21 October 2014

Broadridge Q2 hampered by slower sales cycles on larger deals

07 February 2013  |  1104 views  |  0 Source: Broadridge

Broadridge Financial Solutions, Inc. ( NYSE : BR ) today reported financial results for the second quarter of its fiscal year 2013.

For the three months ended December 31, 2012, the Company reported revenues of $493 million, GAAP net earnings from continuing operations of $16 million, Non-GAAP net earnings from continuing operations of $22 million, GAAP diluted earnings per share from continuing operations of $0.13 and Non-GAAP diluted earnings per share from continuing operations of $0.17. This compares with revenues of $480 million, GAAP net earnings from continuing operations of $7 million, Non-GAAP net earnings from continuing operations of $19 million, GAAP diluted earnings per share from continuing operations of $0.05 and Non-GAAP diluted earnings per share from continuing operations of $0.15 for the comparable quarter of the previous fiscal year.

Our fiscal year 2013 Non-GAAP results exclude the impact of Acquisition Amortization and Other Costs and restructuring charges. In addition, our fiscal year 2012 Non-GAAP results exclude the impact of Acquisition Amortization and Other Costs, an impairment charge, and IBM Migration costs. The significant Non-GAAP adjustments to our results are described in more detail below.

Commenting on the results, Richard J. Daly, Chief Executive Officer, said, "Overall, I am satisfied with our second quarter results. For the quarter, our recurring revenues grew 3% in an ongoing challenging market environment. Although our sales pipeline is as strong as ever, I am not satisfied with our year-to-date recurring revenue closed sales results which were down approximately 45% compared with last year. This is primarily due to a longer than anticipated sales cycle for pending transactions with revenue greater than $5 million. During the first half of the year, we did not close any sales with revenue greater than $5 million, compared to the same period last year when we closed $22 million of such large sales." He continued, "Due to the seasonal nature of our business, the first half of the fiscal year generally contributes less than 20% to our annual earnings results." Mr. Daly concluded, "We expect to achieve our full year guidance as a result of our strong sales pipeline including the large pending sales, 99% client revenue retention rate, the leading market position our brand and products enjoy, and our continued commitment to drive cost efficiencies through the organization. With the long and difficult exit from the Clearing business behind us and event-driven revenues stabilized near their historical lows, moving forward, we are highly confident that our clear and executable strategy will create shareholder value across both our business segments."

Financial Results for Second Quarter Fiscal Year 2013

For the second quarter of fiscal year 2013, revenues increased 3% to $493 million, compared to $480 million for the comparable period last year. The increase was driven by a positive contribution from recurring fee revenues of approximately $9 million including net new business (defined as closed sales less client losses) and higher distribution revenues of $3 million. GAAP pre-tax margins from continuing operations of 5.0% increased compared to 2.2% for the same period last year primarily due to the impact of the $10 million impairment charge on the Penson Worldwide, Inc. ("Penson") common stock and $4 million of IBM Migration costs in the prior year. Non-GAAP pre-tax margins from continuing operations were 6.9% compared to 6.3% for the same period last year.

For the second quarter of fiscal year 2013, GAAP net earnings from continuing operations of $16 million increased 132%, compared to $7 million for the same period last year, primarily due to the impact of the aforementioned Penson impairment charge and IBM Migration costs in the prior year. Non-GAAP net earnings from continuing operations were $22 million. GAAP diluted earnings per share from continuing operations increased to $0.13 per share, compared to $0.05 per share in the second quarter of fiscal year 2012. Non-GAAP diluted earnings per share from continuing operations were $0.17 compared to $0.15 in the second quarter of fiscal year 2012. The Penson impairment charge and IBM Migration costs decreased GAAP diluted earnings per share by $0.05 and $0.02, respectively in the prior year.

Analysis of Second Quarter Fiscal Year 2013

Investor Communication Solutions

Revenues for the Investor Communication Solutions segment increased $10 million, or 3%, to $327 million in the second quarter of fiscal year 2013 compared to the second quarter of fiscal year 2012. Higher recurring fee revenues contributed $7 million and higher distribution revenues contributed $3 million. The positive contribution from recurring fee revenues was driven primarily by net new business and internal growth. Operating margin increased by 1.7 percentage points to 5.0% as a result of higher recurring revenues and cost containment efforts.

Securities Processing Solutions

Revenues for the Securities Processing Solutions segment increased $3 million, or 2%, to $164 million in the second quarter of fiscal year 2013 compared to the second quarter of fiscal year 2012. The increase was driven by net new business offset by lower trade volumes and the decline in revenues resulting from the new outsourcing services contract with Apex Clearing Corporation ("Apex") replacing the terminated outsourcing services contract with Penson. Operating margin decreased, as expected, by 0.3 percentage points to 12.2% as a result of revenue mix.

Other

Pre-tax loss from continuing operations decreased by $8 million in the second quarter of fiscal year 2013, primarily due to the Penson impairment charge of $10 million in the same period last year.

Financial Results for Year-to-Date Fiscal Year 2013

For the six months ended December 31, 2012, revenues increased $33 million, or 3%, to $989 million, compared to $956 million for the comparable period last year. The increase was driven by a positive contribution from recurring fee revenues of approximately $19 million including net new business, acquisitions, higher distribution revenues of $11 million and higher event-driven fee revenues of $5 million. GAAP pre-tax margins from continuing operations of 5.4% improved compared to 3.8% for the same period last year as a result of the $10 million Penson impairment charge and $7 million of IBM Migration costs in the same period last year. Non-GAAP pre-tax margins from continuing operations were 7.0% compared to 6.9% in the same period last year.

For the six months ended December 31, 2012, GAAP net earnings from continuing operations of $34 million increased 45% compared to $24 million in the comparable period last year. Non-GAAP net earnings from continuing operations were $44 million compared to $42 million in the comparable period last year. GAAP diluted earnings per share from continuing operations increased to $0.27 per share compared to $0.19 per share for the comparable period last year. Non-GAAP diluted earnings per share from continuing operations were $0.35 per share compared to $0.33 per share for the comparable period last year. The Penson impairment charge and IBM Migration costs decreased GAAP diluted earnings per share by $0.05 and $0.03, respectively in the same period last year.

During the first six months of fiscal year 2013, our recurring revenue closed sales of $34 million decreased 45% from last year's comparable period. Free cash flow was $55 million. In addition, the Company repurchased approximately 3.9 million shares of Broadridge common stock under its stock repurchase plan at an average price of approximately $23.44 per share, and there remain approximately 5.9 million shares available for purchase under the stock repurchase plan as of December 31, 2012.

Fiscal Year 2013 Financial Guidance

We are reaffirming our full year guidance. We anticipate recurring revenue growth in the range of 4% to 7% and total revenue growth in the range of 3% to 4%, GAAP earnings from continuing operations before income taxes margins in the range of 13.8% to 14.4%, and Non-GAAP earnings from continuing operations before income taxes margins in the range of 15.1% to 15.7%.

We anticipate GAAP diluted earnings per share from continuing operations in the range of $1.60 to $1.70, and Non-GAAP diluted earnings per share from continuing operations in the range of $1.76 to $1.86, based on diluted weighted-average shares outstanding of approximately 128 million shares. Our free cash flow is expected to be in the range of approximately $200 million to $250 million. Our recurring revenue closed sales are expected to be in the range of $110 million to $150 million.

The Non-GAAP earnings margins guidance range excludes the projected impact of Acquisition Amortization and Other Costs and restructuring charges. The Non-GAAP pre-tax earnings margins and diluted earnings per share guidance ranges increased from the guidance we provided in August 2012 as a result of the exclusion of the impact of Acquisition Amortization and Other Costs which was not excluded in the guidance we provided in August 2012. Our guidance does not take into consideration the effect of any future acquisitions, additional debt or share repurchases.

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