Broadridge Financial Solutions, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2022, compared with the periods ended March 31, 2021. The request metadata says “2021 Q3,” but the filing itself covers fiscal 2022 third quarter.
Business context
Broadridge provides investor communications and financial technology services through Investor Communication Solutions (ICS) and Global Technology and Operations (GTO). Results include the contribution and acquisition-related costs of Itiviti, acquired in May 2021.
Financial results and liquidity
| Metric | Three months | Nine months |
|---|---|---|
| Revenue | $1,533.7 million, +10% | $3,986.2 million, +15% |
| Operating income / margin | $246.0 million / 16.0% | $418.2 million / 10.5% |
| Net earnings | $176.6 million, +7% | $291.0 million, +1% |
| Diluted EPS | $1.49, up from $1.40 | $2.46, up from $2.44 |
| Adjusted diluted EPS (non-GAAP) | $1.93, up from $1.76 | $3.81, up from $3.47 |
Quarterly recurring fee revenue rose 16%; event-driven fees fell 20%. For the nine-month period, recurring fees rose 17% and event-driven fees rose 22%. Quarterly segment revenue increased 6% in ICS and 29% in GTO. Nine-month revenue increased 11% in ICS and 27% in GTO.
Profitability diverged by segment. ICS nine-month pre-tax earnings rose 17% to $361.9 million, while GTO pre-tax earnings fell 41% to $102.9 million; GTO margin declined to 9.4% from 20.2%, primarily reflecting Itiviti-related operating costs and acquired-intangible amortization. Consolidated operating margin was down from 17.2% to 16.0% for the quarter and from 11.5% to 10.5% for the nine months.
For the nine months, GAAP operating cash flow was negative $13.9 million versus positive $189.5 million a year earlier; free cash flow (non-GAAP) was negative $68.4 million versus positive $136.3 million. Management attributed the cash-flow decline mainly to working-capital use and increased client-platform implementation and development spending. Cash was $277.2 million at March 31, 2022.
Long-term debt was $4,167.0 million, up from $3,887.6 million at June 30, 2021; unused revolving-credit capacity was $1,109.9 million. Current assets were $1,495.1 million and current liabilities $1,176.8 million. The company reported compliance with debt covenants and stated that cash, operating cash flow and borrowing capacity should cover anticipated needs for at least the next 12 months.
Material changes, outlook and risks
- Revenue growth reflected new business, internal growth, acquisition contributions—especially Itiviti—and higher distribution revenue, including postage-rate increases. The acquisition also increased amortization and operating costs and contributed to higher interest expense.
- Closed sales were $170.1 million for nine months, up 42% from $119.4 million. The company did not provide a numerical full-year financial guidance range in the supplied filing text.
- Management said COVID-19 had not materially affected consolidated revenue or pre-tax income year to date, but noted continuing uncertainty. It did not expect the Ukraine conflict to materially affect core operations or financial results; it was relocating some Russia-based services and winding down a small number of Russian client relationships.
- Other disclosed risks include client retention and concentration, cybersecurity incidents, market and economic conditions, securities-market activity, technology changes, service-provider performance, staffing and competition. The filing reported no material change to previously disclosed risk factors.
- Cash-flow and foreign-currency items merit attention: foreign-currency translation reduced nine-month comprehensive income by $160.8 million. The company entered into EUR 880 million of cross-currency swaps designated as net-investment hedges; their reported asset value was $28.1 million at quarter end.
- Long-term minimum commitments included $145.8 million under a data-center services agreement, $189.6 million under a private-cloud agreement, $29.4 million under a European IT agreement and $238.6 million under an AWS cloud-services agreement.
- The company described ordinary-course claims and litigation as not expected to have a material impact. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether GTO profitability improves as Itiviti integration progresses and acquisition amortization and operating costs evolve.
- Whether negative operating cash flow reverses, including the impact of working capital and client implementation spending.
- Debt repayment and interest costs, covenant headroom, and the company’s use of its revolving-credit capacity.
- The durability of recurring revenue and closed sales, and the volatility of event-driven activity and distribution costs.
- The assumptions and reconciliation underlying non-GAAP adjusted earnings and free cash flow, and the timing and cost of long-term technology commitments.