Broadridge Reports Third Quarter 2016 Results
Announces Adjusted Diluted EPS Growth of 23% and Recurring Fee Revenue Growth of 12% Reaffirms Full Year Guidance
Broadridge Financial Solutions, Inc. (NYSE:BR) today reported financial results for the third quarter of its fiscal year 2016. Results for the three months ended March 31, 2016 compared with the same period last year were as follows:
| Third Quarter Fiscal Year 2016 Results: |
| – Recurring fee revenues increased 12% to $455 million |
| – Total revenues increased 9% to $689 million |
| – Adjusted Operating income increased 14% to $110 million |
| – Operating income increased 13% to $101 million |
| – Adjusted Net earnings increased 19% to $70 million |
| – Net earnings increased 18% to $64 million |
| – Adjusted Diluted earnings per share increased 23% to $0.58 |
| – Diluted earnings per share increased 21% to $0.52 |
| – Closed sales increased 7% to $29 million |
Commenting on the results, Richard J. Daly, President and Chief Executive Officer, said, “I am pleased with the strong third quarter results which give us a high level of confidence to achieve our full year guidance. We anticipate our full year Adjusted EPS growth to be around the midpoint of our 8-12% guidance range. The first three quarters were driven by solid business performance across Broadridge enhanced by the acquisitions we made in the prior year. Our broad product set and great value proposition keep us firmly on track to achieve our long term objectives.”
Mr. Daly added, “We also delivered solid sales in the third quarter keeping us well positioned to achieve our closed sales guidance for the full year. Given our solid results, our 98% revenue retention, and our continuing sales momentum, I remain confident in Broadridge’s ability to achieve its three-year objectives.”
Financial Results for Third Quarter Fiscal Year 2016
Revenues for the third quarter of fiscal year 2016 increased 9% to $689 million, compared to $634 million for the prior year period. The $55 million increase was driven by: (i) higher recurring fee revenues of $49 million, or 12%; (ii) higher distribution revenues of $13 million, or 7%; and (iii) higher event-driven fee revenues of $1 million, or 2%. The positive contribution from recurring fee revenues reflected gains from Net New Business (6pts), contributions from acquisitions (4pts), and internal growth (2pts). The higher distribution revenues of $13 million include $1 million from acquisitions. The Company defines Net New Business as recurring revenue from closed sales less recurring revenue from client losses.
Operating income for the third quarter ended March 31, 2016 was $101 million, an increase of $12 million, or 13%, compared to $89 million for the prior year period. The increase is due to higher revenues, partially offset by higher operating expenses including $2 million of increased amortization from acquired intangibles. Operating income margins increased to 14.6% compared to 14.0% for the comparable prior year period. Adjusted operating income margins increased to 15.9% compared to 15.2% for the comparable prior year period.
For the third quarter of fiscal year 2016, Net earnings increased 18% to $64 million, compared to $54 million for the prior year period, primarily due to higher revenues. Adjusted Net earnings increased 19% to $70 million compared to $59 million for the same period last year.
Diluted earnings per share increased to $0.52 per share compared to $0.43 per share for the same period last year. Adjusted Diluted earnings per share were $0.58 per share compared to $0.47 per share for the same period last year. Acquisition Amortization and Other Costs, net of taxes, decreased Diluted earnings per share by $0.05 and $0.04 for the three months ended March 31, 2016 and 2015, respectively.
In addition, during the third quarter, the Company repurchased 1.6 million shares of Broadridge common stock at an average price of $54.80 per share under its stock repurchase program.
Analysis of Third Quarter Fiscal Year 2016
Investor Communication Solutions
Investor Communication Solutions segment Revenues for the three months ended March 31, 2016 increased $49 million, or 11%, to $515 million compared to $466 million in the third quarter of fiscal year 2015. The increase was attributable to higher recurring fee revenues which increased $35 million, or 15%, higher event-driven fee revenues which contributed $1 million and higher distribution revenues which contributed $13 million. Higher recurring fee revenues of 15% were driven by: (i) contributions from our recent acquisitions (7pts); (ii) Net New Business primarily driven by increases in revenues from closed sales (8pts); and (iii) positive internal growth (1pt). Higher event-driven fee revenues were the result of increased mutual fund proxy and corporate actions communications activity.
Global Technology and Operations
Global Technology and Operations segment Revenues for the three months ended March 31, 2016 increased $13 million, or 7%, to $191 million compared to $178 million for the three months ended March 31, 2015. The increase was attributable to: (i) higher Net New Business from closed sales (3 pts) and (ii) positive internal growth (4 pts) due to higher trade activity levels and revenues associated with a contract modification, partially offset by contract renewals at lower rates.
Other
Pre-tax loss decreased by $2 million in the third quarter of fiscal year 2016. The decreased loss was mainly due to lower compensation expenses and a gain on the sale of assets, partially offset by an increase in interest expense.
Financial Results for the Nine Months ended March 31, 2016
Revenues for the nine months ended March 31, 2016 increased 9% to $1,923 million, compared to $1,765 million for the comparable period last year. The increase was primarily driven by: (i) higher recurring fee revenues of $112 million, or 10%; (ii) higher distribution revenues of $51 million, or 10%; and (iii) higher event-driven fee revenues of $23 million, or 19%. The higher recurring fee revenues of $112 million reflected gains from Net New Business (5pts), contributions from acquisitions (4pts) and internal growth (1pt). The higher distribution revenues of $51 million include $19 million from acquisitions.
Operating income for the nine months ended March 31, 2016 was $230 million, an increase of $25 million, or 12%, compared to $205 million for the nine months ended March 31, 2015. The increase is due to higher revenues, partially offset by higher operating expenses including $6 million of increased amortization from acquired intangibles. Operating income margins increased to 12.0% for the nine months ended March 31, 2016, compared to 11.6% for the nine months ended March 31, 2015. Adjusted Operating income margins increased to 13.4% compared to 12.8% for the comparable prior year period.
For the nine months ended March 31, 2016, Net earnings increased 13% to $137 million compared to $121 million for the comparable period last year, primarily due to higher revenues. Adjusted Net earnings increased 15% to $156 million compared to $135 million for the same period last year.
Diluted earnings per share increased to $1.13 per share compared to $0.97 per share for the comparable period last year. Adjusted Diluted earnings per share were $1.28 compared to $1.09 per share for the comparable period last year. Acquisition Amortization and Other Costs, net of taxes, decreased Diluted earnings per share by $0.15 and $0.11 for the nine months ended March 31, 2016 and 2015, respectively.
Fiscal Year 2016 Financial Guidance
The Company continues to anticipate:
- Recurring fee revenue growth in the range of 10% to 12% and total revenue growth in the range of 8% to 10%
- Adjusted Operating income margin of ~18.4%
- Effective tax rate of ~34.8%
- Adjusted Diluted earnings per share growth in the range of 8% to 12%
- Free cash flows in the range of $350 million to $400 million
- Closed sales in the range of $120 million to $160 million
Our guidance does not take into consideration the effect of any future acquisitions, additional debt or share repurchases.
Explanation of the Company’s Use of Non-GAAP Financial Measures
The Company’s results in this press release are presented in accordance with generally accepted accounting principles in the United States (“GAAP”) except where otherwise noted. In certain circumstances, results have been presented on an adjusted basis and are not generally accepted accounting principles measures (“Non-GAAP”). These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results.
With regard to statements in this press release that include certain Non-GAAP financial measures, the adjusted operating income and adjusted earnings measures are 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 performance. These adjusted measures exclude the impact of Acquisition Amortization and Other Costs which represent the amortization charges associated with intangible asset values as well as other deal costs associated with the Company’s acquisition activities.
The Adjusted Operating income margin and Adjusted Diluted earnings per share fiscal year 2016 guidance provided above is adjusted to exclude the projected impact of Acquisition Amortization and Other Costs.
We provide information on our Free cash flows because we believe this helps investors understand the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments. Free cash flows is a Non-GAAP measure and is defined by the Company as Net cash flows provided by operating activities less capital expenditures, software purchases and capitalized internal use software.
The Company believes Non-GAAP financial information helps investors understand the effect of these items on our reported results and provides a better representation of our operating performance. These Non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between our current results and prior reported results, and as a basis for planning and forecasting for future periods.
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.
Source: Broadridge
