Donnelley Financial’s 10-K Filing Reveals Size of Translation Business

On March 29, 2016, Slator wrote about the split that US printing and document management giant RR Donnelley is going through. As we reported, the company is spinning off into three smaller units, which will list on the stock exchange as separate entities. The company’s language services arm RR Donnelley Language Solutions (RRD LS), will become a unit of the newly created Donnelley Financial Solutions.

While the previous announcements clarified the future of RRD LS in terms of which corporate umbrella it would operate under, and who the new parent company’s leadership would be, it contained only limited information about RRD LS as a business.

On March 31, 2016, however, this changed when Donnelley Financial filed its 10-K (annual report) in preparation for an initial public offering.

In RR Donnelley’s previous earnings announcements and regulatory filings, Language Solutions was not specifically broken out as an individual unit. Despite its considerable size compared to competing language service providers, the unit made up but a small fraction of RR Donnelley’s USD 10bn portfolio.

Language Solutions Becomes a Reporting Unit

But newly formed Donnelley Financial’s revenues are a tenth of that. According to the filing, Donnelley Financial generated net sales of over USD 1bn in 2015. It is also a very profitable business, reporting net earnings of USD 104.3m and adjusted EBITDA of USD 218.9m for the same year.

And under this new, smaller parent Donnelley Financial, RRD LS will now feature much more prominently.

Donnelley Financial is divided into two business segments: United States and International. United States reported revenues of USD 900m and a headcount of 2,913 as of 2015; while International’s 626 staff generated USD 149m in revenues.

Within the business segment United States, results are further broken down into three reporting units: Capital Markets, Investment Markets, Language Solutions and Other. International, meanwhile, which is primarily focused on compliance and regulatory services around capital market offerings, does not break results into smaller reporting units.

TransPerfect, Lionbridge, SDL, and Others as Key Competitors

Because it is now an official reporting unit, the 10-K offers detailed information on Language Solutions. Outlining the service offering, the document stays fairly high-level, outlining that the “suit of services includes translation, editing, interpreting, proof-reading and multilingual typesetting, plus specialized content services such as transcreation (cultural adaptation of marketing materials), copywriting, linguistic validation by subject matter experts (specifically in the medical sector).”

In addition, the company mentions a network of 5,000 in-country linguists, its translation management system MultiTrans, and a website translation proxy solution.

Analyzing the competitive environment, the company states, “Language Solutions competes with global and local language service providers (LSPs) and language/globalization software vendors.”

It then goes on the list a specific group of vendors, saying, “Our biggest competitors overall include a mix of LSP, Language/Globalization software vendors and full-service providers, including TransPerfect, Lionbridge, SDL, Moravia, Hogarth, thebigword, Across, Welocalize, Sajan, ProjectOpen, Wordbee, Cloudwords, Smartling and Memsource.”

As for revenues, the 10-K does not report a consolidated number for Language Solutions. This is because the LSP’s revenues are allocated into roughly equal proportions to the United States and International reporting segments.

Language Solutions With USD 81.5m Revenues in 2015

The two numbers add up to 2015 revenues for Language Solutions of USD 81.5m (slightly down from USD 82.2m in 2014 but up from USD 71.4m in 2013) and, voila: At more than USD 80m, RR Donnelley Language Solutions will rank fairly high on any industry league table.

According to industry sources, the actual translation business may even be larger, as translation and other language services could also be carried out in the capital market or investment units and not attributed to Language Solutions.

Profitability in terms of net earnings is only available at the level of Business Segments United States and International.

RR Donnelley Language Solutions declined to comment on the 10-K at this point, as the business transformation is still underway.