Craig Clay: Sure. This is Craig. Thank you for the question. I think if you look at, the IPO market first, I said last time that the IPO market recovery is not going to be a straight line. And we certainly saw that in Q3 and it continues in October. So we had some big IPOs in Q3. We had ARM, which raised 63% of the quarterly proceeds in Q3. We also had Instacart and Klaviyo. Those haven’t always been well received in the marketplace. So from a file perspective, in the quarter, we had 12 filings greater than $50 million. The remaining filings which were 42, we’re nano microchip, micro cap companies. So it speaks to the new ways in the IPO market, and the really small deals that are out there. We had 10 IPOs that priced in the quarter, raising more than $50 million.
Six of those took place in the last couple weeks of the quarter. Two of the 7 companies who raised 100 million are trading above their IPO price. So the pipeline for the companies filed certainly is nice, we had 22 in the market publicly filed, defense working with 14 of those. And it doesn’t include companies that have filed confidentially. So certainly you’ve seen the market, there’s a little dampened enthusiasm. And the resurgence in IPOs is going to depend on how these IPOs do. But there’s still a solid pipeline of companies, we think are waiting for the late first quarter, second quarter of 2024, assuming we had some stability and interest rates, the economy, geopolitical situations. Carve outs have been a success. So we’ve had continued bright spot of companies carving out IPOs. So we had catalogs, which we worked with in the quarter, which was a nice IPO.
And there’s a strong pipeline. So there’s about six major spends that are working. We’re working with almost all of them, which is really terrific. And then as I move to M&A, certainly the quarter was not very exciting, as we referenced in the remarks, deals down 35%. But a bright note in October which has seen monthly M&A volume, be the greatest in over four years. So certainly, the busiest month, that we’ve had in quite some time. These deals are obviously going to take place for a while and for us the 2024 events. But what does this all mean? The history has demonstrated that the deal market can change very quickly. It only takes a few, well received listings to change sentiment. And we think as business normalizes, DFIN is going to deliver our strong mix of high profile, high profit M&A, IPO, private equity, de-SPACs. And more importantly, back to the software question, these transactional deals are pipeline for recurring software subscription revenue, because we support our clients and their ongoing reporting needs.
So we think we are performing better than the market from a transactional perspective. We think engagement is high, underlying activity is high, and it will result in recurring software. So Dave, I don’t know if you want to add to that.
Dave Gardella: I think I would just say a couple things, to put it into context, relative to 2021, where the transactional business was just north of $400 million in sales. Like, when you look on a trailing four quarter basis now, we are well under half of that, I think, about a $190 million or so. To Craig’s point, when you look at how this year has started to slowly recover and you go quarter-by-quarter, from $41 million in Q1 to $46 million in Q2, $49 million this quarter. And like we said in the in the guidance, assuming $50 million for the fourth quarter. So still in the $180 million range for the year is well off the high watermark that we saw in 2021.
Sam Salvas: And then just wanted to touch on the gross margin strength this quarter. Those came in really impressive. Could you guys just talk about some of the drivers behind the expansion there, and how we should think about those going forward too maybe?
Dan Leib: I think, look, it is more of the same, right, as we as we continue to shift the mix towards software. The incremental margins, the operating leverage you get on that offering is very, very high. I think also — and it has been part of our DNA when you look really since the spin, really doing a tremendous job on managing the cost structure. And we have referenced in in some of the product offerings, where we are recognizing some price increases, et cetera. So all those factors contribute to not only the high gross margin, but EBITDA margin at 27% in the quarter, really, really strong, especially in the soft capital markets transactional environment.
Operator: Our next question comes from the line of Raj Sharma with B. Riley.
Raj Sharma: Thank you for taking my questions. Solid quarter. I just had a couple of questions on the compliance transactions are lower in Q3. Is the decline all due to seasonality? I see that, there were one-off proxies. And is that impact to continue? Could you add more color to that, please?
Dan Leib: Yes, Raj. And we noted it in the prepared remarks, right? And I assume you are about the Capital Markets Compliance and Communications Management segment and the revenue that we call, compliance there. There’s absolutely part of it is seasonal, so you would see the normal seasonality with Q2 typically being the peak. We did note in the prepared remarks that when you look at the comparisons on a year-over-year basis and obviously the seasonality is similar between years. The other factors that contributed to it were the fact that there were a few, proxies and kind of the recurring proxy work that were filed in Q3 of 2022 and those same companies filed in Q2 of 2023. So we did get a little bit of a pickup in Q2 and then you see that flipping back the other way here in Q3.
And then in addition, there are also some special proxies, which are more event driven, that occurred in the third quarter of 2022, and we didn’t have the level of activity associated with that type of work in the third quarter this year.
Raj Sharma: And then just a question on the tailored shareholder reports. The impact or sort of the need for the services going forward in terms of the need for print output is seemingly, is different from the 33 requirements. So, if more print, output is needed for TSR. Does that raise costs and reduce margins or how do you sort of handle that now that a lot of the print has been rationalized and outsourced?
Dave Gardella: So it’s a great question, Raj, and I’ll comment and Eric jump in, with some more details. So you’re right that the way the regulation is currently that output will be part of, what’s required and will be part of our revenue stream there. We’ve talked in the past that we’re seeing, we expect to see not only print, but also traditional services, as well as software. Specific to your question on the cost structure and how it affects us. As you know, we’ve done a really, really good job. And to the earlier question on gross margin, we’ve consolidated our manufacturing facility down to a single digital print location. We outsource all of our offset printing. And so when you think about those 2 components, the off SPAC printing, it’s effectively a fully variable model.
