Business Context and Reporting Period
Company: Broadridge Financial Solutions, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 2009 (Second Quarter of Fiscal Year 2010)
Business Overview: Broadridge is a global provider of investor communication solutions and securities processing/outsourcing solutions. The company recently restructured its reporting segments, moving its securities clearing business to "Discontinued Operations" following an agreement to sell these assets to Penson Worldwide, Inc. The company now reports two primary segments: Investor Communication Solutions and Securities Processing Solutions.
Key Financial Metrics
| Metric (in millions) | Three Months Ended Dec 31, 2009 | Six Months Ended Dec 31, 2009 |
|---|---|---|
| Revenues | $529.7 | $967.9 |
| Net Earnings (Continuing Ops) | $51.5 | $78.1 |
| Net Earnings (Total) | $33.6 | $60.0 |
| Diluted EPS (Continuing Ops) | $0.37 | $0.56 |
| Diluted EPS (Total) | $0.24 | $0.43 |
| Operating Cash Flow (Continuing Ops) | N/A | $118.8 |
| Cash and Cash Equivalents | $147.1 | $147.1 |
| Long-Term Debt | $324.1 | $324.1 |
| Working Capital | $559.6 | $559.6 |
Note: Total Net Earnings are reduced by a significant loss from discontinued operations ($17.9 million for the quarter; $18.1 million for the six months) due to asset impairment charges related to the divestiture of the securities clearing business.
Material Changes vs. Prior Period
- Revenue Growth: Revenues from continuing operations increased 21% ($92.2 million) for the quarter and 8% ($74.9 million) for the six months compared to the prior year. This growth was driven primarily by event-driven mutual fund proxy revenues and a new seven-year contract with Morgan Stanley Smith Barney LLC.
- Profitability: Earnings from continuing operations before taxes rose 41% for the quarter and 3% for the six months. The effective tax rate decreased significantly to 24.8% (quarter) and 29.6% (six months) from 38.4% and 38.7% in the prior year, due to the release of a valuation allowance on deferred tax assets and state tax credits.
- Segment Performance:
- Investor Communication Solutions: Revenues increased 33% (quarter) and 15% (six months), with earnings before taxes surging 157% (quarter) and 72% (six months).
- Securities Processing Solutions: Revenues declined 9% (quarter) and 8% (six months) due to lower trade volumes and price concessions. Earnings before taxes dropped 39% (quarter) and 33% (six months).
- Discontinued Operations: A one-time net loss of $17.9 million was recorded for the quarter due to the impairment of assets associated with the securities clearing business being sold.
Guidance, Outlook, and Risks
- Divestiture Status: The company is in the process of selling its securities clearing business to Penson Worldwide, Inc. The transaction is expected to close in the second half of fiscal year 2010. Consideration is estimated between $60 million and $70 million, consisting of a subordinated note and equity.
- Liquidity: Management believes cash on hand ($147.1 million), operating cash flows, and available credit facilities ($500 million revolving credit facility) are sufficient to meet current and anticipated needs.
- Capital Allocation: The company repurchased 2.65 million shares of common stock during the quarter under a 10 million share authorization plan. Dividends declared were $0.14 per share for the quarter.
- Risks:
- Seasonality: Revenues are heavily weighted toward the fourth fiscal quarter due to proxy season, making quarter-to-quarter comparisons difficult.
- Market Risk: Exposure to foreign currency exchange rates and interest rate fluctuations on variable-rate debt.
- Operational Risk: Reliance on data center services provided by former parent company ADP under a contract expiring in 2012.
Investor Verification Checklist
- Divestiture Closing: Verify the final closing date and consideration received for the securities clearing business sale to Penson Worldwide.
- Segment Mix: Monitor the trajectory of the Securities Processing Solutions segment, which is currently facing revenue declines due to lower trade volumes.
- Tax Rate Sustainability: Assess whether the reduced effective tax rate (driven by one-time valuation allowance releases) is sustainable in future periods.
- Share Repurchases: Track the remaining capacity of the $10 million share repurchase plan and its impact on earnings per share.
- ADP Contract: Review the terms and renewal status of the data center outsourcing agreement with ADP, which expires in June 2012.