure subscription service packages. In addition, as I discussed previously, we are serving additional use cases via a hybrid model that combines our software solution with an unmatched service offering. Within this context, ActiveDisclosure has been increasingly chosen by our clients for their IPO registration and proxy statement needs, which historically were managed in a traditional model. In the third quarter, we saw higher ActiveDisclosure sales associated with IPO registrations being completed on the platform compared to last year's third quarter. In the case of Arc Suite, the growth rate in the third quarter, approximately 10% was more modest than the past few quarters as we overlap the benefit associated with the tailored shareholder report solution, which was introduced in July of 2024. As I commented previously, we expect the growth profile of Arc Suite to be more modest during periods outside of regulatory changes, while over the longer term, still exhibiting the double-digit growth we have delivered historically based in part on a dynamic and evolving regulatory environment. For the fourth quarter, on a year-over-year basis, in addition to overlapping the TSR uplift, we will also overlap a contract renewal with a strategic client during last year's fourth quarter that produced favorable economics since the renewal. These factors combined to create a tough comparison versus the fourth quarter of last year when Arc Suite grew 23% year-over-year. I am encouraged by the continued adoption of Arc Suite among investment company clients as we build on the sales momentum and positive market response since launching our TSR solution. As it relates to Venue, we delivered improved year-over-year sales performance in the third quarter, increasing by approximately 3% compared to the third quarter of last year. We remain encouraged by Venue's performance, which benefits from stable demand from both announced and unannounced deals across public and private companies alike. To further solidify Venue's market position as a leading virtual data room for M&A due diligence, we launched a new version of Venue during the third quarter following a comprehensive rebuild. The redesigned Venue delivers a highly intuitive user experience, empowers clients to manage complex transactions more efficiently, streamlines collaboration within deal teams and safeguard sensitive information throughout the deal life cycle. Following the rollout, we have received very positive client feedback. Venue's modern architecture positions us well to efficiently add further capabilities as needed. We expect the new product launch will strengthen Venue as the data room of choice for corporate transactions. In addition to introducing new Venue, which serves our capital markets clients, during the third quarter, we released for broad adoption ArcFlex, the newest module within Arc suite, designed specifically to meet the needs of investment companies focused on alternative investments. ArcFlex is a purpose-built financial and regulatory offering tailored for a wide range of private investment institutions, including hedge funds, private equity and business development companies. By leveraging the foundational capabilities within the DFIN platform, ArcFlex builds on existing services to provide enhanced solutions customized for private fund clients. Coupled with DFIN's deep domain and service expertise, ArcFlex is well positioned as the leading end-to-end financial and regulatory reporting solution serving the growing private funds market. New Venue and ArcFlex are the latest in a series of new software introductions made possible by our focused investments to accelerate the modernization, innovation and growth of our software portfolio. Over the past several years, these investments have enabled us to launch or modernize a majority of our software products. Our investments have enabled us to increase development velocity, bring new solutions to market more efficiently by leveraging the platform capabilities of our single compliance platform and empower our clients to adapt quickly to an evolving regulatory environment, all while incorporating the most modern technology. Before turning the call over to Dave, I'd like to comment on the U.S. government shutdown and the related impact on our outlook for Capital Markets deal activity. Since the shutdown began on October 1, the SEC's Division of Corporation Finance has been unable to review or accelerate registration statements, issue comment letters or provide interpretive guidance. As a result, the SEC's ability to declare registration statements effective has been curtailed, impacting IPO activity as well as other capital markets transactions so far in the fourth quarter. While some transactions, including select IPO pricings are taking place within a limited window without SEC comment, most of the planned transactional activity has been paused. Overall, the shutdown has delayed the positive momentum in capital markets deal activity over the last 2 quarters. Based on what we experienced during the previous government shutdown, the shutdown represents a shift in the timing of when transactions complete as most deals that were paused during the previous shutdown were reactivated when the SEC reopened. While the duration of the shutdown remains uncertain, we continue to support our clients in preparing transactions so they remain ready to move quickly when regulatory operations at the SEC resume. DFIN's strong client relationships and market leadership position us well to capture the latent demand when activity level normalizes. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our third quarter results and our outlook for the fourth quarter. Dave?

Thanks, Dan, and good morning, everyone. Before I discuss our third quarter operating performance, I'd like to recap one housekeeping item. As detailed in our press release issued on October 23, during the third quarter, we successfully completed the termination of our primary defined benefit pension plan, which had been frozen and closed since 2011. As part of this transaction, we made a $12.5 million cash contribution in the third quarter to fully fund the plan, which was recorded as a use of cash within the operating activities section of the statement of cash flows and settled the plan obligations through a combination of lump sum payments to certain plan participants and the purchase of a group annuity contract from a third-party insurer. In addition, as a result of the planned settlement, we remeasured the plan's assets and obligations and recognized a noncash pretax settlement charge of $82.8 million or $60.3 million on an after-tax basis resulting in a negative EPS impact of $2.20 per diluted share due to the recognition of unrealized accumulated planned losses previously reported within accumulated other comprehensive loss on the balance sheet. Finally, the settlement of the plan resulted in the removal of approximately $10 million of net liability from our balance sheet comprised of approximately $200 million of plan obligations and approximately $190 million of plan assets. We are pleased with this outcome, which will further enhance our financial flexibility and reduce future administrative and financial volatility associated with the legacy pension plan. Now turning to our third quarter operating performance. As Dan noted, we delivered strong results within the backdrop of an improved operating environment, highlighted by an acceleration in Software Solutions growth and year-over-year increases in adjusted EBITDA and adjusted EBITDA margin. We posted approximately 10% growth in our Software Solutions net sales, including approximately 16% sales growth in our recurring compliance software products, all while continuing to drive operating efficiencies and expanding adjusted EBITDA margin to 28.2%. On a consolidated basis, total net sales for the third quarter of 2025 were $175.3 million, a decrease of $4.2 million or 2.3% from the third quarter of 2024. Third quarter net sales were at the high end of our guidance range was driven by lower volume in our Compliance and Communications Management segments, which declined $12.7 million in aggregate with Compliance revenue across the capital markets and investment companies businesses accounting for $8.3 million of the decline. The reduction in Compliance revenue was mostly reflected in lower print and distribution volume related to both the ongoing decline in this area, consistent with recent trend as well as the timing impact of certain investment companies print volume that shifted from the third quarter into the fourth quarter this year. In addition, total event-driven transactional revenue declined by $4.4 million year-over-year primarily a result of the lower volume for foreign issuer transactions on U.S. exchanges, partially offset by stronger U.S. IPO volume. These declines were partially offset by growth in Software Solutions net sales, which increased $8.5 million or 10.3% compared to the third quarter of last year. Third quarter adjusted non-GAAP gross margin was 62.7%, approximately 100 basis points higher than the third quarter of 2024, primarily driven by higher Software Solutions net sales, the impact of cost control initiatives and price uplifts, partially offset by lower capital markets transactional volume. Adjusted non-GAAP SG&A expense in the quarter was $60.5 million, a $7.1 million decrease from the third quarter of 2024. As a percentage of net sales, adjusted non-GAAP SG&A was 34.5%, a decrease of approximately 320 basis points from the third quarter of 2024. The decrease in adjusted non-GAAP SG&A expense was primarily driven by the impact of cost control initiatives, a reduction in selling expense related to lower sales in certain areas and lower bad debt expense, which continued to normalize in the third quarter, partially offset by higher health care expense. Our third quarter adjusted EBITDA was $49.5 million, an increase of $6.3 million or 14.6% from the third quarter of 2024. Third quarter adjusted EBITDA margin was 28.2%, an increase of approximately 410 basis points from the third quarter of 2024, primarily driven by higher Software Solutions net sales, cost control initiatives and lower selling expense as a result of the decrease in sales volume, partially offset by lower capital markets transactional volume and higher health care expense. Turning now to our third quarter segment results. Net sales in our Capital Markets - Software Solutions segment were $59 million, an increase of $5.7 million or 10.7% from the third quarter of last year, primarily driven by ActiveDisclosure, which was up $4.7 million year-over-year. During the third quarter, ActiveDisclosure sales grew approximately 26%, an acceleration of the stronger growth trend we experienced over the last 3 quarters, primarily driven by the continued adoption of ActiveDisclosure subscription service packages and the ongoing migration of certain activities historically performed on our traditional services platform. The migration to a hybrid model enables clients to leverage the combination of ActiveDisclosure and DFIN service model. Specific to the shift of traditional activities to ActiveDisclosure, during the quarter, we experienced an increase in the volume of IPO activity taking advantage of the hybrid offering with clients using ActiveDisclosure for the drafting and filing of S-1 documents, resulting in higher usage of ActiveDisclosure for certain IPO transactions. We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth, part of which will be influenced by the amount of event-driven transactional activity taking place on the platform. Net sales of Venue increased approximately $1 million or 3% compared to the third quarter of last year when Venue grew approximately 27% year-over-year. A resilient level of underlying activity taking place on the platform, coupled with our recent launch of new venue creates a strong foundation for future sales growth. Adjusted EBITDA margin for the segment was 34.9%, an increase of approximately 1,010 basis points from the third quarter of 2024, primarily due to the increased sales, cost control initiatives and lower bad debt expense. Net sales in our Capital Markets - Compliance & Communications Management segment were $57.2 million, a decrease of $6.3 million or 9.9% from the third quarter of 2024, driven by lower transactional revenue as well as a reduction in compliance volume, part of which was related to lower print and distribution sales consistent with recent trend. In the third quarter, we recorded $41.8 million of capital markets transactional revenue, which exceeded the high end of our expectations, yet was down $3.5 million from last year's third quarter. Following the second quarter, when we experienced sequential improvement in transactional revenue as the quarter progressed, the uptick in the level of capital markets deal activity, especially the market for new equity issuances in the U.S. strengthened in the third quarter with the number of regular way IPO transactions that raised over $100 million, exceeding last year's levels. As such, we realized approximately 25% year-over-year increase in our transactional revenue related to U.S. IPO activity. However, the improvement in U.S. IPO activity was more than offset by the soft market for foreign issuance transactions and large public company M&A deals, which remained a headwind on a year-over-year basis and combined to more than offset the growth in IPO revenue. With the outlook for capital markets transactional environment is uncertain, in part due to the impact of the government shutdown, DFIN remains very well positioned to capture future demand for transactional-related products and services when market activity resumes. Capital Markets Compliance revenue decreased by $2.8 million or 15.4% compared to the third quarter of 2024, driven primarily by lower volume of compliance work, including the related printing and distribution, consistent with the trend from the first half of the year. In addition, we continue to experience lower market demand for certain event-driven filings such as 8-K and special proxies associated with corporate transactions. Adjusted EBITDA margin for the segment was 34.3%, an increase of approximately 260 basis points from the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to cost control initiatives, lower selling expense as a result of lower sales volume and lower bad debt expense, partially offset by lower sales volume. Net sales in our Investment Companies - Software Solutions segment were $31.7 million, an increase of $2.8 million or 9.7% versus the third quarter of 2024, driven by growth in subscription revenue. As expected, the growth rate in the third quarter was more modest compared to the levels we delivered in the last several quarters as we started to overlap the uplift in software revenue as a result of the tailored shareholder reports regulation, which became effective in July of last year. As Dan stated earlier, we expect a tough comparison against last year's fourth quarter as we overlap uplifts associated with both TSR and the strategic contract renewal, which benefited our performance last year. Adjusted EBITDA margin for the segment was 36.6%, an increase of approximately 580 basis points from the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to operating leverage on the increase in net sales, price uplifts and cost control initiatives, partially offset by higher service-related costs associated with the tailored shareholder reports offering. Net sales in our Investment Companies - Compliance & Communications Management segment were $27.4 million, a decrease of $6.4 million or 18.9% from the third quarter of 2024, primarily driven by lower print and distribution volume, which accounted for $4.1 million of the year-over-year decline and lower compliance revenue. Third quarter print and distribution revenue within this segment was impacted by the timing shift of certain volume related to tailored shareholder reports for the variable annuity market from the third quarter into the fourth quarter of this year as well as the ongoing impact of lower page counts related to tailored shareholder reports for the mutual fund industry. Going forward, we expect a broader secular decline in the demand for printed products, which we expect in the range of 5% to 6%, will continue to result in lower print and distribution revenue within this segment in addition to any future regulatory change-driven impacts. Adjusted EBITDA margin for the segment was 34.7%, approximately 450 basis points higher than the third quarter of 2024. The increase in adjusted EBITDA margin was primarily due to lower selling expense and cost control initiatives, partially offset by the impact of lower sales volume. Non-GAAP unallocated corporate expenses were $11.8 million in the quarter, an increase of $2.6 million from the third quarter of 2024, primarily due to higher health care expense, partially offset by cost control initiatives. As it relates to the increase in health care expense, the variance was driven by a single outsized claim, a portion of which is eligible for reimbursement through a stop-loss insurance policy. The company received a $2.8 million reimbursement this week in accordance with that policy. And as such, we will record the $2.8 million recovery in our fourth quarter results. Free cash flow in the quarter was $59.2 million, $8.1 million lower than the third quarter of 2024. The year-over-year decline in free cash flow was primarily driven by unfavorable working capital and the onetime cash contribution related to the pension plan settlement, partially offset by lower cash tax payments, higher adjusted EBITDA and lower capital expenditures. We ended the quarter with $154.7 million of total debt and $132 million of non-GAAP net debt, including $43 million drawn on our revolver. As of September 30, 2025, our non-GAAP net leverage ratio was 0.6x. Regarding capital deployment, we repurchased approximately 659,000 shares of common stock during the third quarter for $35.5 million at an average price of $53.79 per share. Year-to-date through September 30, we've repurchased approximately 2.3 million shares for $111.6 million at an average price of $48.35 per share. As of September 30, 2025, we had $114.5 million remaining on our current $150 million stock repurchase authorization. We continue to view organic investments to drive our transformation, share repurchases and net debt reduction as key components of our capital deployment strategy and will remain disciplined in this area. As it relates to our outlook for the fourth quarter of 2025, we expect consolidated fourth quarter net sales in the range of $150 million to $160 million and adjusted EBITDA margin in the range of 22% to 24%, which at the midpoint represents an increase of approximately 300 basis points compared to last year's fourth quarter, where we posted adjusted EBITDA margin of approximately 20%. Our fourth quarter adjusted EBITDA guidance reflects the stop-loss reimbursement of approximately $2.8 million received this week, as I noted earlier. In terms of our revenue guidance, the midpoint of $155 million implies a reduction of approximately 1% compared to the fourth quarter of last year as lower print and distribution sales and lower capital markets transactional sales are expected to more than offset growth in Software Solutions. I'll also provide a bit more color on our assumptions for the capital markets transactional sales. Due to the impacts of the government shutdown and the resulting increase in uncertainty around timing of deal completions, our expectations for capital markets transactional revenue reflect a temporary softening relative to the recent trajectory. Our estimates assume capital markets transactional net sales in the range of $30 million to $40 million, which at the midpoint is down approximately $2.7 million from last year's fourth quarter and represents a sequential decline of approximately $7 million from the third quarter of this year, solely due to the government shutdown. This guidance assumes transactions that were approved before the shutdown will proceed in the normal course of business. As it relates to new transactions, in line with what we have seen thus far in October, we expect some deals such as IPOs currently in the pipeline to be completed during the fourth quarter based on guidance provided by the SEC, though we expect most in-process deals will be delayed. Conversely, our guidance assumes a continuation of the year-over-year growth trend we've seen in Venue driven by the new product release and further supported by an improvement in underlying market activity. With that, I'll now pass it back to Dan.

Thanks, Dave. The execution of our strategy continues to deliver positive results and further demonstrates DFIN's ability to perform well in varying market conditions. Our solid financial profile provides us with the foundation to continue to execute our strategic transformation. While the government shutdown has injected uncertainty into the capital markets transactional environment, the combination of our strong market position and deep domain expertise positioned DFIN well to capitalize on the return to a more normalized level of activity. We are in the midst of preparing our 2026 operating plan and extending our long-range plan through 2030. In 2026, we expect to build on the positive momentum in growing our software solutions portfolio, including accelerating the shift of our traditional compliance activities to SaaS, continued operational transformation and the execution of our strategy. Through the planning period, we expect continued progress in delivering higher value for our clients, our employees and our shareholders. Consistent with past practice, we expect to provide an update on 2026 and our long-range projections in February. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world. Now with that, operator, we're ready for questions.

[Operator Instructions] And your first question comes from the line of Charles Strauzer of CJS Securities.

Maybe we can just pick up on the government shutdown discussion. And when you look at the -- thank you for giving us the quantification in your guidance for Q4 for revenue. But any metrics you can give us around the impact to margins in Q4?

Yes, Charlie, I'll talk about that. I think we've contemplated the margin impact of the lower transactional revenue in our range. As we talked about margins in the quarter, we -- even at the midpoint at 23% for Q4, expect to be up about 300 basis points relative to what we delivered last year. And again, I think that's in line with the margin expansion we've seen so far this year. Obviously, that has a bit of a negative impact in Q4. But the piece that we have going the other way, right, we talked about the outsized health care. We're going to get a recovery on that in Q4. We've actually already received the cash for that recovery. And so when you look at the 300 basis points of margin expansion, again, that's at the midpoint of our guidance. About half of that is driven by this health care recovery. And then I would say the other half just kind of in line with our ongoing margin expansion. As you saw this quarter, to the extent that capital markets transactional revenue comes in higher, we would expect to outperform that just like we did in Q3. And that was a big driver. That will be the swing factor, I guess, in any quarter but certainly as we face the government shutdown here in Q4.

Yes. And then just to add, and maybe Craig can also provide some context to past shutdowns and impact. But the impact of the shutdown, as we said, is primarily in our capital markets transactions area, all of the compliance activities that run through the SEC continue during the shutdown other than those that are associated with transactions, but minimal impact to venue, and Craig can speak to both venue and then what we've seen from past shutdowns.

Yes, Charlie, to build on Dave and Dan's comments, the SEC posted guidance that provides a path forward for companies seeking to IPO. So unlike past shutdowns, the IPO market is frozen for most but not all. It cannot -- the SEC cannot declare a registration statement effective. But instead, they've instructed companies to file a completed statement and wait 20 days. So there are companies that are pressing ahead. As we look at October, we have 5 listings that have completed, 4 are traditional IPOs greater than $100 million, 2 of those are DFIN deals. We've also completed one very large direct listing this month, Obook, which closed up 480% a DFIN deal. And then you look forward, according to Renaissance Capital, 6 companies intend to price in the next few weeks using the SEC's 20-day guidance. DFIN is working with 5 of those 6. And then if you look at the total number of publicly companies on file at the SEC to price, including the 6, that is a total of 13 with a $50 million or greater placeholder. These are publicly filed but not priced. A DFIN supported deal joined the list yesterday, Medline could be the largest IPO of the year and their public filing signals that despite the shutdown, the IPO market continues to move forward. DFIN's share of these 13 deals is 69%. We have a robust pipeline of companies who file confidentially. -- as well as an IPO pipeline of RFPs. So it is definitely impacted. It has slowed, hasn't completely stopped given the 20-day rule. And then to build on some of the M&A comments that Dan talked about, we're really fortunate at DFIN to have a business that delivers M&A support from deal ideation through the process to announce transactions that require public disclosure. With Venue, it's a really optimistic look as Dan and Dave stated, Q3 results show progress. We're seeing increased activity in Venue, and we have a new product. Clients are loving it. Venue's architecture will provide us great leverage going forward. And we expect the product launch to strengthen Venue as the data room of choice, and we look forward to those accomplishments in future quarters. But M&A in the traditional side, is impacted. It is already a complex regulatory environment and the government shutdown has exacerbated this. So we expect deals that were to close in Q4 to be pushed to 2026 due to regulatory bottlenecks. While we know the government will open, we can't predict it. And we've been here before. These delayed transactions will get completed but it likely could be 2026. It's going to take a beat for the market to catch up once the government opens. And then we're working against the holidays here in November and December. So it's going to open. The underlying activity is strong and DFIN is at the ready.

Great. Shifting gears a little bit to the talk about SEC reporting frequency from quarterly to potentially semiannual. How are you thinking about that? And any knowledge you could share with us?

Yes. Great question. So we're closely monitoring the developments related to the proposal to reduce the frequency of corporate reporting. At this time, many, many questions are outstanding. So will the proposal require more disclosure for a semiannual report than a current 10-Q? What will the XBRL tagging requirements be? Another option is for the SEC to continue to require quarterly earnings 8-Ks. These could be larger. And does it expand the 8-K disclosure that would require XBRL tagging. We're also analyzing what happened in Europe. Companies here will be given a choice. Most European countries -- companies, sorry, when given the choice did not reduce the frequency of reporting. So we really don't know what the adoption rate will be here in the U.S. So given these unknown aspects, we're continuing to build models and to follow it. But I think the most important point to make is the vast majority of our 10-Qs are on ActiveDisclosure, which operates as a subscription business with long-term contracts. So this subscription model insulates DFIN from most of the public change that would be associated with this. As the subscription is priced not on a per filing basis but on a software delivery basis. So following it closely, we have some insulation to the impact.

And your next question comes from the line of Pete Heckmann of D.A. Davidson.

I wanted to follow up on this resurgence of SPAC IPOs that we've seen. Over the last, what, 4 to 6 quarters, when we think about DFIN's participation there, I guess, how much of DFIN not getting retained on some of these deals is the company's choice and worries about potentially those deals not getting done? And how much of it is just a more competitive set of competitors kind of on these lower-end IPOs?

Yes. DFIN is selective in our SPAC go-to-market. And as you're familiar with the reasons why risk of liquidation, delisting, merger terminations, there is an increase in the quantity and there is a few quality deals, and those are the ones that we play at. Our share in this increased market has declined, but it's declined because 58% of the year-to-date deals are nano microcap companies, 25% are trading below the $5 per share, 33% are international. Most of those have an international provider. And 50% of the SPACs have been public for over 3 years, so they're struggling to find a target. So we continue to be selective due to these reasons. We're aware of the activity levels and remain really diligent on reviewing the opportunities. We are participating in quality SPAC and de-SPAC deals with Tier 1 deal teams. And the issuers that use a competitor for a SPAC merger and have completed it, we're attacking those clients and winning their future '34 Act reporting on ActiveDisclosure, so contracted revenue. So some of these companies, when they get through, we're able to upgrade them from the lower-end providers.

Okay. That's helpful. And then just in terms of Venue in October, I'm not sure if you can give us too much insight there. But just thinking about, we have seen an uptick in larger M&A deals in the bank sector and some other sectors. I guess, are you seeing the benefit of that? And to the extent that there is a slowdown in government reviews that slowed down M&A -- the process of M&A towards closing. Would you expect to see that October, November? Kind of what do you think is the timing there? And then in prior shutdowns, I guess, how fast does the catch-up occur?

Go ahead, Dave.

Craig, I'll start and then you can jump in. I think certainly, the momentum that we saw in Venue in Q3, it's embedded in our guidance in Q4 as well. I think the underlying activity still remains and regardless of the shutdown and deals getting completed. It's one of the great things, and we've talked about this in the past that if you look -- describe the market as the number of completed deals, you may get a very different answer than the activity that's going on underneath the waterline, so to speak. And we feel really good about how we're positioned with Venue, especially with the new product in the market and the acceptance that we're getting thus far. Go ahead, Craig.

To build on that, Dave, thank you. We're playing in the formal process of deals coming to market. So before they're announced, certainly before they close. So as Dave said, excited by that opportunity. We have pitches that are up, opportunity creation that is up, so all moving in the right direction as we see what you see. Given that we have this broad application serving both announced and unannounced, we have a lot of activity there but certainly, the government shutdown is worsening an already complex regulatory landscape. So I think you're probably referencing the antitrust. You have health care technology energy deals that are delayed. They already were delayed given the HSR Act updates, which has added time and complexity to the process. The government shutdown exacerbated this. So again, likely to see these deals that had anticipated to close, close later potentially in 2026. So what we expect to see is a government that opens. It will take a while to get moving again. One of the things that's been eliminated during the shutdown is the Trump administration have been able to terminate the waiting period. But with the shutdown, they don't have the staff to do it. So we would anticipate a build. It likely will be in 2026.

Your next question comes from the line of Kyle Peterson of Needham.

I wanted to start off, the tax rate this quarter. It looks like you guys had a pretty big kind of onetime benefit. Is that related to the pension plan settlement and everything like that? Or were there any like discrete items or anything that skewed the tax rate around this quarter that we should be mindful of?

Yes, Kyle, I think we talked about the pretax pension charge of just over $80 million, the post-tax at $60 million. So certainly, the pension tax component of that weighed on the GAAP tax rate. I think in the non-GAAP tax rate, a little bit different story there where we exclude it but some small dollars of adjustments there related to different tax legislation, et cetera, can impact that rate.

Okay. Okay. That's helpful. So even though it's -- you guys settled the pension formally in the fourth quarter, it was a tax noise item in the third quarter.

So we -- Kyle, just to be clear, that was -- we settled in the third quarter.

Okay. You announced it in the fourth quarter, at least but yes. Okay. all right. That is super helpful. And then I wanted to kind of follow up on Venue, and I realize it's probably a little hard to answer. But is there any way you guys could maybe tease some or parse out some of the momentum that you guys are seeing in Venue? Like what's -- if there's any way you guys could separate the benefits from the redesigned product versus activity potentially picking up, like which one you feel or whether it's qualitative feedback or anything like that, like what do you guys feel has been the bigger driver of the better performance and everything there? And how should we think? Or in past product refreshes, like how long has it taken to get more traction and such, that would be helpful.

Yes. I'll start and then, Craig, if you want to jump in. I think when you look at Venue, obviously, we showed the growth this quarter. But if you take a longer-term view of Venue, we grew in the mid-20% range last year. we were overlapping a quarter in Q3 that was right along those growth rates. So I would say sales execution has been the key component to driving the growth that we've seen. That team has done a really nice job in terms of, as Craig talked about, generating new opportunities and converting those opportunities. With respect to the new product, I would say it had a very, very modest impact in Q3. We would expect more of an impact in Q4 and then certainly, the bulk of the impact of the new product to start to hit in 2026. So I think the impact of the new product, the better days due to that product are on the horizon here for us. Craig?

Yes. I will build on the Horizon part, which is our results to date are based on execution. The earlier results in the year were a function of Liberation Day, which sort of froze the market. Now we see that have absorbed and the M&A opportunities are certainly increased. When we launched the new version of Venue, it launched in the first weeks of October. These launch events continue today. So the perspective look is that what you're seeing is primarily a result of execution prelaunch. Certainly, we have a product that we think is the most purpose-built based on decades of experience. Again, clients are loving it. We expect this new product launch is going to strengthen us as the data provider -- data room provider of choice. It will be in future quarters. Our Venue team is going to continue to deliver excellence given the nature of Venue, we're going to focus on what's got us here, sales execution, taking share, price and then now we're supported by a great new product.

Okay. That's super helpful. And then if I could squeeze one last one in here. Are you guys thinking about capital allocation at this point, you guys have taken a lot of the uncertainty or volatility out of the pension liability at this point. Cash flow continues to improve, at least the market doesn't seem to be giving guys credit for at least like a strong pipeline and whenever the shutdown gets resolved, we'll have a resurgence in activity. But I guess, like how are you guys kind of thinking and kind of rank to order like uses of excess cash flow between buybacks and other uses? Any color there, I think, would be helpful for everyone on the call.

Yes, sure. Thanks, Kyle. So no change relative to what we've been doing historically. We've said often the #1 priority is having the financial flexibility to execute the transformation and our strategy. To your point, we are -- have quite a bunch or quite a bit of financial flexibility and capacity. And yes, we -- as evidenced in the last quarter, as evidenced back in April, we've been very aggressive in buybacks at the appropriate times. And we think about priorities, it's the strategy, it's maintaining that financial flexibility, being opportunistic around share repurchases and disciplined and then we're looking at ways of accelerating organic or inorganic investment in the business, but only to accelerate the strategy.

[Operator Instructions] And there are no questions at this time. I will now turn the conference back over to Dan Leib for closing remarks.

Great. Thank you, and thank you, everyone, for joining, and we look forward to speaking with you soon. Thanks.