Business context and reporting period
Broadridge Financial Solutions, Inc. filed its Form 10-K for the fiscal year ended June 30, 2021, not a calendar-year 2020 or standalone fourth-quarter filing. It provides investor communications and financial technology services through Investor Communication Solutions (ICS) and Global Technology and Operations (GTO). ICS generated about 77% of reported revenue and GTO about 25%; foreign-exchange adjustments reconcile segment totals to consolidated revenue.
The business is seasonal: proxy and annual-report processing typically lifts revenue, operating income and operating cash flow in the third and fourth fiscal quarters. The filing reports fourth-quarter revenue of $1.532 billion and diluted EPS of $2.20, versus $1.362 billion and $1.97 in fiscal Q4 2020.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $4,993.7 million | $4,529.0 million | +10% |
| Operating income / margin | $678.7 million / 13.6% | $624.9 million / 13.8% | +9%; margin down 0.2 percentage points |
| Earnings before tax | $696.2 million | $579.5 million | +20% |
| Net earnings | $547.5 million | $462.5 million | +18% |
| Diluted EPS | $4.65 | $3.95 | +18% |
| Operating cash flow | $640.1 million | $598.2 million | +$41.8 million |
| Free cash flow (non-GAAP) | $557.3 million | $499.5 million | +$57.8 million |
| Cash and equivalents at year-end | $274.5 million | $476.6 million | Down $202.1 million |
| Total debt principal | $3,914.4 million | $1,787.5 million | Up substantially, principally to fund Itiviti |
Adjusted operating income was $901.8 million and adjusted operating margin was 18.1%, versus $794.8 million and 17.5% in FY2020. Adjusted net earnings were $666.5 million and adjusted diluted EPS was $5.66. These are non-GAAP measures and exclude specified acquisition, amortization, real-estate, pandemic and other items.
Recurring fee revenue rose 10% to $3,332.9 million; event-driven fees increased 33% to $237.3 million; distribution revenue increased 7% to $1,555.3 million. Closed sales were $242.5 million, compared with $238.9 million, and are a management estimate rather than GAAP revenue.
Segments and material changes
- ICS: Revenue grew 11% to $3,867.5 million; pretax earnings increased 30% to $605.6 million and pretax margin rose to 15.7% from 13.3%. Growth reflected recurring fees, higher equity and interim positions, event-driven activity and communication volumes.
- GTO: Revenue grew 7% to $1,258.1 million, while pretax earnings fell 9% to $223.3 million and pretax margin declined to 17.7% from 20.9%. New-business implementation, acquisition amortization and growth spending outweighed revenue gains.
- In May 2021 Broadridge acquired Itiviti for approximately $2.580 billion net of cash acquired, extending GTO into front-office trading and connectivity. AdvisorStream was acquired in June for $33.4 million. FY2021 acquisitions used $2,603.6 million of net cash; Itiviti contributed only a partial year to reported results.
- Other non-operating income included a $66.7 million pretax gain on the foreign-exchange forward associated with Itiviti. FY2021 also included $45.3 million of real-estate realignment and COVID-related expenses and a $6.0 million software charge. Acquisition-related amortization was $153.7 million.
Cash, debt, liquidity and outlook
Investing cash outflow was $2,653.7 million, largely due to acquisitions; financing cash inflow was $1,797.8 million, reflecting acquisition-related borrowing. Debt principal was $3,914.4 million at year-end, including $1,550.0 million of term loans due in 2024 and senior notes maturing in 2026, 2029 and 2031. The company had $1,385.6 million of unused revolving-credit capacity and reported compliance with debt covenants. Cash was $274.5 million; current assets were $1,261.3 million and current liabilities $1,288.0 million.
Management said operating cash generation, existing cash and borrowing capacity should fund operating needs, capital expenditures, dividends and debt commitments for at least the next 12 months and thereafter for the foreseeable future. No specific revenue, earnings or margin guidance for FY2022 is stated in the supplied filing text. On August 11, 2021, the board raised the quarterly dividend to $0.64 per share, implying an expected annual rate of $2.56, subject to future board approval.
Management commentary, risks and contingencies
- Management reported no material FY2021 impact from COVID-19 on consolidated revenue or pretax income, and said facilities and critical vendors remained operational. Future effects remain uncertain.
- Key risks include cybersecurity or system outages, reliance on critical vendors including IBM, client concentration and financial-services consolidation, changes to regulation and privacy laws, market activity and interest rates, competition and technology change, and acquisition integration.
- The 15 largest GTO clients accounted for about 51% of segment revenue; the largest single client represented about 6% of consolidated revenue. Deferred client conversion and start-up costs were about 10% of total assets, increasing exposure if clients are lost or financially stressed.
- Goodwill was $3,720.1 million, about 46% of assets. No impairment was recorded; management stated a 10% change in key valuation assumptions would not trigger impairment. Itiviti purchase accounting remained subject to finalization.
- Contractual obligations totaled $5,433.9 million, including debt, interest, leases and purchase obligations. The company disclosed $54.3 million of gross unrecognized tax benefits including interest, with payment timing not reliably estimable. Ordinary-course litigation was not expected to have a material effect.
- Auditor and management reported effective internal control over financial reporting. Itiviti, acquired May 12, 2021 and representing 37% of year-end assets and 1% of FY2021 revenue, was excluded from the control assessment and audit testing; it is expected to be included in the following year's assessment.
Important facts for investors to verify
- How Itiviti performs after integration, and the effects of acquisition financing, amortization and purchase-accounting finalization.
- Whether GTO margins recover as onboarding and growth investments mature.
- Debt repayment, interest-rate exposure and liquidity after the acquisition; 43% of debt was reported as floating-rate, with a hypothetical 100-basis-point increase estimated to reduce FY2021 pretax earnings by about $8.4 million before the offset from interest earned on cash.
- Whether recurring revenue and cash-flow growth persist, given event-driven volatility and the business’s seasonal fourth-quarter concentration.
- Potential effects of cybersecurity incidents, client concentration, vendor dependence and proposed changes to mutual-fund disclosure requirements.