So we’re going to continue to focus on what’s got us here, which is sales execution, share expansion, and delivering great product and serving our clients.
Kyle Peterson: That’s really helpful. And maybe if I could just get a follow-up to get on your capital allocation here. It seems like you guys were able to sell some land, and I know you guys have divested some assets over time, but I just wanted to pick your brain on kind of how you guys are thinking about putting the proceeds from some of that capital to work and how you guys are thinking about balancing, whether it’s potential M&A or for the buybacks you get paid out.
Dan Leib: Yes, thank you. Yes, I’ll start and if Dave wants to weigh in. So really more of the same. The highest and best used, we want to make sure we have financial flexibility to execute the strategy. We have built up ample financial flexibility. And so you’ve seen us obviously buying back more shares and then paying down debt. And those are the two highest priorities along with the organic investment and accelerating the transformation. And that will continue. I mean, the proceeds from the sale of the building in this case or the land, we’ll go into the coffers and be targeted towards those three priorities but no changes at all in capital priorities. We remain extremely disciplined across all aspects of capital deployment.
Dave Gardella: Yes, Dan, I would just reiterate, Kyle, you specifically asked about M&A, as Dan pointed out, our view of the best use of capital to drive returns is the organic investment and certainly from a shareholder return perspective, the share repurchases. I think when we look at M&A opportunities, especially for those that are purely aligned with our strategy, we think that valuations are still pretty rich, certainly weighed against the opportunities we have from an organic perspective. And so we keep that on the radar, but stay very, very disciplined on driving the best returns.
Operator: Your next question comes from the line of Raj Sharma with B. Riley.
Raj Sharma: Yes, thank you. Congratulations on the good cost cutting in the margins. My question, I have a couple of questions. One, the revenue contribution from the TSRs, do you have a reasonable idea of what that could be this year and next year? And also, does that push up the gross margin profile of your software business?
Dave Gardella: Yes, Raj, we said, so last quarter, we said $20 million to $25 million on an annualized basis contribution from TSR with roughly half of that coming in 2024 as we talked about earlier, on the print side, I think a lot of that is still in play and we’re very happy with where we’re at on the software, right, which is to your point delivers higher margins and certainly much higher incremental margins. And so on a go forward basis, yes, that’s part of the margin expansion, right, this mix shift with more software proportionately and less print proportionately. The other thing I would say is we’re still investing pretty heavily in TSR and so I think what you’ll start to see more of the margin expansion as it specifically relates to TSR starting to hit in ‘25 and beyond when we get past this initial product development investment.
Raj Sharma: Got it. And then on the ActiveDisclosure side, could you help me understand, just kind of recap on what’s going on earlier? Last year, there was some headwinds. There was a switch to the digital version. What growth rate could we expect from ActiveDisclosure? Going forward, I know that you’ve talked about a second half pickup. Could you — what caused the weakness in the first quarter and then how is that transition coming?
Dan Leib: Raj, it’s correct. Thanks for the question. So, yes, as you mentioned, AD grew 2% in the quarter. So compared to recent trend declined 2% in Q4, it grew 1% in Q3, it was up 6% in Q2 and 2% in Q1. So we’re continuing to make progress toward the future growth of the platform. It’s our third consecutive quarter of net client growth. Within what drove Q1 results, one of the items mentioned, we’re excited to have built a leading Section 16 filing platform within ActiveDisclosure. So Section 16, beneficial owners, publicly disclosing, but within the quarter, there was lower Section 16 filing activity driven from the transition to a subscription model in the new product, as well as driven by fewer IPOs. So we’ve covered that topic.
We’re also up against a lower customer count as a result of the AD3 churn that was associated in the first half of last year. The continued lack of IPOs, we’re not able to keep our own client, also negatively impacting SPAC liquidations. Now we’re offsetting that with price increases in service revenue, so if you’re question what to expect in Q2 and in the second half of ‘24, we’re excited by what we see. But the progress we’ve been making to expand the adoption of AD is slowly being reflected. In this quarter’s result, we have some perspective metrics that are favorable, so some of them are mentioned. So Q1, ‘24, our third consecutive quarter of net client growth, which is exciting. It’s much better than we’ve seen in past quarters. We’ve mentioned our average price up in the mid-teens versus ActiveDisclosure 3 which we have, again, migrated off of.
As Dave stated, we had net new logo ACV, which is approximately double. Q1 of ‘23, again, what’s moving onto the platform, we’ll start to show in future quarters. So we expect the AD growth in the second half of ‘24 to be stronger. We’re going to overlap the platform transition and related churn. And the excitement by what we see is we have the newest fit for purpose product in the market, and the market wants what we bill. We’re able to price it accordingly. It’s an opportunity for us, for DFIN. It’s also an opportunity for our clients, because our clients can pay less than the leading competitor. So our clients are recognizing the value of this better product. They want a choice. They get to have the newest product in the market with product improvements such as our editor, our track changes.
It’s all driven by our decades in the market in surveying SEC clients. So our current clients are using AD for their most important reporting needs, and our pipeline is strong because our future clients see DFIN and ActiveDisclosure as the compliance leader.
Raj Sharma: Thank you. That’s a very helpful color. And just lastly, the print declines were more than expected. Could you help me understand that? Dave, I know you’ve said they’re going to be flat. It’s a print-heavy second quarter. It’s a print -heavy quarter. Have the print declines bottomed out? I know you had taken quite a few of the print declines in the last several years, and you had expected a 5% ongoing decline in the market. Is that sort of still in line and a little bit more color on that, please?
