Broadridge Financial Solutions, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended June 30, 2022; filed August 12, 2022. Although the request metadata says “2021 Q4,” this is an annual report for FY2022, not a quarterly filing. Broadridge provides financial technology, investor communications, securities processing, and related services through Investor Communication Solutions (ICS) and Global Technology and Operations (GTO).
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $5,709.1 million | $4,993.7 million | +14% |
| Operating income / margin | $759.9 million / 13.3% | $678.7 million / 13.6% | Income +12%; margin down 0.3 points |
| Earnings before taxes | $672.2 million | $696.2 million | −3% |
| Net earnings | $539.1 million | $547.5 million | −2% |
| Diluted EPS | $4.55 | $4.65 | −2% |
| Operating cash flow | $443.5 million | $640.1 million | −$196.6 million |
| Free cash flow (non-GAAP) | $370.4 million | $557.3 million | −$186.9 million |
| Cash and cash equivalents | $224.7 million | $274.5 million | −$49.8 million |
| Total debt, carrying value | $3,793.0 million | $3,887.6 million | −$94.6 million |
| Revolver capacity available | $1,475.0 million | — | At June 30, 2022 |
Recurring fee revenue rose 16% to $3,749.3 million; event-driven fees increased 14% to $269.6 million, and distribution revenue increased 11% to $1,717.6 million. Adjusted operating income (non-GAAP) was $1,066.4 million versus $901.8 million, with adjusted margin of 18.7% versus 18.1%. Adjusted net earnings were $765.7 million and adjusted diluted EPS was $6.46, compared with $666.5 million and $5.66, respectively. These measures exclude specified items, including acquired-intangible amortization and acquisition-related costs.
Segments and drivers
- ICS: Revenue increased 11% to $4,262.1 million; pretax earnings rose 22% to $726.3 million and pretax margin improved to 17.0% from 15.6%. Growth reflected recurring fees, higher equity proxy and mutual fund interim volumes, mutual fund proxy activity, and increased mailing volumes and postage rates.
- GTO: Revenue increased 24% to $1,474.4 million, primarily from the Itiviti acquisition and new business. Pretax earnings fell 30% to $139.5 million and margin declined to 9.5% from 16.9%, principally due to acquisition operating costs and higher acquired-intangible amortization.
Overall revenue growth did not translate into higher GAAP net earnings: operating expenses increased 15%, interest expense rose 53% to $84.7 million, and the prior year included a $62.1 million acquisition-related financial-instrument gain. FY2022 recurring fee growth reflected 4 percentage points from net new business, 5 from internal growth, and 7 from acquisitions. Closed sales were $281.9 million, up from $232.1 million.
Liquidity, debt and capital resources
Operating cash flow declined partly because of increased client-platform implementation and development spending and higher working-capital use. Capital expenditures and software purchases totaled $73.1 million. Debt principal totaled $3,815.0 million; the largest scheduled maturity is $1,540.0 million in FY2024. About 41% of debt was floating-rate at year-end; management estimated a 100-basis-point rate increase would reduce FY2022 pretax earnings by approximately $19.7 million, before the offset from interest earned on cash balances. The company reported compliance with debt covenants and said available cash, operating cash flows and borrowing capacity should meet anticipated needs for at least the next 12 months and beyond.
On August 11, 2022, the board raised the quarterly dividend by $0.085 to $0.725 per share, implying an expected annual rate of $2.90 per share, subject to future board approval.
Outlook, risks and unusual items
- The filing provides no specific numerical FY2023 revenue, earnings or cash-flow guidance. Management described liquidity as adequate and highlighted continued investment in growth platforms, technology and client implementations.
- Principal risks include cybersecurity incidents, service interruptions or operational errors, reliance on third-party providers, regulatory and privacy changes, market activity declines, client concentration and financial-sector consolidation, competition, and the ability to retain talent and adapt to technology.
- The largest client represented approximately 7% of consolidated FY2022 revenue; the 15 largest GTO clients generated approximately 46% of GTO revenue. Deferred client conversion and start-up costs were $1,232.3 million, making client retention and recoverability important.
- Goodwill was $3,484.9 million and goodwill, acquired intangible assets and deferred client conversion/start-up costs together represented approximately 71% of total assets. No goodwill impairment was recorded; a 10% sensitivity change in specified valuation assumptions was not expected to cause impairment.
- Covid-19 had no material FY2022 impact on consolidated revenue or pretax income, according to management, though related health and safety costs continued. Russia wind-down costs were $1.4 million; the company said it did not expect the Ukraine conflict and response to materially affect core operations or results.
- Other notable items include $250.2 million of acquired-intangible and purchased intellectual-property amortization, $24.5 million of acquisition and integration costs, and $30.5 million of real-estate realignment and Covid-related costs. Foreign-currency translation reduced comprehensive income by $247.0 million.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. No material pending legal proceedings were reported beyond routine business matters.
Investor verification priorities
- Confirm the fiscal-year period and compare FY2022 reported results with the company’s non-GAAP reconciliations.
- Assess whether GTO margins recover as Itiviti integration costs and acquired-intangible amortization evolve.
- Review operating cash-flow conversion, working-capital movements, and rising deferred client-conversion costs.
- Check debt repayment and refinancing plans, particularly the $1.54 billion FY2024 maturity and floating-rate exposure.
- Monitor the largest-client relationship, client onboarding and retention, and goodwill and deferred-cost impairment assumptions.
- Evaluate the sustainability of the increased dividend against cash generation, debt service, and capital investment needs.