Broadridge Financial Solutions, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2013; comparisons are with the three months ended September 30, 2012 unless otherwise noted. Broadridge provides investor communications, securities processing, and related outsourcing services to the financial-services industry.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Revenue | $545.2 million | $495.8 million | +10% |
| Total expenses | $475.9 million | $467.2 million | +2% |
| Earnings before income taxes | $69.3 million | $28.6 million | +142% |
| Pre-tax margin | 12.7% | 5.8% | +6.9 percentage points |
| Net earnings | $44.4 million | $18.3 million | +143% |
| Diluted EPS | $0.36 | $0.14 | +$0.22 |
| Operating cash flow | $(5.4) million | $(15.6) million | $10.2 million less cash used |
- Revenue growth reflected recurring revenue up $32.8 million, distribution revenue up $10.4 million, and event-driven fees up $8.3 million. Foreign-exchange movements reduced revenue by $2.1 million; Bonaire contributed $2.5 million.
- Cost of revenue increased 2% to $397.5 million; SG&A was $73.5 million, up 1%. Management attributed earnings improvement to higher recurring and event-driven revenue, favorable revenue mix, productivity, and cost containment.
- Investor Communication Solutions revenue grew 11% to $376.2 million and pre-tax earnings rose 50% to $40.9 million. Securities Processing Solutions revenue grew 10% to $168.7 million; pre-tax earnings increased to $31.7 million from $9.4 million.
- Non-GAAP adjusted net earnings were $48.1 million versus $22.3 million; adjusted diluted EPS was $0.39 versus $0.18. These exclude acquisition amortization and other costs, and, in the prior period, restructuring charges.
Financial position, liquidity, and capital
- At September 30, 2013, cash and cash equivalents were $183.1 million, total assets $1.907 billion, and stockholders’ equity $838.0 million. Working capital was $318.5 million, compared with $337.5 million at June 30, 2013.
- Total debt was $524.0 million, comprising $124.5 million of 6.125% senior notes due 2017 and $399.5 million of 3.95% senior notes due 2020. The company issued $400 million of 2020 notes and repaid the remaining $400 million term-loan balance during the quarter. Its $500 million revolving facility was undrawn.
- Investing cash outflow was $51.0 million, including $37.7 million for acquisitions and $10.5 million of capital expenditures. Financing cash outflow was $27.3 million; dividends paid were $21.5 million. Cash declined $82.9 million during the quarter.
- Management said cash, operating cash flows, and available borrowing capacity should meet anticipated operating, investment, and capital needs. $100.5 million of cash was held by foreign subsidiaries; repatriation for U.S. use could incur U.S. taxes.
Material developments, outlook, and risks
- Broadridge acquired Bonaire Software Solutions in July for $37.7 million net of acquired cash. The acquisition added $29.2 million of goodwill and $10.1 million of intangible assets; its purchase-price allocation remained subject to finalization.
- A $3.3 million decrease in the fair value of contingent acquisition consideration reduced SG&A expense. This was a favorable, unusual item in the quarter.
- The SEC approved NYSE proxy distribution fee changes that take effect during fiscal 2014. Management expected the net financial impact to be neutral to slightly positive.
- No specific earnings or revenue guidance was provided. Management cautioned that the first-quarter results may not indicate full-year performance: proxy and annual-report activity is typically greatest in the fourth fiscal quarter, while event-driven activity can fluctuate and is difficult to forecast.
- Key disclosed risks include client concentration and retention, securities-market activity, regulatory changes, data security and privacy, system or service disruptions, reliance on IBM for technology infrastructure, competition, technology changes, and acquisition execution. Remaining commitments under the IBM services agreement were $481.9 million through fiscal 2022.
- Claims and litigation were described as arising in the normal course of business; management did not expect their resolution to materially affect financial condition, results, or cash flows. The company reported compliance with debt-facility covenants and effective disclosure controls.
Most important facts for investors to verify
- Whether recurring and event-driven revenue growth, including unusually strong mutual-fund proxy activity, persists beyond this seasonally affected quarter.
- How Bonaire performs and whether its acquisition-related goodwill, intangible assets, and contingent consideration assumptions change.
- Whether the refinancing improves financing costs as expected, and how the $524.0 million debt balance, interest expense, and undrawn revolving capacity evolve.
- How operating cash generation develops given negative quarterly operating cash flow and the timing-related working-capital movements.
- The realized impact of NYSE proxy-fee changes and regulatory, privacy, cybersecurity, and outsourced-service risks.