Recurring Fee Revenues Rise 9%

Closed Sales Rise 20%

Updated Guidance Reflects Strong Second-Half Organic Growth and Impact of Covid-19

NEW YORK, May 8, 2020 /PRNewswire/ -- Broadridge Financial Solutions, Inc. (NYSE: BR) today reported financial results for the third quarter and nine months ended March 31, 2020 of its fiscal year 2020. Results compared with the same period last year were as follows:  

"Broadridge is making a real difference in this volatile and uncertain time and I have been inspired by how our associates have stepped up to meet this incredible challenge," said Tim Gokey, Broadridge's Chief Executive Officer. "The importance of what we do to power global trading and wealth management, enable safe and effective corporate governance, and keep investors informed has never been greater. Our scalable and resilient technology has operated flawlessly in periods of heavy market volume, our production facilities have delivered a successful proxy season in the face of extraordinary safety measures, and we are poised to deliver more than four times as many Virtual Shareholder Meetings as last year. We remain focused on keeping our associates safe, serving our clients, and helping our communities. I am extremely proud of every member of the Broadridge team.

"Our financial performance during the Third Quarter and our outlook for Fiscal Year 2020 underscores the resilience of Broadridge's business model. Third Quarter Recurring revenues rose 9% and Adjusted EPS rose 5% even in the face of significantly lower event-driven activity and proxy timing shift. While tempered by lower event-driven activity, our updated guidance calls for continued growth in the fourth quarter, reflecting the essential nature of our work and the dedication of our associates," Mr. Gokey added.

Fiscal Year 2020 Financial Guidance

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

• Total revenues increased 2% to $1,250 million from $1,225 million in the prior year period.
• Recurring fee revenues increased 9% to $835 million from $767 million. The increase in recurring fee revenues includes 6pts of growth from acquisitions. Organic growth was 3pts. Internal growth was neutral with positive growth in our GTO segment driven by higher trading volumes resulting from market uncertainty related to the Covid-19 pandemic ("Covid-19"), offset by negative internal growth in our ICS segment driven by a shift of proxy communications into the fourth quarter also as a result of Covid-19.
• Event-driven fee revenues decreased $29 million, or 43%, to $39 million, mainly from lower mutual fund proxy activity and equity proxy contests.
• Distribution revenues decreased $6 million, or 1%, to $412 million, primarily from the decrease in event-driven fee revenues.
• Operating income was $226 million, a decrease of $7 million, or 3%. Operating income margin decreased to 18.1%, compared to 19.1% for the prior year period.
• Adjusted Operating income was $262 million, an increase of $6 million, or 3%. Adjusted Operating income margin increased to 21.0%, compared to 20.9% for the prior year period.
• The decrease in Operating income was primarily due to the impact of lower event-driven fee revenues and higher acquisition amortization expense, partially offset by higher recurring fee revenues. The increase in Adjusted Operating income was primarily due to the increase in recurring fee revenues more than offsetting the impact of lower event-driven fee revenues. 
• Interest expense, net was $16 million, an increase of $6 million, or 62%, primarily due to an increase in interest expense from higher borrowings related to acquisitions.
• The effective tax rate was 20.7% compared to 23.0% in the Third Quarter 2019. The effective tax rate was impacted by higher discrete tax benefits relative to pre-tax income, including excess tax benefits of $2 million, which increased from $1 million in the Third Quarter 2019.
• Net earnings decreased 3% to $167 million and Adjusted Net earnings increased 3% to $195 million.
• Diluted earnings per share decreased 1% to $1.43, compared to $1.45 in the Third Quarter 2019 and Adjusted earnings per share increased 5% to $1.67, compared to $1.59 in the Third Quarter 2019.
• The decrease in Diluted earnings per share was primarily due to the decrease in event-driven fee revenues and higher acquisition amortization expense, partially offset by higher recurring fee revenues. The increase in Adjusted earnings per share was primarily due to an increase in recurring fee revenues more than offsetting a decrease in event-driven fee revenues.

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

Beginning in the first quarter 2020, the results for the Company's Advisor Solutions services that were previously reported in our Investor Communication Solutions segment are now reported within the Global Technology and Operations segment. As a result, our prior period segment results have been revised to reflect this change.

Investor Communication Solutions ("ICS") 

• ICS total revenues were $980 million, a decrease of $26 million, or 3%.
• Recurring fee revenues increased $9 million, or 2%, to $529 million. The increase was attributable to revenues from net new business (3pts) and acquisition growth (3pts), partially offset by internal growth (-4pts). Internal growth was negatively impacted by a shift of proxy communications into the fourth quarter as a result of Covid-19.
• Event-driven fee revenues decreased $29 million, or 43%, to $39 million, mainly from lower mutual fund proxy activity and equity proxy contests.
• Distribution revenues decreased $6 million, or 1%, to $412 million, primarily from the decrease in event-driven activity.
• ICS earnings before income taxes were $159 million, a decrease of $34 million, or 17%, primarily due to the decrease in event-driven fee revenues and the shift of proxy communications into the fourth quarter, which more than offset the contribution from the increase in other recurring fee revenues. Pre-tax margins decreased to 16.2% from 19.2%.

Global Technology and Operations ("GTO")

• GTO recurring fee revenues were $305 million, an increase of $58 million, or 23%. The increase was attributable to the combination of revenues from acquisitions (12pts) and organic growth (11pts). Internal growth benefited from higher trading volumes resulting from market uncertainty related to Covid-19.
• GTO earnings before income taxes were $67 million, an increase of $14 million, or 26%, compared to $53 million in the prior year period. The increased earnings were primarily due to higher organic revenues, partially offset by expenditures to implement and support new business. Pre-tax margins increased to 22.1% from 21.5%.

Other

• Other Loss before income tax decreased 29% to $18 million from $25 million in the Third Quarter 2019. The decreased loss before income taxes was primarily due to lower corporate expenses, partially offset by interest expense versus the prior year period.

Financial Results for the Nine Months Fiscal Year 2020 compared to the Nine Months Fiscal Year 2019

• Total revenues increased 1% to $3,167 million from $3,151 million in the prior year period.
• Recurring fee revenues increased 8% to $2,106 million from $1,947 million. The increase in recurring fee revenues includes 6pts of growth from acquisitions.
• Event-driven fee revenues decreased $83 million, or 43%, to $110 million, mainly from lower mutual fund proxy activity and equity proxy contests.
• Distribution revenues decreased $39 million, or 4%, to $1,042 million, primarily from the decrease in event-driven fee revenues.
• Operating income was $326 million, a decrease of $86 million, or 21%. Operating income margin decreased to 10.3%, compared to 13.1% in the prior year period.
• Adjusted Operating income was $460 million, a decrease of $20 million, or 4%. Adjusted Operating income margin decreased to 14.5%, compared to 15.2% for the prior year period.
• The decrease in Operating income was primarily due to the decrease in event-driven fee revenues, charges associated with the IBM Private Cloud Agreement, and higher acquisition amortization expense, partially offset by higher recurring fee revenues.  The decrease in Adjusted Operating income was primarily due to the decrease in event-driven fee revenues partially offset by higher recurring fee revenues. 
• Interest expense, net was $43 million, an increase of $13 million, or 42%, primarily due to an increase in interest expense from higher borrowings primarily related to acquisitions.
• The effective tax rate was 18.3% compared to 20.8% in the prior year period. The effective tax rate was impacted by higher discrete tax items relative to pre-tax income, including excess tax benefits of $10 million, slightly higher from $9 million in the prior year period.
• Net earnings decreased 22% to $233 million and Adjusted Net earnings decreased 4% to $337 million.
• Diluted earnings per share decreased 21% to $1.99, compared to $2.51 in the prior year period and Adjusted earnings per share decreased 2% to $2.88, compared to $2.94 in the prior year period.
• The decrease in Diluted earnings per share was primarily due to the decrease in event-driven fee revenues, charges associated with the IBM Private Cloud Agreement, and higher acquisition amortization expense, partially offset by higher recurring fee revenues. The decrease in Adjusted earnings per share was primarily due to a decrease in event-driven fee revenues partially offset by higher recurring fee revenues.

Segment and Other Results for the Nine Months Fiscal Year 2020 compared to the Nine Months Fiscal Year 2019

Beginning in the first quarter 2020, the results for the Company's Advisor Solutions services that were previously reported in our Investor Communication Solutions segment are now reported within the Global Technology and Operations segment. As a result, our prior period segment results have been revised to reflect this change.

Investor Communication Solutions 

• ICS total revenues were $2,398 million, a decrease of $90 million, or 4%.
• Recurring fee revenues increased $32 million, or 3%, to $1,246 million. The increase was attributable to revenues from acquisitions (3pts), as organic growth was essentially flat.
• Event-driven fee revenues decreased $83 million, or 43%, to $110 million, mainly from lower mutual fund proxy activity and equity proxy contests compared to the prior year period.
• Distribution revenues decreased $39 million, or 4%, to $1,042 million, primarily from the decrease in event-driven activity.
• ICS earnings before income taxes were $204 million, a decrease of $84 million, or 29%, primarily due to lower event-driven fee revenues more than offsetting the contribution from higher recurring fee revenues. Pre-tax margins decreased to 8.5% from 11.6%.

Global Technology and Operations

• GTO recurring fee revenues were $860 million, an increase of $127 million, or 17%. Revenue from acquisitions contributed (11pts) to the increase and organic growth contributed (6pts).
• GTO earnings before income taxes were $173 million, an increase of $25 million, or 17%, compared to $147 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 and the amortization of acquired intangibles. Pre-tax margins were flat at 20.1%.

Other

• Other Loss before income tax increased 40% to $107 million from $76 million in the nine months ended March 31, 2020. The increased loss was primarily due to charges associated with the IBM Private Cloud Agreement, and higher interest expense versus the prior year period.

Third Quarter 2020 Acquisition

In February 2020, the Company acquired FundsLibrary Limited ("FundsLibrary"), a leader in fund document and data dissemination in the European market.  The combination of FundsLibrary's capabilities with Broadridge's existing regulatory communications offerings is expected to enable Broadridge to reduce complexity and cost for global fund managers, helping them to increase distribution opportunities and meet their regulatory requirements across multiple jurisdictions.  The purchase price was approximately $70 million net of cash acquired.

Earnings Conference Call

An analyst conference call will be held today, Friday, May 8, 2020 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 May 22, 2020, 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, (ii) Acquisition and Integration Costs, and (iii) IBM Private Cloud Charges. 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. IBM Private Cloud Charges represent a charge on the hardware assets to be transferred to IBM and other charges related to the IBM Private Cloud Agreement.

We exclude IBM Private Cloud Charges from our Adjusted Operating income and other earnings measures because excluding such information provides us with an understanding of the results from the primary operations of our business and this item does not reflect ordinary operations or earnings. We also 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 described and discussed in Part I, "Item 1A. Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "Third Quarter Report") and 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 Third Quarter Report and the 2019 Annual Report.

These risks include:

• the potential impact and effects of Covid-19 on the business of Broadridge, Broadridge's results of operations and financial performance, any measures Broadridge has and may take in response to Covid-19 and any expectations Broadridge may have with respect thereto;
• 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 associates in 18 countries.

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

Contact Information 

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

Media: Gregg Rosenberg (212) 918-6966

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SOURCE Broadridge Financial Solutions, Inc.