Broadridge Financial Solutions Inc.
) posted second-quarter fiscal 2013 adjusted earnings per share
(EPS) of 17 cents, missing the Zacks Consensus Estimate of 18
Total revenues in the second quarter were $493.2 million, up 2.8%
from $479.8 million a year ago. The year-over-year improvement
was buoyed by increase in recurring revenues of approximately $9
million and higher distribution revenues of $3 million.
Broadridge managed to sustain a 99% client retention rate.
Recurring revenue closed sales were $19 million in the second
The Investor Communication Solutions segment generated $327.0
million in revenues, up 3.2% from $316.8 million in the
prior-year quarter. The increase was attributable to higher
recurring revenues from new business, revenue gains from
acquisitions, and higher distribution revenues.
The Securities Processing Solutions segment reported revenues
of $163.8 million, up 1.7% from $161.1 million in the prior-year
quarter. The increase was driven by strength in new business,
partially offset by decline in revenues from the new outsourcing
agreement with Apex Clearing Corporation, replacing the
terminated outsourcing agreement with Penson Worldwide Inc.
Total expenses in the quarter decreased 0.1% year over year to
$468.5 million. Reported pre-tax income was $24.7 million, up
from $10.6 million in the year-ago quarter. Pre-tax margin grew
280 basis points year over year to 5.0%.
GAAP net income from continuing operations increased 132.4%
year over year to $15.8 million. Earnings per share in the
quarter grew 160.0% to 13 cents from 5 cents in the year-ago
quarter. The significant increase in earnings from the prior-year
figures was due to the impact of the Penson impairment charge and
International Business Machines Corp
) migration costs in the prior year.
The cost of migrating to IBM's platform follows an information
technology services agreement signed between the two companies in
Mar 2010. As per the deal, IBM will provide certain aspects of
Broadridge's information technology infrastructure that are
currently being provided under a data center outsourcing services
Automatic Data Processing Inc.
Excluding the effect of acquisition amortization and other
costs, restructuring and impairment charges, adjusted net income
was $21.8 million or 17 cents per share.
Broadridge exited the quarter with cash and cash equivalents
of $259.1 million, up from $211.8 million in the prior quarter.
Receivables decreased 5.0% from the previous quarter to $305.2
million. Long-term debt remained sequentially unchanged at $524.4
For fiscal 2013, Broadridge expects revenue growth of 3.0% to
4.0%, and recurring revenue growth of 4.0% to 7.0%. The company
expects recurring revenue closed sales to be the key driver of
revenue growth. Recurring revenue closed sales are forecast in
the range of $110.0 million to $150.0 million.
GAAP pretax margin is expected in the range of 13.8% to 14.4%,
while non-GAAP margin is expected between 15.1% and 15.7%.
Earnings per share are expected between $1.60 and $1.70. However,
excluding the effect of Penson charges, adjusted EPS is still
expected in the range of $1.76-$1.86. Management also expects
adjusted free cash flow in the range of $200.0 million to $250.0
Though Broadridge earnings missed the Zacks Consensus Estimate
by a penny, the company's sales were above the prior-year
figures. Despite positive momentum, Broadridge reiterated its
guidance for fiscal, which we believe is due to the unpredictable
nature of mutual fund proxy revenues.
The company believes that outsourcing will be a key driver of
its growth and we believe that Broadridge seems to be in a good
position to make such deals. Broadridge entered into a 10-year
Master Services Agreement with Apex, under which Apex will
outsource its securities processing and back office support
services to Broadridge. The company also states that internal
growth appears to be moving in a positive direction, which is a
bright spot in the quarter.
We remain optimistic on Broadridge's strategic acquisitions
and new product launches, but it faces significant competition
from companies such as HD Supply and
DST Systems Inc.
), which have intensified pricing pressure for the company.
Currently, Broadridge has a Zacks Rank #3 (Hold).
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