Broadridge Reports Third Quarter 2014 Results

Lake Success, NY - 9 May 2014

Announces Record YTD Revenue and EPS Reaffirms Full Year Guidance 

Broadridge Financial Solutions, Inc. (NYSE:BR) today reported financial results for the third quarter of its fiscal year 2014. Results for the three months ended March 31, 2014 compared with the same period last year were as follows:

  • Recurring revenues increased 9% to $344 million from $317 million
  • Recurring revenue closed sales were up 13% to $23 million from $20 million
  • Total revenues increased 6% to $521 million from $493 million
  • Non-GAAP Net earnings increased 43% to $31 million from $22 million
  • GAAP Net earnings increased 75% to $28 million from $16 million
  • Non-GAAP Diluted earnings per share increased 47% to $0.25 from $0.17
  • GAAP Diluted earnings per share increased 69% to $0.22 from $0.13

Richard J. Daly, President and Chief Executive Officer, commented, “Our performance reflects the consistent, successful execution of our growth strategy and was primarily driven by our strong recurring revenue, including Net New Business gains in both business segments and ongoing favorable market-based activities. During the quarter, we introduced new product solutions, won additional clients, and continued to drive efficiencies through our operations. As evidenced by our exceptional client revenue retention rate, we are a trusted business partner. Our sales pipeline is robust and growing, and we anticipate closing at least one large transaction this fiscal year. The momentum in both business segments helped us deliver record financial results for the quarter and year to date, giving us the confidence to anticipate achieving the upper half of our revenue and EPS guidance ranges.”

Mr. Daly concluded, “With the full year headed towards strong record results, our long term confidence continues to grow regarding Broadridge’s value creation opportunities. Driven by the demand for our solutions coupled with favorable market-based activities and increased investments aligned with the trends of digitalization, cost mutualization, and intelligence from our unique data, we believe both business segments are well positioned to drive consistent growth and performance in the future. We believe Broadridge is on track to achieve our goal of top quartile stockholder returns for years to come.”

Financial Results for Third Quarter Fiscal Year 2014

For the third quarter of fiscal year 2014, revenues increased 5% to $606 million, as compared to $577 million for the prior year period. The increase was driven by higher recurring fee revenues of approximately $32 million, or 9%, as a result of Net New Business (defined as recurring revenue closed sales less client losses) and internal growth factors. GAAP Pre-tax margins were 12.7% compared to 11.7% for the previous fiscal year, primarily due to higher revenues and operating leverage coupled with the positive impact of improved productivity from strategic initiatives. Non-GAAP Pre-tax margins were 13.7% as compared to 13.4% for the same period last year.

For the third quarter of fiscal year 2014, GAAP Net earnings increased 17% to $51 million, as compared to $43 million for the prior year period, primarily due to higher revenues and operating leverage coupled with the positive impact of improved productivity from strategic initiatives. Non-GAAP Net earnings were $55 million compared to $50 million for the same period last year. GAAP Diluted earnings per share increased to $0.41 per share, compared to $0.35 per share in the third quarter of fiscal year 2013. Non-GAAP Diluted earnings per share were $0.44 compared to $0.39 per share for the same period last year. Acquisition Amortization and Other Costs decreased GAAP Diluted earnings per share by $0.03 and $0.02 for the three months ended March 31, 2014 and 2013, respectively.

In addition, during the third quarter, the Company repurchased approximately 0.5 million shares of Broadridge common stock at an average price of approximately $38.19 per share.

Analysis of Third Quarter Fiscal Year 2014

Investor Communication Solutions

Revenues for the Investor Communication Solutions segment increased $26 million, or 6%, to $430 million for the third quarter of fiscal year 2014 compared to $404 million for the third quarter of fiscal year 2013. Higher recurring fee revenues contributed $23 million and higher distribution revenues contributed $2 million to the increase in revenues. The positive contribution from recurring fee revenues was driven primarily by Net New Business and higher internal growth from market-based activities. Pre-tax margins increased by 0.3 percentage points to 12.9% as a result of higher recurring fee revenues.

Securities Processing Solutions

Revenues for the Securities Processing Solutions segment increased $8 million, or 5%, to $178 million for the third quarter of fiscal year 2014 compared to $170 million for the third quarter of fiscal year 2013. The increase was the result of higher Net New Business and internal growth as a result of an increase in equity trade volumes. Pre-tax margins increased by 4.3 percentage points to 21.2% as a result of operating leverage and improved productivity from strategic initiatives.

Other

Pre-tax loss increased by $4 million in the third quarter of fiscal year 2014, primarily due to higher interest expense on our Long-term borrowings and an executive separation payment.

Financial Results for Year-to-Date Fiscal Year 2014

For the nine months ended March 31, 2014, revenues increased $106 million, or 7%, to $1,672 million, compared to $1,566 million for the comparable period last year. The increase was driven by a positive contribution from recurring fee revenues of approximately $92 million including Net New Business, higher distribution revenues of $14 million and higher event-driven fee revenues of $9 million. Fluctuations in foreign currency exchange rates negatively impacted revenues by $9 million. GAAP Pre-tax margins of 11.3% increased as compared to 7.7% for the previous fiscal year, primarily due to higher revenues and operating leverage coupled with the positive effect of improved productivity from strategic initiatives. Non-GAAP Pre-tax margins of 12.4% increased as compared to 9.3% for the same period last year.

For the nine months ended March 31, 2014, GAAP Net earnings increased $45 million, or 58%, to $123 million, compared to $78 million for the comparable period last year. Non-GAAP Net earnings were $134 million compared to $94 million for the prior year period. GAAP Diluted earnings per share increased to $0.99 per share compared to $0.62 per share for the comparable period last year. Non-GAAP Diluted earnings per share were $1.08 per share compared to $0.74 per share for the comparable period last year. Acquisition Amortization and Other Costs decreased GAAP Diluted earnings per share by $0.09 and $0.08, respectively, for both the nine months ended March 31, 2014 and 2013.

During the first nine months of fiscal year 2014, recurring revenue closed sales increased 5% to $62 million from last year’s comparable period. Free cash flow was $143 million. Year to date, the Company repurchased approximately 0.9 million shares of Broadridge common stock under its stock repurchase plan at an average price of approximately $36.05 per share. As of March 31, 2014, approximately 5.7 million shares remain available for purchase under the stock repurchase plan.

Fiscal Year 2014 Financial Guidance

The Company is reaffirming its revised full year guidance that was provided in February 2014 with an expectation that revenue and earnings per share results will fall within the upper half of the guidance ranges. The Company anticipates:

  • Recurring revenue growth in the range of 7% to 8%, and total revenue growth in the range of 4% to 5%
  • Non-GAAP Pre-tax margins in the range of 16.4% to 17.0 %, and GAAP Pre-tax margins in the range of 15.5% to 16.1%
  • Non-GAAP Diluted earnings per share in the range of $2.15 to $2.25, and GAAP Diluted earnings per share in the range of $2.03 to $2.13, based on diluted weighted-average shares outstanding of approximately 124 million shares
  • Free cash flow in the range of approximately $275 million to $325 million
  • Recurring revenue closed sales in the range of $110 million to $150 million

The Non-GAAP Pre-tax margins and diluted earnings per share guidance ranges exclude the projected impact of Acquisition Amortization and Other Costs. Our guidance does not take into consideration the effect of any future acquisitions, additional debt or share repurchases.

Explanation of the Company’s Use of Non-GAAP Financial Measures

In certain circumstances, results have been presented that are not generally accepted accounting principles measures (“Non-GAAP”) and should be viewed in addition to, and not as a substitute for, the Company’s reported results. These Non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods.  In addition, Broadridge believes this Non-GAAP information helps investors understand the effect of these items on reported results and provides a better representation of the Company’s actual performance.  Accompanying this release is a reconciliation of these Non-GAAP measures to the comparable GAAP measures.

Net earnings, Diluted earnings per share and Pre-tax margins excluding the impact of Acquisition Amortization and Other Costs and Restructuring Charges are Non-GAAP measures. Our fiscal year 2014 Non-GAAP results exclude the impact of Acquisition Amortization and Other Costs, and our fiscal year 2013 Non-GAAP results exclude the impact of Acquisition Amortization and Other Costs and Restructuring Charges. The Company expects to incur certain restructuring and reorganization costs during fiscal year 2014 as part of its normal business operations and may adjust its GAAP earnings results to the extent such restructuring and reorganization costs are significant. To date, the Company has incurred $1.2 million in such costs and deems these costs to be part of our normal business operations. Free cash flow is a Non-GAAP measure and is defined by the Company as cash flow from operating activities, less capital expenditures and purchases of intangibles.

Acquisition Amortization and Other Costs

Acquisition Amortization and Other Costs represent amortization charges associated with intangible asset values as well as other transaction costs associated with the Company’s acquisitions. Acquisition Amortization and Other Costs are recorded in our Cost of revenues in the Condensed Consolidated Statements of Earnings for the three and nine months ended March 31, 2014 and 2013, respectively.

Restructuring Charges

For the three and nine months ended March 31, 2013, there were $4 million and $8 million, respectively, in pre-tax charges primarily related to severance costs resulting from the termination of the outsourcing services agreement between the Company and Penson Worldwide, Inc. These charges were recorded in our Other segment and Cost of revenues in the Condensed Consolidated Statements of Earnings for the three and nine months ended March 31, 2013.

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