Broadridge full year results disappoint

For the fiscal year ended June 30, 2011, the Company reported revenues of $2,167 million, net earnings from continuing operations of $172 million, GAAP diluted earnings per share from continuing operations of $1.34, and Non-GAAP diluted earnings per share from continuing operations, excluding $6 million of IBM data center migration (the "Migration") costs, of $1.37. This compares with revenues of $2,209 million, net earnings from continuing operations of $225 million, GAAP diluted earnings per share from continuing operations of $1.62, and Non-GAAP diluted earnings per share from continuing operations of $1.56, excluding a one-time tax benefit, for the previous fiscal year.

Commenting on the results, Richard J. Daly, Chief Executive Officer, said, "Overall, I am satisfied with our results for the quarter but disappointed with the full year results because of the previously discussed decline in event-driven revenues from their unprecedented high levels in fiscal year 2010. Our core business remains strong and has performed within expected ranges. Clear indicators of our core strength are our continuing 99% client revenue retention rate and the predictability of our core recurring revenues which continue to perform within our forecasted ranges."

Mr. Daly added, "Our fiscal year 2012 guidance continues to show momentum with revenue growth of 8% to10%, primarily coming from recurring revenue closed sales and acquisitions, along with a 99% client revenue retention rate. Our recurring revenue closed sales are forecasted to be in the range of $110 million to $150 million. Our fiscal year 2012 guidance does not assume any improvement in event-driven revenues; however, we would expect to see some improvement during the second half of the fiscal year. Our margins before interest, taxes and the Migration costs are expected to be up approximately one percentage point, which will be driven by the growth in recurring revenues and cost containment actions we took in fiscal year 2011. This puts us in a position to deliver diluted earnings per share from continuing operations, excluding the impact of the Migration costs, in the range of $1.50 and $1.60 (Non-GAAP) and free cash flow, excluding the impact of the Migration costs, of $225 million at the mid-point of its expected range."

Mr. Daly concluded, "I remain very confident about Broadridge and I believe that our prospects for improved performance will begin in fiscal year 2012 and continue through fiscal year 2013. We anticipate that we will continue with strong recurring revenue closed sales and high client revenue retention rates in fiscal year 2012 continuing into fiscal year 2013, where we still anticipate benefitting from the annual cost savings from the IBM agreement, some return of event-driven revenues and additional synergies from acquisitions."

IBM Data Center Migration

In March 2010, Broadridge entered into an Information Technology Services Agreement (the "IT Services Agreement") with IBM, under which IBM will provide certain aspects of our information technology infrastructure that are currently being provided under our data center outsourcing services agreement with ADP. The term of the IT Services Agreement expires in June 2022. Beginning with this earnings release, we will include results reported on a Non-GAAP basis excluding the impact of the Migration costs the Company recognized in fiscal year 2011 and is expected to incur in fiscal year 2012. These Migration costs are significant and we believe this information helps investors understand the effect of the Migration on reported results. During our first quarter of fiscal year 2012, we expect to finalize our Migration timeline and estimates of the total costs we will incur in connection with the Migration. We also still expect to recognize approximately $25 million in annual savings over the service life of the IT Services Agreement and we anticipate that the Migration will be complete by the end of our fiscal year 2012.

Financial Results for Fourth Quarter Fiscal Year 2011

For the fourth quarter of fiscal year 2011, revenues from continuing operations increased 3% to $776 million, compared to $751 million for the comparable period last year. The increase was driven by a positive contribution from recurring revenues including acquisitions, the Penson outsourcing services agreement, internal growth and net new business (defined as revenue from closed sales less client losses), partially offset by lower event-driven mutual fund proxy fee revenues and the corresponding distribution revenues. Pre-tax margins from continuing operations of 23.3% decreased compared to 24.3% for the same period last year as the contribution from higher fee revenues was offset by acquisition costs and the Penson outsourcing services conversion. The reduction in event-driven mutual fund proxy revenues negatively impacted margins by one percentage point and the amortization of the intangibles related to the acquisitions negatively impacted margins by 0.5 percentage point. Excluding the Migration costs, pre-tax margins from continuing operations in the fourth quarter of fiscal year 2011 were 24.2% (Non-GAAP).

Net earnings from continuing operations of $115 million decreased 1% compared to $116 million for the same period last year. Excluding the Migration costs, net earnings from continuing operations were $119 million (Non-GAAP). Diluted earnings per share from continuing operations increased to $0.91 per share on lower weighted-average shares outstanding, compared to $0.84 per share in the fourth quarter of fiscal year 2010. Excluding the Migration costs, diluted earnings per share from continuing operations were $0.94 per share (Non-GAAP).

Analysis of Fourth Quarter Fiscal Year 2011

Investor Communication Solutions

Revenues for the Investor Communication Solutions segment in the fourth quarter of fiscal year 2011 increased 1% to $617 million compared to the fourth quarter of fiscal year 2010. The increase was driven by recurring revenues including acquisitions, offset by lower event-driven mutual fund proxy revenues. Operating margin increased by 0.3 percentage point to 28.3% as a result of higher recurring revenues.

Securities Processing Solutions

Revenues for the Securities Processing Solutions segment in the fourth quarter of fiscal year 2011 increased 10% to $152 million compared to the fourth quarter of fiscal year 2010. The increase was driven by the Penson outsourcing services agreement, the City Networks, Ltd acquisition, net new business and higher trade volumes, partially offset by the carryover impact of the prior fiscal year's client losses. Operating margin decreased by 5.4 percentage points to 13.2% as a result of the dilutive impact of the Penson outsourcing services conversion and the City Networks, Ltd acquisition.

Other

IBM Migration costs of $6 million were recorded in Other.

Financial Results for Fiscal Year 2011

For the fiscal year ended June 30, 2011, revenues from continuing operations declined by 2% to $2,167 million, compared to $2,209 million for the comparable period last year. The decrease was driven by lower event-driven fee revenues, which declined $121 million due to lower mutual fund proxy revenues, and the corresponding distribution revenues, partially offset by a positive contribution from recurring revenues from acquisitions, the Penson outsourcing services agreement, internal growth and net new business. Pre-tax margins from continuing operations of 12.4% declined compared to 15.5% for the same period last year primarily as a result of the decline in event-driven revenues. The reduction in event-driven mutual fund proxy fee revenues negatively impacted margins by 2.5 percentage points and the amortization of the intangibles related to the acquisitions negatively impacted margins by 0.5 percentage point. Excluding the Migration costs, pre-tax margins from continuing operations in the fiscal year ended June 30, 2011 were 12.7% (Non-GAAP).

Net earnings from continuing operations of $172 million decreased 24% compared to $225 million for the same period last year due to lower earnings and a one-time tax benefit in the last fiscal year. Excluding the Migration costs, Non-GAAP net earnings from continuing operations were $176 million compared to Non-GAAP net earnings from continuing operations of $217 million (excluding a one-time tax benefit) for the same period last year. Diluted earnings per share from continuing operations decreased to $1.34 per share on lower weighted-average shares outstanding, compared to $1.62 per share for the comparable period of fiscal year 2010. Excluding the Migration costs, Non-GAAP diluted earnings per share from continuing operations were $1.37 compared to Non-GAAP diluted earnings per share from continuing operations of $1.56 (excluding a one-time tax benefit) for the same period last year.

Our total closed sales of $134 million decreased 24% from last year's comparable period and our recurring revenue closed sales of $113 million decreased 4%. Free cash flow was approximately $143 million, which was at the low end of our guidance.

During fiscal year 2011, the Company opportunistically repurchased approximately 8.7 million shares of Broadridge common stock under its stock repurchase plan, at an average price of approximately $21.83 per share. Approximately 7.6 million shares remain available under the Company's current stock repurchase plan.

Dividend Increase

The Company's Board of Directors declared a quarterly dividend of $0.16 per share payable on October 3, 2011 to stockholders of record on September 15, 2011. The annual dividend amount was increased approximately 7% from $0.60 per share to $0.64 per share, subject to the discretion of the Board of Directors.

Fiscal Year 2012 Financial Guidance

We anticipate revenue growth in the range of 8% to 10%, GAAP earnings from continuing operations before income taxes margin estimated in the range of 11.6% to 12.3% and Non-GAAP earnings from continuing operations before income taxes margin, excluding the Migration costs, in the range of 13.0% to 13.7%. We anticipate GAAP diluted earnings per share from continuing operations in the range of $1.34 to $1.44, and Non-GAAP diluted earnings per share from continuing operations, excluding the Migration costs, in the range of $1.50 to $1.60, based on diluted weighted-average shares outstanding of approximately 128 million shares. Free cash flow, excluding the Migration costs, is expected to be in the range of approximately $180 million to $270 million. Recurring revenue closed sales are expected to be in the range of $110 million to $150 million and total closed sales are expected to be in the range of $135 million to $175 million.

Our guidance does not take into consideration the effect of any future acquisitions, additional debt or share repurchases in excess of the repurchases needed to be at our 128 million diluted weighted-average outstanding shares guidance.

Our revolving credit facility and our term loan mature on March 29, 2012. We plan to renew both the revolving credit facility and the term loan in the first quarter of fiscal year 2012.