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 six months ended December 31, 2023—Broadridge’s second fiscal quarter of fiscal 2024—and compares results with the corresponding 2022 periods. All financial amounts below are in millions of dollars unless noted.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2023 | Quarter ended Dec. 31, 2022 | Six months ended Dec. 31, 2023 | Six months ended Dec. 31, 2022 |
|---|---|---|---|---|
| Revenue | $1,405.0 | $1,292.9 | $2,836.0 | $2,576.2 |
| Operating income | $124.4 | $107.9 | $272.8 | $195.4 |
| GAAP operating margin | 8.9% | 8.3% | 9.6% | 7.6% |
| Net earnings | $70.3 | $57.5 | $161.2 | $108.0 |
| Diluted EPS | $0.59 | $0.48 | $1.35 | $0.91 |
| Adjusted diluted EPS (non-GAAP) | $0.92 | $0.91 | $2.01 | $1.75 |
| Net interest expense | $36.3 | $34.1 | $69.7 | $61.0 |
- Quarterly revenue rose 9%; recurring revenue increased 7%, event-driven revenue 47%, and distribution revenue 9%. Six-month revenue rose 10%, with recurring revenue up 8%, event-driven revenue up 42%, and distribution revenue up 11%.
- Management reported recurring revenue growth, on a constant-currency basis, of 6% for the quarter and 7% for the six months; both were described as entirely organic.
- Quarterly ICS revenue increased 9% to $999.5 and earnings before income taxes rose 48% to $95.8. GTO revenue increased 9% to $405.4, but earnings before income taxes fell 11% to $39.3. For the six months, ICS earnings before tax rose 69% to $211.0, while GTO earnings before tax declined 13% to $73.0.
- Quarterly adjusted operating margin was 12.4%, versus 13.4% a year earlier; six-month adjusted operating margin was 13.2%, versus 12.5%. Adjusted measures exclude specified items, including acquired-intangible amortization.
Cash flow, debt and liquidity
- For the six months, operating cash flow was $127.8, versus an outflow of $81.4 in the prior-year period. Free cash flow, a non-GAAP measure, was $91.4 versus negative $114.5. Management attributed the improvement mainly to higher earnings and lower client platform implementation and development spending, partly offset by higher income-tax payments.
- Cash and cash equivalents were $277.0 at December 31, 2023, compared with $252.3 at June 30, 2023. Current assets were $1,363.6 and current liabilities $971.2.
- Total debt carrying value was $3,652.9, compared with $3,413.3 at June 30, 2023. The company had $1,380.0 of unused revolving-credit capacity and reported compliance with debt covenants.
- Six-month financing included $622.7 of debt proceeds, $382.7 of repayments, $179.7 of dividends paid, and $161.5 of treasury-stock purchases. No shares were repurchased under the public repurchase program during the second fiscal quarter.
- Stockholders’ equity was $2,067.6 at December 31, 2023, down from $2,240.6 at June 30, 2023. Foreign-currency translation losses contributed to the decline in accumulated other comprehensive income.
Material changes, outlook and risks
- Revenue growth reflected higher postage rates and event-driven activity, including mutual-fund proxy activity. Postage increases contributed approximately $27.7 to quarterly distribution-revenue growth and $55.1 to six-month growth.
- GTO margins were pressured by higher expenses, including acquired-intangible amortization, which increased $15.4 in the quarter and $30.2 over six months. Higher borrowing costs also increased interest expense.
- Broadridge estimates that the SEC tailored shareholder-report rule could reduce annual recurring revenue by approximately $30, phased in over fiscal 2025 and 2026, assuming no offset from new services. The rule’s final compliance date is July 24, 2024.
- Management expects operating cash, existing cash and borrowing capacity to fund working capital, capital expenditures, dividends, scheduled debt repayments and other commitments for at least the next 12 months. The filing does not provide formal earnings or revenue guidance.
- A fiscal 2023 restructuring initiative is expected to cost approximately $35–$50 in total; $20.4 had been incurred by the filing date, with the remaining costs expected by fiscal year-end 2024.
- For litigation matters, management estimated reasonably possible aggregate losses of up to $30 in excess of established reserves and said resolution was not currently expected to materially affect financial position or results. In the Plan Management case, the liability finding remained, the damages award was vacated, and a new damages trial was scheduled for March 4, 2024; the company said a material loss was not probable.
- Key disclosed risks include client concentration and retention, cybersecurity, market activity and economic conditions, service-provider or system failures, competition, technology changes, regulation, personnel, and acquisitions or divestitures. The company reported no material changes to the risk factors in its prior annual report and concluded its disclosure controls were effective.
- Broadridge noted that proxy and annual-report processing is seasonal, with activity, earnings and operating cash flow generally higher in the third and fourth fiscal quarters.
Important facts for investors to verify
- Whether recurring-revenue growth and new-business sales remain strong, particularly given quarterly closed sales declined 11% year over year to $58.0, despite a 12% increase to $105.6 for the six-month period.
- Whether GTO profitability recovers as expense and amortization pressures evolve, and how much growth in event-driven revenue reflects activity that may not recur annually.
- The timing and realized financial impact of the estimated $30 annual recurring-revenue reduction from the tailored shareholder-report rule, including any offsets from new services.
- Debt levels, variable-rate borrowing costs, available revolver capacity, and the company’s ability to maintain liquidity while funding dividends and share repurchases.
- Progress and final costs of the restructuring, and developments in the Plan Management litigation and other contingencies.