Business context and reporting period
Broadridge Financial Solutions, Inc. provides investor communications and financial technology services through Investor Communication Solutions (ICS) and Global Technology and Operations (GTO). This Form 10-Q covers the quarter and nine months ended March 31, 2023, the third quarter of fiscal 2023—not 2022 Q3 as indicated in the request. Comparisons are with the corresponding 2022 periods.
Financial performance and liquidity
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Three months ended March 31, 2023 | Change year over year | Nine months ended March 31, 2023 | Change year over year |
|---|---|---|---|---|
| Revenue | $1,645.7 | +7% | $4,221.9 | +6% |
| Operating income | $286.8 | +17% | $482.2 | +15% |
| Operating margin | 17.4% | 16.0% prior year | 11.4% | 10.5% prior year |
| Net earnings | $198.5 | +12% | $306.5 | +5% |
| Diluted EPS | $1.67 | +12% | $2.58 | +5% |
| Net interest expense | $38.5 | Up from $20.0 | $99.5 | Up from $64.0 |
For the quarter, recurring revenue rose 8% to $1,082.0 million, distribution revenue rose 8% to $511.9 million, and event-driven revenue fell 12% to $51.8 million. Nine-month recurring revenue increased 7% to $2,728.2 million; event-driven revenue declined 24% to $152.1 million. Management reported constant-currency recurring revenue growth of 9% for both periods, all organic.
Quarterly segment revenue was $1,257.2 million for ICS (+8%) and $388.5 million for GTO (+4%). Segment pre-tax earnings were $255.5 million for ICS (+16%) and $47.6 million for GTO (-2%). For the nine months, ICS revenue rose 7% and GTO revenue 4%; segment pre-tax earnings rose 5% and 30%, respectively.
Nine-month operating cash flow was $94.1 million, compared with cash used of $13.9 million in the prior-year period. Free cash flow, a non-GAAP measure, was $47.3 million versus negative $68.4 million. Capital expenditures and software purchases totaled $46.8 million. Cash and equivalents were $331.6 million at March 31, 2023, up from $224.7 million at June 30, 2022.
Debt carrying value was $4,076.6 million, up from $3,793.0 million at June 30, 2022; principal outstanding was $4,095.0 million. Unused revolving credit capacity was $1,195.0 million. The company reported compliance with debt covenants. Current assets were $1,568.2 million and current liabilities were $1,163.0 million. Nine-month dividends paid were $245.7 million.
Material changes, outlook and risks
- Higher postage rates boosted distribution revenue by approximately $33 million in the quarter and $86 million in the nine-month period, while also increasing costs.
- Lower mutual fund proxy activity reduced event-driven revenue; management noted this business can be volatile and difficult to forecast. Mutual fund proxy revenue was 59% lower year over year for the nine months.
- Higher borrowing costs drove much of the increase in net interest expense. Management cited cross-currency swap savings as a partial offset.
- A new SEC rule requiring tailored shareholder reports is expected to reduce annual recurring revenue by approximately $30 million, phased in during fiscal 2025 and 2026, assuming no offset from new services.
- Management expects operating cash, existing cash and borrowing capacity to fund operating needs and commitments for at least the next 12 months and the foreseeable future. The filing provides no broader earnings or revenue guidance.
- The company closed its Russia operations and relocated affected services. Nine-month Russia-related exit costs were $10.8 million net of a non-operating gain; management does not expect a material impact on core operations or financial results.
- Broadridge terminated its European data-center services agreement during the quarter; the provider continues service while Broadridge negotiates a replacement arrangement. Litigation includes a jury verdict against a subsidiary in the Plan Management matter; Broadridge filed post-trial motions and says a loss is not probable. Management estimates up to $30 million of reasonably possible litigation losses above reserves for other matters.
- Other disclosed exposures include client concentration, cybersecurity and service continuity, market and geopolitical conditions, regulation, competition, technology change, and dependence on key providers. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Confirm the period: the filing is for the quarter ended March 31, 2023, not 2022 Q3.
- Track recurring revenue growth against declines in event-driven activity and the estimated $30 million future revenue effect of the SEC rule.
- Assess cash conversion and working-capital movements, particularly the large increases in non-current assets and decreases in payables during the nine-month period.
- Review debt maturities, variable-rate borrowing exposure, and the May 2024 maturity of the $1.54 billion term loan.
- Monitor resolution of the Plan Management litigation and the transition to a replacement European data-center provider.