Broadridge Financial Solutions, Inc. (NYSE: BR) today reported financial results for the first quarter of its fiscal year 2012.
For the three months ended September 30, 2011, the Company reported revenues of $476 million, GAAP net earnings from continuing operations of $17 million, Non-GAAP net earnings from continuing operations of $19 million, GAAP diluted earnings per share from continuing operations of $0.13 and Non-GAAP diluted earnings per share from continuing operations of $0.15. This compares with revenues of $421 million, GAAP net earnings from continuing operations of $13 million and GAAP diluted earnings per share from continuing operations of $0.10 for the comparable quarter of the previous fiscal year.
Commenting on the results, Richard J. Daly, Chief Executive Officer, said, "Overall, I am pleased with our first quarter results. Our revenues and earnings were up significantly from last year as our core recurring revenues were strong and we also benefitted from our recent acquisitions. As anticipated in our guidance, event-driven revenues remained weak; however, trade volumes were up for the quarter. It is too early in our fiscal year to determine whether these trends will continue."
Mr. Daly concluded, "Due to the seasonal nature of our business, our first quarter makes the smallest quarterly contribution to our annual results; however, it always feels good to be ahead of expectations at any point in time. Our client revenue retention rate remained very strong at 99% and our recurring revenue closed sales are up over last year, increasing our confidence in the guidance ranges that we provided in August."
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. Our Non-GAAP results exclude the impact of the costs the Company expects to incur in connection with the migration of our data center to IBM (the "Migration"). These Migration costs are significant and we believe this information helps investors understand the effect of the Migration on our reported results and provides a better representation of our actual performance. We remain confident that the Migration will be substantially complete by the end of our 2012 fiscal year.
Financial Results for First Quarter Fiscal Year 2012
For the first quarter of fiscal year 2012, revenues increased 13% to $476 million compared to $421 million for the comparable period last year. The increase was driven by a positive contribution from recurring fee revenues of approximately $45 million including acquisitions, the Penson outsourcing services agreement, internal growth, net new business (defined as revenue from closed sales less client losses) and higher distribution revenues of $10 million. GAAP pre-tax margins from continuing operations of 5.5% increased compared to 5.0% for the same period last year due to revenue mix. Non-GAAP pre-tax margins from continuing operations were 6.2%.
GAAP net earnings from continuing operations of $17 million increased 26% compared to $13 million for the same period last year. Non-GAAP net earnings from continuing operations were $19 million. GAAP diluted earnings per share from continuing operations increased to $0.13 per share on lower weighted-average shares outstanding, compared to $0.10 per share in the first quarter of fiscal year 2011. Non-GAAP diluted earnings per share from continuing operations were $0.15 per share.
Our total closed sales of $31 million increased 31% from last year's comparable period and our recurring revenue closed sales of $20 million increased 14%. Free cash flow was approximately $17 million. During the first quarter of fiscal year 2012, the Company repurchased approximately 0.3 million shares of Broadridge common stock under its stock repurchase plan, at an average price of approximately $24.05 per share. Approximately 7.2 million shares remain available for purchase under the Company's current stock repurchase plan.
Analysis of First Quarter Fiscal Year 2012
Investor Communication Solutions
Revenues for the Investor Communication Solutions segment increased 12% to $313 million in the first quarter of fiscal year 2012 compared to the first quarter of fiscal year 2011. Higher recurring fee revenues contributed $24 million and higher distribution revenues contributed $10 million. The positive contribution from recurring fee revenues was driven primarily by acquisitions, internal growth and net new business. Operating margin increased by 0.4 percentage points to 2.7% as a result of revenue mix.
Securities Processing Solutions
Revenues for the Securities Processing Solutions segment increased 12% to $158 million in the first quarter of fiscal year 2012 compared to the first quarter of fiscal year 2011. The increase was driven by net new business, internal growth, and acquisitions. Operating margin increased by 2.9 percentage points to 17.6% as a result of increased trade volumes.
IBM Migration costs of $3 million were recorded in Other.
New Five-Year Term Loan and Revolving Credit Facilities
On September 22, 2011, the Company entered into a $990 million senior unsecured credit facility, consisting of a $490 million five-year term loan facility and a $500 million five-year revolving credit facility. Borrowings under the five-year term loan facility and five-year revolving credit facility bear interest at LIBOR plus 125 basis points. The Company used a portion of the proceeds of the term loan facility to repay $200 million of outstanding borrowing under the previous five-year term loan and $200 million of outstanding borrowing under the previous five-year revolving credit facility. The previous five-year term loan facility and the previous five-year revolving credit facility both had expiration dates of March 29, 2012 and were cancelled upon repayment.
Fiscal Year 2012 Financial Guidance
As a result of the acquisition of Paladyne Systems, Inc. in September 2011, we are increasing our revenue guidance, but maintaining our earnings guidance. We anticipate revenue growth in the range of 9% to 11%, GAAP earnings from continuing operations before income taxes margin in the range of 11.5% to 12.2% and Non-GAAP earnings from continuing operations before income taxes margin in the range of 12.9% to 13.6%. 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 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 $210 million to $260 million. Recurring revenue closed sales are expected to be in the range of $110 million to $150 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.