Broadridge Financial Solutions, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2021, compared with the corresponding 2020 periods. Broadridge provides investor communications and financial technology services through Investor Communication Solutions (ICS) and Global Technology and Operations (GTO). Results are unaudited and interim results may not indicate full-year performance.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | $1,259.6 million; up 19% | $2,452.5 million; up 18% |
| Operating income / margin | $68.9 million / 5.5%; prior-year margin 7.5% | $172.1 million / 7.0%; prior-year margin 7.6% |
| Net earnings | $47.2 million; down 16% | $114.4 million; down 6% |
| Diluted EPS | $0.40; prior year $0.48 | $0.97; prior year $1.04 |
| Adjusted net earnings (non-GAAP) | $97.3 million; prior year $85.9 million | $223.5 million; prior year $200.3 million |
| Adjusted diluted EPS (non-GAAP) | $0.82; prior year $0.73 | $1.89; prior year $1.70 |
Quarterly recurring fee revenue rose 19% to $797.6 million, event-driven fees increased 44% to $64.7 million, and distribution revenue grew 17% to $401.5 million. For the six-month period, those categories grew 17%, 57%, and 14%, respectively. Management attributed recurring-fee growth to new business, internal growth, and acquisitions; acquisitions contributed 9 percentage points of growth in both periods, primarily from Itiviti.
ICS quarterly revenue grew 15% to $893.3 million and pre-tax earnings increased 44% to $58.8 million. GTO revenue grew 30% to $370.6 million, but pre-tax earnings fell 29% to $34.4 million; its margin declined to 9.3% from 17.0%. For six months, ICS revenue and pre-tax earnings rose 15% and 51%; GTO revenue rose 26% while pre-tax earnings fell 55%. GTO’s earnings pressure primarily reflected higher acquired-intangible amortization, including Itiviti, and spending to implement and support new business.
Cash flow, liquidity and debt
- Six-month operating cash flow was negative $94.6 million, versus positive $83.3 million a year earlier. Management cited greater working-capital use and increased client-platform implementation and development.
- Free cash flow, a company-defined non-GAAP measure, was negative $123.8 million, compared with positive $50.5 million. Cash used in investing was $53.9 million; financing provided $159.2 million.
- Cash and equivalents were $281.2 million at December 31, 2021, versus $274.5 million at June 30, 2021. Current assets were $1,266.6 million and current liabilities $1,087.8 million.
- Debt carrying value was $4,156.6 million, up from $3,887.6 million at June 30, 2021. Unused revolving-credit capacity was $1,119.0 million. The company reported compliance with applicable debt covenants.
- Dividends paid in the first six months totaled $141.2 million. Management expects cash, operating cash flows and borrowing capacity to cover expected needs, including for at least the next 12 months.
Changes, outlook and risks
- Revenue growth did not translate into higher GAAP quarterly earnings: operating expenses increased 22%, faster than revenue’s 19% growth. Higher acquired-intangible amortization, distribution costs including postage-rate increases, acquisition-related costs and professional fees contributed. Net interest expense also rose due to debt associated with Itiviti.
- The six-month effective tax rate declined to 12.1% from 14.6%, and the quarterly rate to 9.1% from 18.9%, primarily reflecting higher discrete tax items, including equity-compensation tax benefits. Other non-operating income included investment gains; the filing reports $7.5 million of investment gains in the non-GAAP reconciliation for the current periods.
- Management said Covid-19 had not materially affected consolidated revenue or pre-tax income in fiscal 2022 to date; facilities remained operational and no significant supply-chain issues were reported. Future effects remain uncertain.
- No updated quantified financial guidance is stated in the provided filing text. Management notes that proxy processing is seasonal, with higher activity generally in the third and fourth fiscal quarters, and that event-driven mutual fund proxy activity can be volatile and difficult to forecast.
- Key disclosed risks include client retention and concentration, cybersecurity, regulatory changes, securities-market activity and economic conditions, service-provider or system disruption, technology change, talent retention, acquisitions and competition. The company reported no material changes to previously disclosed risk factors. Ordinary-course claims and litigation were not expected to have a material impact.
- Significant commitments include fixed minimum payments of $169.7 million under the data-center services agreement, $191.0 million under the private-cloud agreement, and $250.0 million under the AWS cloud agreement. The company also disclosed $33.5 million of maximum loss exposure on an unconsolidated investment and a further $1.5 million funding commitment.
Important facts for investors to verify
- Whether recurring revenue growth and new-business wins persist, and how much growth remains acquisition-driven.
- Whether GTO profitability improves as Itiviti-related amortization and implementation costs develop.
- Whether working-capital demands and platform investment reverse sufficiently to restore positive operating and free cash flow.
- Debt levels, refinancing and covenant headroom, alongside planned dividends and other capital uses.
- The sustainability of event-driven revenue, the effect of seasonality and postage costs, and the potential impact of Covid-19 or other operating risks.