Broadridge Q3 revenues up but income down
10 May 2010 | 2852 views | 0
Broadridge Financial Solutions, Inc. (NYSE:BR) today reported revenues of $490.8 million, net earnings from continuing operations of $30.8 million and diluted earnings per share from continuing operations of $0.22 for the third quarter ended March 31, 2010, compared to revenues of $463.7 million, net earnings from continuing operations of $41.2 million and diluted earnings per share from continuing operations of $0.29 for the comparable quarter of the previous fiscal year.
Commenting on the results, Richard J. Daly, Chief Executive Officer, said, "I am pleased to report solid revenue results given the weak market conditions impacting our business. The most significant achievement is our record closed sales results for the quarter and year-to-date, which continue to position us to achieve higher levels of growth and earnings when market-driven volumes return."
Mr. Daly added, "Revenues for the quarter were up 6%, driven by the continued growth in event-driven revenues and new closed sales. However, weak market conditions impacted trade volumes and stock record growth, which continued to be flat to down for the quarter. Earnings were down, as expected, due to the impact of fiscal year 2009 client losses and concessions in the Securities Processing business and the benefit from a one-time tax credit in fiscal year 2009, as well as fiscal year 2010 implementation expenses related to our record sales. While I don't enjoy reporting lower earnings, I am proud that we continued to successfully execute our meaningful strategic imperatives despite difficult market conditions. These strategic imperatives include the Penson transaction, which we expect to close during our fourth quarter, the recently announced IBM data center and business alliance agreements, and our entry into the registered equity transfer agency market through an acquisition."
Financial Results for Third Quarter Fiscal Year 2010
For the third quarter of fiscal year 2010, revenues from continuing operations increased 6% to $490.8 million, compared to $463.7 million for the comparable period last year, primarily as a result of the continued growth in event-driven mutual fund proxy revenues and recurring revenues from the Morgan Stanley Smith Barney (MSSB) transaction. Pre-tax margin from continuing operations of 9.9% decreased compared to 11.8% in the same period last year as a result of the carryover impact of the fiscal year 2009 Securities Processing client losses and concessions, and the dilutive effect of the MSSB transaction and increased investments including incremental sales commissions in the Investor Communications business. Sales for the quarter were strong at $41.7 million, an increase of 53% compared to the third quarter of fiscal year 2009.
Net earnings from continuing operations decreased 25% to $30.8 million from $41.2 million, primarily due to lower pre-tax margin and a higher effective tax rate due to the one-time benefit from last fiscal year of $6.0 million. Diluted earnings per share from continuing operations decreased to $0.22 per share on lower earnings, offset by lower weighted-average shares outstanding, compared to $0.29 per share in the third quarter of fiscal year 2009. During the third quarter of fiscal year 2010, the Company repurchased approximately 0.5 million shares of Broadridge common stock under its stock repurchase plan at an average price of approximately $21.78 per share.
Beginning in the second quarter of the 2010 fiscal year, the financial results of the securities clearing business have been accounted for as a discontinued operation and the operations outsourcing solutions business retained by Broadridge has been included in the Securities Processing Solutions segment. We anticipate that the previously announced Penson transaction will close in the fourth quarter of the 2010 fiscal year, subject to the satisfaction of customary closing conditions, including regulatory approvals.
Financial Results for Year-to-Date Fiscal Year 2010
Closed sales were $129.8 million for the nine months ended March 31, 2010, a 41% increase versus last year's comparable period. Client revenue retention was 98% year-to-date.
For the nine months ended March 31, 2010, revenues from continuing operations grew by 8% to $1,458.7 million, compared to $1,356.7 million for the comparable period last year. The results were primarily driven by the growth in event-driven mutual fund proxy revenues and recurring revenues from new sales including the MSSB transaction which were offset by the previously announced client losses and concessions in Securities Processing. Pre-tax margin from continuing operations of 10.9% declined compared to 12.0% in the same period last year, primarily as a result of the revenue mix changes noted above and the one-time gain of $8.4 million from the purchase of $125.0 million of our senior notes in fiscal year 2009.
Net earnings from continuing operations increased 1% to $108.9 million from $107.3 million, primarily due to the lower effective tax rate due to a one-time foreign tax credit recorded in the second quarter of this fiscal year. Diluted earnings per share from continuing operations increased to $0.78 per share on lower weighted-average shares outstanding, compared to $0.76 per share in the comparable period of fiscal year 2009. During the first nine months of fiscal year 2010, the Company repurchased approximately 6.6 million shares of Broadridge common stock under its stock repurchase plan at an average price of approximately $21.46 per share and there remain 3.4 million shares available under the current stock repurchase plan.
Analysis of Third Quarter Fiscal Year 2010
Investor Communication Solutions
Revenues for the Investor Communication Solutions segment in the third quarter of fiscal year 2010 increased 7% to $356.5 million compared to the third quarter of fiscal year 2009. The increase was driven primarily by higher event-driven mutual fund proxy and revenue gains from acquisitions. Operating margin decreased by 2.1 percentage points compared to the third quarter of fiscal year 2009 primarily due to increased expenses related to the MSSB conversion.
Securities Processing Solutions
Revenues for the Securities Processing Solutions segment in the third quarter of fiscal year 2010 decreased 2% to $133.6 million compared to the third quarter of fiscal year 2009. The decrease was primarily related to the carryover impact of fiscal year 2009 client losses and concessions and lower trade volumes in our fixed income business, slightly offset by new business. Non-trade revenues and operations outsourcing revenues were essentially unchanged. Operating margin decreased 5.1 percentage points compared to the third quarter of fiscal year 2009, as a result of the impact from the revenue mix.
Revenues from Other in the third quarter of fiscal year 2010 decreased $0.8 million as a result of one-time non-recurring termination fees received in fiscal year 2009. Pre-tax loss from continuing operations for Other improved by $3.6 million compared to the third quarter of fiscal year 2009, as a result of lower corporate investment spending and lower interest expense on our Long-term debt due to lower interest rates.
Fiscal Year 2010 Financial Guidance
We expect to be at the low end of the revenue guidance we provided last quarter of 7% to 9% due to the flat to negative market-driven volumes we continue to experience (i.e. trade volumes and equity stock record growth). Our GAAP earnings per share from continuing operations are expected to be in the range of $1.58 to $1.64 on a diluted share basis. Our non-GAAP earnings per share from continuing operations are expected to be in the range of $1.52 to $1.58 on a diluted share basis, which excludes a positive $0.06 per share impact of a one-time foreign tax credit. Our GAAP earnings per share are expected to be in the range of $1.36 to $1.42 on a diluted share basis which includes the loss from discontinued clearing operations. The earnings per share guidance is based on diluted weighted-average shares outstanding of approximately 139 million shares. In addition, our fiscal year 2010 financial guidance assumes that the Penson transaction closes during the fourth quarter of our 2010 fiscal year.
We anticipate margins from continuing operations before interest and taxes in the range of 15.8% to 16.2%. Our effective annual tax rate will be approximately 34.7% (GAAP) including the one-time foreign tax credit and 37.5% (non-GAAP run rate) without the credit. Free cash flow is expected to remain in the range of $235 million to $270 million, as previously provided. Our closed sales forecast for fiscal year 2010 remains unchanged in the range of $185 million to $205 million.
Mr. Daly commented, "Overall, I am satisfied with our year-to-date financial results. I am pleased with the factors we control with respect to sales and client revenue retention but disappointed that the market-driven volumes have not yet returned. As in the past, we are and remain a lagging market indicator. Fortunately the unprecedented surge in event-driven revenues enables us to be within our original earnings per share guidance. We believe the Penson transaction closing is imminent. Subsequent to closing, we anticipate opportunistically repurchasing shares to offset the $0.07 per share dilution the conversion process will cause over the next 12 to 18 months. Once the Penson transaction closes, we will request Board authorization for additional share repurchases."