Broadridge Beats, Retains View - Analyst Blog

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Broadridge Financial Solutions Inc. ( BR ) posted first-quarter fiscal 2013 adjusted earnings per share (EPS) of 18 cents, which beat the Zacks Consensus Estimate of 16 cents.


Total revenue in the first quarter was $495.8 million, up 4.1% from $476.4 million a year ago. The revenue figure too came above the Zacks Consensus Estimate of $488.0 million. The year-over-year improvement was buoyed by a 3.0% increase in recurring revenues, improved contribution from event-driven mutual fund and higher distribution revenues.

Broadridge managed to sustain a 99% client retention rate. Recurring revenue closed sales were down approximately 30% year over year.

Segment Revenues

The Investor Communication Solutions segment generated $339.5 million in revenues, up 8.5% from $313.0 million in the prior-year quarter. The increase was attributable to higher recurring revenues from net new business, revenue gains from acquisitions, and higher event-driven mutual fund proxies and distribution revenues.

The Securities Processing Solutions segment reported revenues of $153.9 million, down 2.8% from $158.4 million in the prior-year quarter. The decrease was due to lower volume sales and termination of the outsourcing agreement with Penson Worldwide Inc. ( PNSN ), partially offset by new outsourcing agreement with Apex Clearing Corporation, strength in new business and contribution from the Paladyne acquisition.

Operating Results

Total expenses in the quarter crept up 3.8% year over year to $467.2 million. Reported pre-tax income was $28.6 million, up from $26.2 million in the year-earlier quarter. Pre-tax margin grew 20 basis points year over year to 3.7%.

GAAP net income from continuing operations increased 9.6% year over year to $18.3 million. Earnings per share in the quarter grew 9.2% to 14 cents from 13 cents in the year-ago quarter. Excluding the effect of International Business Machines Corp. ( IBM ) migration costs; impairment charge on investment in the common stock of Penson Worldwide and restructuring charges, adjusted net income was $22.3 million or 18 cents per share. This cost of migrating to IBM's platform follows an information technology services agreement signed between the two companies in March 2010. 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 agreement with Automatic Data Processing Inc. ( ADP ).

Balance Sheet & Share Buyback

Broadridge exited the quarter with cash and cash equivalents of $211.8 million, down from $320.5 million in the prior quarter. Receivables decreased 13.3% from the previous quarter to $321.4 million. Long-term debt remained sequentially unchanged at $524.4 million.

During the quarter, Broadridge bought back 3.2 million of its common stock at an average price of $23.61 per share. The company now has 6.7 million of common stock available for repurchase.

Guidance Reiterated

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 14.2% and 14.8%. 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 million.

Management is quite confident of achieving its fiscal target based on strong sales pipeline, 99% client revenue retention rate and product strength.

Our Take

Broadridge Financial posted a decent first quarter by beating the Zacks Consensus Estimates on both the bottom and top lines. 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.

Broadridge faces significant competition from companies such as HD Supply and DST Systems Inc. ( DST ), which have intensified pricing pressure for the company. But, we remain optimistic on Broadridge's strategic acquisitions and new product launches.

Currently, Broadridge has a Zacks #3 Rank, implying a short-term Hold rating.

AUTOMATIC DATA (ADP): Free Stock Analysis Report

BROADRIDGE FINL (BR): Free Stock Analysis Report

DST SYSTEMS (DST): Free Stock Analysis Report

INTL BUS MACH (IBM): Free Stock Analysis Report

PENSON WORLDWD (PNSN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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