Broadridge(BR) - 2024 Q2 - Quarterly Report

Forward-Looking Statements This report contains forward-looking statements subject to risks like changes in laws, client reliance, cybersecurity threats, market declines, and competition - This report contains forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially, including changes in laws, reliance on a small number of clients, cybersecurity threats, market declines, and competition[13] PART I. FINANCIAL INFORMATION Financial Statements This section presents Broadridge Financial Solutions' unaudited Condensed Consolidated Financial Statements for Q2 FY2024, showing increased revenues and net earnings Condensed Consolidated Statements of Earnings Revenues for the three months ended December 31, 2023, increased to $1.41 billion from $1.29 billion, with net earnings rising to $70.3 million from $57.5 million Condensed Consolidated Statements of Earnings (Unaudited, in millions, except per share data) | | Three Months Ended Dec 31, | | Six Months Ended Dec 31, | | | :--- | :--- | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Revenues | $1,405.0 | $1,292.9 | $2,836.0 | $2,576.2 | | Operating income | $124.4 | $107.9 | $272.8 | $195.4 | | Net earnings | $70.3 | $57.5 | $161.2 | $108.0 | | Diluted earnings per share | $0.59 | $0.48 | $1.35 | $0.91 | Condensed Consolidated Balance Sheets As of December 31, 2023, total assets were $8.00 billion, a slight decrease from $8.23 billion, with total liabilities also decreasing to $5.93 billion Condensed Consolidated Balance Sheet Highlights (Unaudited, in millions) | | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Total current assets | $1,363.6 | $1,392.5 | | Goodwill | $3,429.3 | $3,461.6 | | Total assets | $7,999.8 | $8,233.2 | | Total current liabilities | $971.2 | $2,397.8 | | Long-term debt | $3,652.9 | $2,234.7 | | Total liabilities | $5,932.2 | $5,992.6 | | Total stockholders' equity | $2,067.6 | $2,240.6 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities for the six months ended December 31, 2023, was $127.8 million, a significant improvement from a $81.4 million outflow in the prior year Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) | | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash flows from operating activities | $127.8 | $(81.4) | | Net cash flows from investing activities | $(36.4) | $(35.1) | | Net cash flows from financing activities | $(66.2) | $176.9 | | Net change in Cash and cash equivalents | $24.7 | $55.3 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, debt structure, segment performance, and commitments for ICS and GTO segments - The company operates in two segments: Investor Communication Solutions (ICS) for communications and Global Technology and Operations (GTO) for capital markets and wealth management technology[61][62] Disaggregation of Revenue by Segment (Six Months Ended Dec 31, in millions) | Revenue Type | 2023 | 2022 | | :--- | :--- | :--- | | ICS Recurring | $962.2 | $910.1 | | ICS Event-driven | $142.1 | $100.2 | | ICS Distribution | $923.9 | $829.7 | | Total ICS | $2,028.2 | $1,840.0 | | GTO Recurring | $807.9 | $736.2 | | Total Revenues | $2,836.0 | $2,576.2 | - As of December 31, 2023, total debt was $3.67 billion, comprising a $1.3 billion Term Loan and $2.25 billion in Senior Notes[111][115][139] - Significant contractual commitments include $112.1 million for IT services, $133.2 million for private cloud, and $153.9 million for cloud services resale[147][148] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 and H1 FY2024 financial results, highlighting 9% and 10% revenue growth, key performance indicators, segment results, non-GAAP measures, and liquidity Results of Operations For the six months ended December 31, 2023, revenues increased 10% to $2.84 billion, with operating income up 40% to $272.8 million and net earnings up 49% to $161.2 million Financial Highlights - Six Months Ended Dec 31, 2023 vs 2022 (in millions) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,836.0 | $2,576.2 | $259.9 | 10% | | Recurring revenues | $1,770.0 | $1,646.2 | $123.8 | 8% | | Event-driven revenues | $142.1 | $100.2 | $41.9 | 42% | | Operating Income | $272.8 | $195.4 | $77.4 | 40% | | Net Earnings | $161.2 | $108.0 | $53.2 | 49% | - Closed sales, representing new annual recurring revenue, increased 12% to $105.6 million for the six months ended December 31, 2023, indicating a healthy sales pipeline[198] Analysis of Reportable Segments For the six months ended December 31, 2023, ICS revenues grew 10% to $2.03 billion with earnings up 69%, while GTO revenues grew 10% to $807.9 million but earnings fell 13% Segment Performance - Six Months Ended Dec 31, 2023 vs 2022 (in millions) | Segment | Revenues 2023 | Revenues 2022 | Change (%) | Earnings Before Taxes 2023 | Earnings Before Taxes 2022 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ICS | $2,028.2 | $1,840.0 | 10% | $211.0 | $124.9 | 69% | | GTO | $807.9 | $736.2 | 10% | $73.0 | $84.3 | (13)% | - ICS revenue growth was driven by a 6% increase in recurring revenues and a 42% increase in event-driven revenues, primarily from mutual fund proxy and corporate action activity[217][270] - GTO's 10% recurring revenue growth was driven by Net New Business and Internal Growth, though pre-tax margins decreased from 11.5% to 9.0% due to higher expenses, including a $30.2 million increase in amortization[244][274] Explanation and Reconciliation of Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted Operating Income and Free Cash Flow to assess operational performance, with Adjusted Operating Income at $373.7 million for H1 FY2024 Reconciliation of GAAP to Non-GAAP Measures (Six Months Ended Dec 31, in millions) | Measure | 2023 | 2022 | | :--- | :--- | :--- | | Operating income (GAAP) | $272.8 | $195.4 | | Amortization of Acquired Intangibles | $100.7 | $109.5 | | Acquisition and Integration Costs | $0.2 | $7.7 | | Russia-Related Exit Costs | $0.0 | $10.5 | | Adjusted Operating income (Non-GAAP) | $373.7 | $323.2 | | Net earnings (GAAP) | $161.2 | $108.0 | | Adjusted Net earnings (Non-GAAP) | $239.2 | $208.2 | Free Cash Flow (Non-GAAP, Six Months Ended Dec 31, in millions) | | 2023 | 2022 | | :--- | :--- | :--- | | Net cash flows from operating activities (GAAP) | $127.8 | $(81.4) | | Capital expenditures & Software purchases | $(36.4) | $(33.1) | | Free cash flow (Non-GAAP) | $91.4 | $(114.5) | Financial Condition, Liquidity and Capital Resources As of December 31, 2023, the company had $277.0 million in cash, $3.67 billion in total debt, and generated $91.4 million in positive free cash flow - Cash from operating activities increased by $209.2 million for the six months ended December 31, 2023, driven by higher net earnings and lower implementation costs[23][291] - On August 17, 2023, the company amended its Term Credit Agreement, replacing the previous loan with a new $1.3 billion Fiscal 2024 Amended Term Loan[137][306] - The company's business is seasonal, with revenues, operating income, and cash flows typically higher in the third and fourth fiscal quarters due to proxy processing timing[264] Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the quantitative and qualitative disclosures about market risk since the FY2023 Annual Report - No material changes to the market risk disclosures from the 2023 Annual Report[313] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[314] - No material changes to internal control over financial reporting occurred during the quarter ended December 31, 2023[29] PART II. OTHER INFORMATION Legal Proceedings The company faces various legal claims, including a Plan Management Corp. lawsuit where a new damages trial is set for March 4, 2024, with possible losses up to $30 million - In the Plan Management Corp. case, a trial court vacated a damages award, with a new trial on damages scheduled for March 4, 2024, and no material loss is deemed probable[152] - Management estimates reasonably possible losses for outstanding legal matters of up to $30 million in excess of established reserves[128] Risk Factors No material changes have occurred in the risk factors previously disclosed in the FY2023 Annual Report - No material changes have been made to the risk factors disclosed in the 2023 Annual Report[299] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 FY2024, the company purchased 2,225 shares from employees for tax purposes, with 8.8 million shares remaining for repurchase under the program Issuer Purchases of Equity Securities (Q2 FY2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2023 | 1,412 | $179.05 | | Nov 1 - Nov 30, 2023 | 167 | $180.32 | | Dec 1 - Dec 31, 2023 | 646 | $192.01 | | Total | 2,225 | $182.91 | - Shares purchased were from employees to cover taxes on vested stock awards, with no repurchases under the publicly announced share repurchase program during the quarter[300][318] Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL interactive data files - Filed exhibits include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and financial statements in Inline XBRL format[34]