Broadridge Reports First Quarter Fiscal Year 2020 Results

NEW YORK, Nov. 6, 2019 /PRNewswire/ -- Broadridge Financial Solutions, Inc. (NYSE: BR) today reported financial results for the first quarter ended September 30, 2019 of its fiscal year 2020. Results compared with the same period last year were as follows:  

"Broadridge reported solid first quarter results and is well-positioned to deliver a strong fiscal year 2020," said Tim Gokey, Broadridge's Chief Executive Officer. "Recurring revenues rose 8% and we generated record first quarter Closed sales. We also continued to make targeted M&A investments in each of our core franchises, further positioning us for long-term growth. As expected, event-driven revenues returned to normalized levels from last year's record first quarter.

"We are reaffirming our fiscal year 2020 guidance, including recurring fee revenue growth of 8-10% and Adjusted EPS growth of 8-12%," Mr. Gokey added. "Broadridge is well on-track to achieve our three-year objectives laid out at the 2017 Investor Day, including the high end of our Adjusted EPS objectives."

Fiscal Year 2020 Financial Guidance - Unchanged  

Financial Results for the First Quarter Fiscal Year 2020 compared to the First Quarter Fiscal Year 2019

• Total revenues decreased 2% to $949 million from $973 million in the prior year period.
• Recurring fee revenues increased 8% to $623 million from $576 million. The increase in recurring fee revenues includes 6pts of growth from acquisitions. Organic growth was 2%.
• Event-driven fee revenues decreased $37 million, or 48%, to $40 million, mainly from lower mutual fund proxy activity.
• Distribution revenues decreased $28 million, or 8%, to $313 million, primarily from the decrease in event-driven fee revenues.
• Operating income was $73 million, a decrease of $27 million, or 27%. Operating income margin decreased to 7.7%, compared to 10.3% in the First Quarter 2019.
• Adjusted Operating income was $104 million, a decrease of $19 million, or 16%. Adjusted Operating income margin decreased to 10.9%, compared to 12.6% for the prior year period.
• The decreases in Operating income and Adjusted Operating income were primarily due to the decrease in event-driven fee revenues.
• Interest expense, net was $13 million, an increase of $4 million, or 36%, primarily due to an increase in interest expense from higher borrowings.
• The effective tax rate was 12.4% compared to 14.1% in the First Quarter 2019. The effective tax rate was impacted by discrete tax items, including excess tax benefits of $6 million, which declined from $7 million in the First Quarter 2019.
• Net earnings decreased 27% to $56 million and Adjusted Net earnings decreased 15% to $80 million.
• Diluted earnings per share decreased 25% to $0.48, compared to $0.64 in the First Quarter 2019 and Adjusted earnings per share decreased 14% to $0.68, compared to $0.79 in the First Quarter 2019.
• The decreases in Diluted earnings per share and Adjusted earnings per share were primarily due to the lower event-driven fee revenues.

Segment and Other Results for the First Quarter 2020 compared to First Quarter 2019

The results for the Company's Advisor Solutions services that were previously reported in our Investor Communication Solutions reportable segment are now reported within the Global Technology and Operations reportable segment. As a result, our prior period segment results have been revised to reflect this change in reporting segments.

Investor Communication Solutions ("ICS")

• ICS total revenues were $703 million, a decrease of $52 million, or 7%.
• Recurring fee revenues increased $12 million, or 4%, to $349 million. The increase was attributable to the combination of organic growth (2pts) and revenues from acquisitions (2pts).
• Event-driven fee revenues decreased $37 million, or 48%, to $40 million, mainly from lower mutual fund proxy activity compared to the First Quarter 2019.
• Distribution revenues decreased $28 million, or 8%, to $313 million, primarily from the decrease in event-driven activity.
• ICS earnings before income taxes were $23 million, a decrease of $36 million, or 61%, primarily due to lower event-driven fee revenues more than offsetting the contribution from higher recurring fee revenues. Pre-tax margins decreased to 3.3% from 7.8%.

Global Technology and Operations ("GTO")

• GTO recurring fee revenues were $274 million, an increase of $36 million, or 15%. The increase was attributable to the combination of revenues from acquisitions (12pts) and organic growth (3pts).
• GTO earnings before income taxes were $56 million, an increase of $10 million, or 21%, compared to $47 million in the prior year period. The increased earnings were primarily due to higher revenues from acquisitions, including software license sales, and higher organic revenues, partially offset by the impact of expenditures to implement and support new business. Pre-tax margins increased to 20.6% from 19.5%.

Other

• Other Loss before income tax decreased 9% to $21 million from $23 million in the First Quarter 2019. The decreased loss was primarily due to an increase in investment gains and lower corporate expenses, partially offset by higher interest expense compared to the prior year period.

First Quarter 2020 Acquisitions
In September 2019, the Company acquired Financial Database Services, a provider of compensation management, compliance and advisor onboarding solutions for the wealth management industry. The acquisition expands Broadridge's capabilities and technology solutions for the wealth management industry. Terms of the deal were not disclosed.

Second Quarter 2020 Acquisitions
Broadridge completed three acquisitions subsequent to September 30, 2019 with an aggregate purchase price of approximately $171 million.

• Shadow Financial Systems, Inc.: In October 2019, the Company acquired Shadow Financial Systems, Inc., a provider of multi-asset class post-trade solutions for the capital markets industry. The acquisition builds upon Broadridge's post-trade processing capabilities by adding a market-ready solution for exchanges, inter-dealer brokers and proprietary trading firms. In addition, the acquisition adds capabilities across exchange traded derivatives and cryptocurrency. The purchase price was approximately $39 million subject to normal closing adjustments.
• Fi360, Inc.: In November 2019, the Company acquired Fi360, Inc., a provider of fiduciary and Reg BI solutions for the wealth and retirement industry, including the accreditation and continuing education for the Accredited Investment Fiduciary® (AIF®) Designation, the leading designation focused on fiduciary responsibility. The acquisition will enhance Broadridge's existing retirement solutions by providing wealth and retirement advisors with fiduciary tools that will complement its Matrix trust and trading platform. The acquisition will also further strengthen Broadridge's data and analytics tools and solutions suite that enable asset managers to grow their businesses by providing greater transparency into the retirement market. The purchase price was approximately $120 million subject to normal closing adjustments.

In October 2019, the Company also acquired Appatura Inc. Appatura's technology and operational capabilities enable asset managers and other issuers to streamline the composition of regulatory and marketing communications, enabling greater consistency and accuracy in content through a more automated process, while meeting regulatory requirements. Terms of the transaction were not disclosed.

Earnings Conference Call
An analyst conference call will be held today, Wednesday, November 6, 2019 at 8:30 a.m. ET. A live webcast of the call will be available to the public on a listen-only basis. To listen to the live event and access the slide presentation, visit Broadridge's Investor Relations website at www.broadridge-ir.com prior to the start of the webcast. To listen to the call, investors may also dial 1-877-328-2502 within the United States and international callers may dial 1-412-317-5419.

A replay of the webcast will be available and can be accessed in the same manner as the live webcast at the Broadridge Investor Relations site. Through November 20, 2019, the recording will also be available by dialing 1-877-344-7529 passcode: 10136507 within the United States or 1-412-317-0088 passcode: 10136507 for international callers.

Explanation and Reconciliation of the Company's Use of Non-GAAP Financial Measures
The Company's results in this press release are presented in accordance with U.S. generally accepted accounting principles ("GAAP") except where otherwise noted. In certain circumstances, results have been presented that are not generally accepted accounting principles measures ("Non-GAAP"). These Non-GAAP measures are Adjusted Operating income, Adjusted Operating income margin, Adjusted Net earnings, Adjusted earnings per share, and Free cash flow. These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company's reported results.

The Company believes our Non-GAAP financial measures help investors understand how management plans, measures and evaluates the Company's business performance. Management believes that Non-GAAP measures provide consistency in its financial reporting and facilitates investors' understanding of the Company's operating results and trends by providing an additional basis for comparison. Management uses these Non-GAAP financial measures to, among other things, evaluate our ongoing operations, for internal planning and forecasting purposes and in the calculation of performance-based compensation. In addition, and as a consequence of the importance of these Non-GAAP financial measures in managing our business, the Company's Compensation Committee of the Board of Directors incorporates Non-GAAP financial measures in the evaluation process for determining management compensation.

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Earnings and Adjusted Earnings Per Share
These Non-GAAP measures reflect Operating income, Operating income margin, Net earnings, and Diluted earnings per share, as adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items that management believes are not indicative of our ongoing operating performance. These adjusted measures exclude the impact of: (i) Amortization of Acquired Intangibles and Purchased Intellectual Property, and (ii) Acquisition and Integration Costs. Amortization of Acquired Intangibles and Purchased Intellectual Property represents non-cash amortization expenses associated with the Company's acquisition activities. Acquisition and Integration Costs represent certain transaction and integration costs associated with the Company's acquisition activities.

We exclude the impact of Amortization of Acquired Intangibles and Purchased Intellectual Property, as these non-cash amounts are significantly impacted by the timing and size of individual acquisitions and do not factor into the Company's capital allocation decisions, management compensation metrics or multi-year objectives. Furthermore, management believes that this adjustment enables better comparison of our results as Amortization of Acquired Intangibles and Purchased Intellectual Property will not recur in future periods once such intangible assets have been fully amortized. Although we exclude Amortization of Acquired Intangibles and Purchased Intellectual Property from our adjusted earnings measures, our management believes that it is important for investors to understand that these intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets.

Free Cash Flow
In addition to the Non-GAAP financial measures discussed above, we provide Free cash flow information because we consider Free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated that could be used for dividends, share repurchases, strategic acquisitions, other investments, as well as debt servicing. Free cash flow is a Non-GAAP financial measure and is defined by the Company as Net cash flows provided by operating activities less Capital expenditures as well as Software purchases and capitalized internal use software.

Reconciliations of such Non-GAAP measures to the most directly comparable financial measures presented in accordance with GAAP can be found in the tables that are part of this press release.

Forward-Looking Statements
This press release and other written or oral statements made from time to time by representatives of Broadridge may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, and which may be identified by the use of words such as "expects," "assumes," "projects," "anticipates," "estimates," "we believe," "could be" and other words of similar meaning, are forward-looking statements. In particular, information appearing in the "Fiscal Year 2020 Financial Guidance" section are forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. These risks and uncertainties include those risk factors discussed in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year 2019 (the "2019 Annual Report"), as they may be updated in any future reports filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the date of this press release and are expressly qualified in their entirety by reference to the factors discussed in the 2019 Annual Report.

These risks include:

• the success of Broadridge in retaining and selling additional services to its existing clients and in obtaining new clients;
• Broadridge's reliance on a relatively small number of clients, the continued financial health of those clients, and the continued use by such clients of Broadridge's services with favorable pricing terms;
• a material security breach or cybersecurity attack affecting the information of Broadridge's clients;
• changes in laws and regulations affecting Broadridge's clients or the services provided by Broadridge;
• declines in participation and activity in the securities markets;
• the failure of Broadridge's key service providers to provide the anticipated levels of service;
• a disaster or other significant slowdown or failure of Broadridge's systems or error in the performance of Broadridge's services;
• overall market and economic conditions and their impact on the securities markets;
• Broadridge's failure to keep pace with changes in technology and demands of its clients;
• Broadridge's ability to attract and retain key personnel;
• the impact of new acquisitions and divestitures; and
• competitive conditions.

Broadridge disclaims any obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.

About Broadridge
Broadridge Financial Solutions, Inc. (NYSE: BR), a $4 billion global Fintech leader, is a leading provider of investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers and corporate issuers. Broadridge's infrastructure underpins proxy voting services for over 50 percent of public companies and mutual funds globally, and processes on average more than U.S.$7 trillion in fixed income and equity securities trades per day. Broadridge is part of the S&P 500^® Index and employs over 11,000 full-time associates in 18 countries.

For more information about Broadridge, please visit www.broadridge.com.

Contact Information 

Investors:
W. Edings Thibault
Investor Relations
(516) 472-5129

Media:
Gregg Rosenberg
Corporate Communications
(212) 918-6966

SOURCE Broadridge Financial Solutions, Inc.

Related Links

http://www.broadridge.com

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