Broadridge Financial Solutions, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2020; comparisons are with the corresponding 2019 periods. Broadridge provides investor communications, securities processing, and related technology services through Investor Communication Solutions (ICS) and Global Technology and Operations (GTO). Amounts are in millions, except per-share data.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Six months ended Dec. 31, 2020 | Six months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $1,054.9 | $968.7 | $2,072.3 | $1,917.2 |
| Operating income | $79.5 | $26.8 | $158.1 | $99.9 |
| Operating margin | 7.5% | 2.8% | 7.6% | 5.2% |
| Net earnings | $56.3 | $10.1 | $122.1 | $66.0 |
| Diluted EPS | $0.48 | $0.09 | $1.04 | $0.56 |
- Quarterly revenue rose 9%; six-month revenue rose 8%. Recurring fee revenue increased 7% for the quarter and 8% for the six months. Event-driven fees and distribution revenue also grew in both periods.
- For the six months, revenue growth reflected net new business, acquisitions, and internal growth; higher equity trading and communications volumes were partly offset by lower retirement-account cash interest and customer-communications volumes. Foreign currency reduced revenue by $6.9.
- ICS revenue increased 10% for the quarter and 8% for the six months; GTO revenue increased 8% in both periods. Six-month segment pre-tax earnings were $95.0 for ICS and $130.3 for GTO.
- Six-month operating cash flow was $83.3, versus $11.5 a year earlier. Free cash flow, a company-defined non-GAAP measure, was $50.5 versus negative $31.5, including $18.0 of asset-sale proceeds. Capital expenditures and software purchases totaled $50.8.
- Cash and cash equivalents were $365.6 at December 31, 2020, down from $476.6 at June 30, 2020. Total debt was $1,782.1 principal amount ($1,770.6 carrying value); unused revolving-credit capacity was $967.9. The company repaid $400.0 of notes at maturity in September. It reported compliance with debt covenants.
- Six-month dividends paid were $128.5. The quarterly dividend was $0.575 per share; the company made no share repurchases under its program during the quarter.
Changes, unusual items, and management commentary
- Reported earnings improved substantially against a prior-year quarter that included $33.4 of IBM private-cloud charges. For the six months, other loss before tax worsened by $3.1, principally reflecting $31.7 of real-estate realignment costs and certain COVID-19 expenses, partly offset by the prior-year IBM charges.
- Six-month GAAP results also included $37.8 of real-estate realignment and COVID-19-related expenses, a $6.0 software charge, and an $8.7 investment gain. Broadridge’s adjusted earnings and adjusted EPS exclude specified items; six-month adjusted EPS was $1.70, compared with $1.22. These are non-GAAP measures and are not substitutes for GAAP results.
- Quarterly GAAP diluted EPS was $0.48 versus $0.09; six-month EPS was $1.04 versus $0.56. The prior-year comparison was affected by the IBM charges, while current-period results included the items noted above. The effective tax rate was 18.9% for the quarter and 14.6% for the six months; the filing attributes the increase versus prior periods to a smaller relative impact from discrete tax items.
- Management said COVID-19 had not materially affected consolidated revenue or pre-tax income to date in fiscal 2021, and production facilities and critical vendors remained operational. It cautioned that future effects remain uncertain and could affect clients, demand, operations, and results.
- No specific earnings or revenue guidance is provided in the supplied filing text. Management expects operating cash flows, existing cash, and borrowing capacity to fund anticipated needs for at least the next 12 months and the foreseeable future.
- Broadridge’s business is seasonal: proxy and annual-report processing is generally greatest in its third and fourth fiscal quarters, making quarterly comparisons less indicative of full-year performance. Event-driven revenue, including mutual-fund proxy activity, can also fluctuate and is difficult to forecast.
Risks, commitments, and controls
- Key disclosed risks include COVID-19 uncertainty; client retention and concentration; cybersecurity breaches; regulatory changes; securities-market activity and economic conditions; service-provider, system, or disaster disruptions; technology competition; talent retention; and acquisition or divestiture execution.
- Long-term IBM minimum commitments were $219.8 under the amended IT services agreement, $220.9 under the private-cloud agreement, and $27.2 under the amended European IT services agreement. These extend through 2027, 2030, and 2029, respectively.
- A variable-interest investment carried $19.7 of potential maximum loss exposure, with up to $14.0 of additional funding contingent on milestones; a further $2.7 funding commitment to another investee was disclosed. Management said ordinary-course claims and litigation were not expected to have a material effect.
- The company reported effective disclosure controls, no material change in internal control over financial reporting during the quarter, and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether recurring-fee growth and new-business wins persist, and how much growth depends on acquisitions or elevated market volumes.
- Whether one-time charges, investment gains, tax items, and prior-year IBM charges materially affect comparisons; assess GAAP results alongside the company’s non-GAAP adjustments.
- Cash conversion and free cash flow, particularly the effects of client-platform investment, working capital, and asset-sale proceeds.
- Debt, revolving-credit usage, future debt maturities, and the financial implications of long-term IBM commitments.
- Potential changes in COVID-19 conditions, mutual-fund disclosure rules, client demand, cybersecurity exposure, and securities-market activity.