Broadridge Financial Solutions, Inc 10-Q for FY2021 Q1
Broadridge Financial Solutions, Inc. (BR)
10-Q
2020-10-30
For: 2020-09-30
View Original
Added on
April 04, 2026
About this 10-Q
Broadridge Financial Solutions, Inc filed this 10-Q on October 30, 2020, covering the quarter ended September 30, 2020 (FY2021 Q1).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.02B
- up 7.3% from $948.6M a year earlier
- Net income
- $65.8M
- up 17.7% from net income of $55.9M a year earlier
- Diluted EPS
- $0.56
- up 16.7% from $0.48 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2020
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number 001-33220
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (516 ) 472-5400
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol | Name of Each Exchange on Which Registered: | |||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | ¨ | |||||||||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | |||||||||||||||
| Emerging Growth Company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of October 26, 2020, was 115,619,479 shares.
TABLE OF CONTENTS
| ITEM | PAGE | |||||||
| PART I. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
2
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”) may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words such as “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, are forward-looking statements. In particular, information appearing under “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include:
•the potential impact and effects of the Covid-19 pandemic (“Covid-19”) on the business of Broadridge, Broadridge’s results of operations and financial performance, any measures Broadridge has and may take in response to Covid-19 and any expectations Broadridge may have with respect thereto;
•the success of Broadridge in retaining and selling additional services to its existing clients and in obtaining new clients;
•Broadridge’s reliance on a relatively small number of clients, the continued financial health of those clients, and the continued use by such clients of Broadridge’s services with favorable pricing terms;
•a material security breach or cybersecurity attack affecting the information of Broadridge’s clients;
•changes in laws and regulations affecting Broadridge’s clients or the services provided by Broadridge;
•declines in participation and activity in the securities markets;
•the failure of Broadridge's key service providers to provide the anticipated levels of service;
•a disaster or other significant slowdown or failure of Broadridge’s systems or error in the performance of Broadridge’s services;
•overall market and economic conditions and their impact on the securities markets;
•Broadridge’s failure to keep pace with changes in technology and demands of its clients;
•Broadridge’s ability to attract and retain key personnel;
•the impact of new acquisitions and divestitures; and
•competitive conditions.
There may be other factors that may cause our actual results to differ materially from the forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 which was filed with the United States of America (“U.S.”) Securities and Exchange Commission (the “SEC”) on August 11, 2020 (the “2020 Annual Report”), for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q and the 2020 Annual Report. We disclaim any obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Broadridge Financial Solutions, Inc.
Condensed Consolidated Statements of Earnings
(In millions, except per share amounts)
(Unaudited)
| Three Months Ended September 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| Revenues | (Note 3) | $ | $ | ||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||||||||
| Interest expense, net | (Note 5) | ( | ( | ||||||||||||||||||||||||||
| Other non-operating income (expenses), net | |||||||||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||||||||
| Provision for income taxes | (Note 13) | ||||||||||||||||||||||||||||
| Net earnings | $ | $ | |||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | |||||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | |||||||||||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||||||||
| Basic | (Note 4) | ||||||||||||||||||||||||||||
| Diluted | (Note 4) | ||||||||||||||||||||||||||||
Amounts may not sum due to rounding.
See Notes to Condensed Consolidated Financial Statements.
4
Broadridge Financial Solutions, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Net earnings | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss), net: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||
Pension and post-retirement liability adjustment, net of taxes of $( | |||||||||||||||||||||||
| Total other comprehensive income (loss), net | ( | ||||||||||||||||||||||
| Comprehensive income | $ | $ | |||||||||||||||||||||
Amounts may not sum due to rounding.
See Notes to Condensed Consolidated Financial Statements.
5
Broadridge Financial Solutions, Inc.
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
| September 30, 2020 | June 30, 2020 | ||||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Property, plant and equipment, net | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Intangible assets, net | |||||||||||||||||
| Other non-current assets | (Note 8) | ||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Current portion of long-term debt | (Note 10) | $ | $ | ||||||||||||||
| Payables and accrued expenses | (Note 9) | ||||||||||||||||
| Contract liabilities | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Long-term debt | (Note 10) | ||||||||||||||||
| Deferred taxes | |||||||||||||||||
| Contract liabilities | |||||||||||||||||
| Other non-current liabilities | (Note 11) | ||||||||||||||||
| Total liabilities | |||||||||||||||||
| Commitments and contingencies | (Note 14) | ||||||||||||||||
| Stockholders’ equity: | |||||||||||||||||
Preferred stock: Authorized, | |||||||||||||||||
Common stock, $ | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Retained earnings | |||||||||||||||||
Treasury stock, at cost: | ( | ( | |||||||||||||||
| Accumulated other comprehensive loss | (Note 15) | ( | ( | ||||||||||||||
| Total stockholders’ equity | |||||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||||||||
Amounts may not sum due to rounding.
See Notes to Condensed Consolidated Financial Statements.
6
Broadridge Financial Solutions, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Three Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash Flows From Operating Activities | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash flows used in by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of acquired intangibles and purchased intellectual property | |||||||||||
| Amortization of other assets | |||||||||||
| Write-down of long-lived assets and related charges | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes | |||||||||||
| Other | ( | ( | |||||||||
| Changes in operating assets and liabilities, net of assets and liabilities acquired: | |||||||||||
| Current assets and liabilities: | |||||||||||
| Decrease in Accounts receivable, net | |||||||||||
| Increase in Other current assets | ( | ( | |||||||||
| Decrease in Payables and accrued expenses | ( | ( | |||||||||
| Increase (decrease) in Contract liabilities | ( | ||||||||||
| Non-current assets and liabilities: | |||||||||||
| Increase in Other non-current assets | ( | ( | |||||||||
| Increase in Other non-current liabilities | |||||||||||
| Net cash flows used in operating activities | ( | ( | |||||||||
| Cash Flows From Investing Activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Software purchases and capitalized internal use software | ( | ( | |||||||||
| Proceeds from asset sales | |||||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||
| Other investing activities | ( | ( | |||||||||
| Net cash flows used in investing activities | ( | ( | |||||||||
| Cash Flows From Financing Activities | |||||||||||
| Debt proceeds | |||||||||||
| Debt repayments | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Purchases of Treasury stock | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Other financing activities | ( | ( | |||||||||
Net cash flows provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on Cash and cash equivalents | ( | ||||||||||
| Net change in Cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash payments made for interest | $ | $ | |||||||||
| Cash payments made for income taxes, net of refunds | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Accrual of unpaid property, plant and equipment and software | $ | $ | |||||||||
Amounts may not sum due to rounding.
See Notes to Condensed Consolidated Financial Statements.
7
Broadridge Financial Solutions, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In millions, except per share amounts)
(Unaudited)
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Treasury stock acquired (less than | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
Treasury stock reissued ( | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Cumulative effect of changes in accounting principles (a) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Treasury stock acquired (less than | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Treasury stock reissued ( | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
____________
(a)Primarily reflects the adoption of accounting standards as described in Note 2, “New Accounting Pronouncements.”
Amounts may not sum due to rounding.
See Notes to Condensed Consolidated Financial Statements.
8
Broadridge Financial Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
A. Description of Business. Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”), a Delaware corporation and a part of the S&P 500® Index, is a global financial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers and corporate issuers. Broadridge’s services include investor communications, securities processing, data and analytics, and customer communications solutions. Broadridge serves a large and diverse client base across four client groups: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. For capital markets firms, Broadridge helps clients lower costs and improve the effectiveness of their trade and account processing operations with support for their operational technologies, and their administration, finance, risk and compliance requirements. Broadridge serves asset management firms by meeting their critical needs for shareholder communications and by providing investment operations technology to support their investment decisions. For wealth management clients, Broadridge provides an integrated platform with tools that optimize advisor productivity, enhance client experience and digitize enterprise operations. For corporate issuer clients, Broadridge helps manage every aspect of their shareholder communications, including registered and beneficial proxy processing, annual meeting support, transfer agency services and financial disclosure document creation, management and United States of America (“U.S.”) Securities and Exchange Commission (the “SEC”) filing services.
The Company operates in two reportable segments: Investor Communication Solutions (“ICS”) and Global Technology and Operations (“GTO”).
•Investor Communication Solutions—Broadridge provides governance and communications solutions through its Investor Communication Solutions business segment to the following financial services clients: banks/broker-dealers, asset management firms/mutual funds, wealth management firms and corporate issuers. In addition to financial services firms, Broadridge’s Customer Communications business also serves companies in the healthcare, insurance, consumer finance, telecommunications, utilities, and other service industries.
A large portion of Broadridge’s ICS business involves the processing and distribution of proxy materials to investors in equity securities and mutual funds, as well as the facilitation of related vote processing. ProxyEdge® (“ProxyEdge”) is Broadridge’s innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that helps ensure the voting participation of the largest stockholders of many companies. Broadridge also provides the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help its clients meet their regulatory compliance needs.
For asset managers and retirement service providers, Broadridge offers data-driven solutions and an end-to-end platform for content management, composition, and multi-channel distribution of regulatory, marketing, and transactional information. Broadridge’s data and analytics solutions provide investment product distribution data, analytical tools, insights, and research to enable asset managers to optimize product distribution across retail and institutional channels globally. Through Matrix Financial Solutions, Inc. (“Matrix”), Broadridge provides mutual fund trade processing services for retirement service providers, third-party administrators, financial advisors, banks and wealth management professionals.
In addition, Broadridge provides public corporations and mutual funds with a full suite of solutions to help manage their annual meeting process, including registered and beneficial proxy distribution and processing services, proxy and annual report document management solutions, virtual shareholder meeting services and solutions that help them gain insight into their shareholder base through Broadridge’s shareholder data services. Broadridge also offers financial reporting document composition and management solutions, SEC disclosure and filing services, and registrar, stock transfer and record-keeping services through Broadridge Corporate Issuer Solutions.
We provide customer communications solutions which include print and digital solutions, content management, postal optimization, and fulfillment services. These services include customer communications management capabilities through the Broadridge Communications CloudSM platform (the “Communications Cloud”). Through one point of integration, the Communications Cloud helps companies create, deliver, and manage multi-channel communications and customer engagement. The platform includes data-driven composition tools, identity and preference management, multi-channel optimization and digital communication experience, archive and information management, digital and print delivery, and analytics and reporting tools.
9
•Global Technology and Operations—Broadridge is a leading global provider of securities processing solutions for capital markets, wealth management, and asset management firms. Broadridge offers advanced solutions that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, margin, cash management, clearance and settlement, asset servicing, reference data management, reconciliations, securities financing and collateral optimization, compliance and regulatory reporting, and portfolio accounting and custody-related services.
Broadridge’s core post-trade services help financial institutions efficiently and cost-effectively consolidate their books and records, gather and service assets under management and manage risk, thereby enabling them to focus on their core business activities. Broadridge’s multi-asset, multi-market, multi-entity and multi-currency solutions support real-time global trade processing of equity, fixed income, mutual fund, foreign exchange, and exchange traded derivatives.
Broadridge’s comprehensive wealth management platform offers capabilities across the entire wealth management lifecycle and streamlines all aspects of wealth management services, including account management, fee management and client on-boarding. The wealth management platform enables full-service, regional and independent broker-dealers and investment advisors to better engage with customers through digital marketing and customer communications tools. Broadridge also integrates data, content and technology to drive new customer acquisition, support holistic advice and cross-sell opportunities through the creation of sales and educational content, including seminars as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Broadridge’s advisor solutions help advisors optimize their practice management through customer and account data aggregation and reporting.
Broadridge offers buy-side technology solutions for the global investment management industry, including portfolio management, compliance and operational workflow solutions for hedge funds, family offices, investment managers and the providers that service this space. Through Broadridge’s Managed Services, Broadridge provides business process outsourcing services that support the entire trade lifecycle operations of its buy- and sell-side clients’ businesses through a combination of its technology and operations expertise. Broadridge also provides support for advisor, investor and compliance workflow.
B. Consolidation and Basis of Presentation . The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and in accordance with SEC requirements for Quarterly Reports on Form 10-Q. These financial statements present the condensed consolidated position of the Company and include the entities in which the Company directly or indirectly has a controlling financial interest as well as various entities in which the Company has investments recorded under the equity method of accounting as well as certain marketable and non-marketable securities. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed on August 11, 2020 with the SEC. These Condensed Consolidated Financial Statements include all normal and recurring adjustments necessary for a fair presentation in accordance with GAAP of the Company’s financial position at September 30, 2020 and June 30, 2020, the results of its operations for the three months ended September 30, 2020 and 2019, its cash flows for the three months ended September 30, 2020 and 2019, and its changes in stockholders’ equity for the three months ended September 30, 2020 and 2019. Certain prior period amounts have been reclassified to conform to the current year presentation where applicable.
C. Securities . Securities are non-derivatives that are reflected in Other non-current assets in the Condensed Consolidated Balance Sheets, unless management intends to dispose of the investment within twelve months of the end of the reporting period, in which case they are reflected in Other current assets in the Condensed Consolidated Balance Sheets. These investments are in entities over which the Company does not have control, joint control, or significant influence. Securities that have a readily determinable fair value are carried at fair value. Securities without a readily determinable fair value are initially recognized at cost and subsequently carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in transactions for an identical or similar investment of the same issuer, such as subsequent capital raising transactions. Changes in the value of securities with or without a readily determinable fair value are recorded in the Condensed Consolidated Statements of Earnings. In determining whether a security without a readily determinable fair value is impaired, management considers qualitative factors to identify an impairment including the financial condition and near-term prospects of the issuer.
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NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, as subsequently amended by ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” and ASU No. 2018-20, “Leases (Topic 842): Narrow Scope Improvements for Lessors” (collectively referred to herein as “ASU No. 2016-02, as amended”). Under ASU No. 2016-02, as amended, all lease arrangements, with certain limited exceptions, exceeding a twelve-month term must now be recognized as assets and liabilities on the balance sheet of the lessee by recording a ROU asset and corresponding lease obligation generally equal to the present value of the future lease payments over the lease term. Further, the income statement will reflect lease expense for leases classified as operating and amortization/interest expense for leases classified as financing, determined using classification criteria substantially similar to the current lease guidance for distinguishing between an operating and capital lease. ASU No. 2016-02, as amended, also contains certain additional qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU No. 2016-02, as amended, was effective for the Company in the first quarter of fiscal year 2020 and could have been adopted using either a modified retrospective basis which required adjustment to all comparative periods presented in the consolidated financial statements, or by recognizing a cumulative-effect adjustment to the opening balance of retained earnings at the date of initial application.
Accordingly, in the first quarter of fiscal year 2020, the Company adopted ASU No. 2016-02, as amended, by recognizing a ROU asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the period of adoption. Under this method of adoption, the Company has not restated the prior period Condensed Consolidated Financial Statements presented to the current period presentation. The Company elected the transition package of three practical expedients permitted under the transition guidance in ASU No. 2016-02, as amended, to not reassess prior conclusions related to whether (i) a contract contains a lease, (ii) the classification of an existing lease, and (iii) the accounting for initial direct costs. The Company also elected accounting policies to (i) not separate the non-lease components of a contract from the lease component to which they relate, and (ii) not recognize assets or liabilities for leases with a term of twelve months or less and no purchase option that the Company is reasonably certain of exercising.
On the Condensed Consolidated Balance Sheet as of July 1, 2019, the adoption of ASU No. 2016-02, as amended, resulted in the recognition of lease liabilities of $252.0 million and ROU assets of $235.4 million, which include the impact of existing deferred rents and tenant improvement allowances for operating leases, as well as a cumulative-effect adjustment to the opening balance of retained earnings of $0.2 million. The adoption of ASU No. 2016-02, as amended, did not have a material impact on the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, the Condensed Consolidated Statements of Cash Flows, or the Condensed Consolidated Statements of Stockholders’ Equity.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU No. 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements under GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU No. 2018-15 became effective for the Company beginning in the first quarter of fiscal year 2021. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance, for which the Company elected to adopt ASU No. 2018-15 on a prospective basis. The adoption of ASU No. 2018-15 did not have a material impact on the Company's Condensed Consolidated Financial Statements.
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NOTE 3. REVENUE RECOGNITION
ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-09”) outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle is that an entity recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company’s revenues from clients are primarily generated from fees for providing investor communications and technology-enabled services and solutions. Revenues are recognized for the two reportable segments as follows:
•Investor Communication Solutions—Revenues are generated primarily from processing and distributing investor communications and other related services as well as vote processing and tabulation. The Company typically enters into agreements with clients to provide services on a fee for service basis. Fees received for processing and distributing investor communications are generally variably priced and recognized as revenue over time as the Company provides the services to clients based on the number of units processed, which coincides with the pattern of value transfer to the client. Broadridge works directly with corporate issuers (“Issuers”) and mutual funds to ensure that the account holders of the Company’s bank and broker clients, who are also the shareholders of Issuers and mutual funds, receive the appropriate investor communications materials and the services are fulfilled in accordance with each Issuer’s and mutual fund’s requirements. Broadridge works directly with the Issuers and mutual funds to resolve any issues that may arise. As such, Issuers and mutual funds are viewed as the customer of the Company’s services. As a result, revenues for distribution services as well as proxy materials fulfillment services are recorded in Revenue on a gross basis with corresponding costs including amounts remitted to the broker-dealers and banks (referred to as “Nominees”) recorded in Cost of revenues. Fees for the Company’s investor communications services arrangements are typically billed and paid on a monthly basis following the delivery of the services. The Company also offers certain hosted service arrangements that can be priced on a fixed and/or variable basis for which revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client on a monthly basis based on the number of transactions processed or units delivered, in the case of variable priced arrangements, or a fixed monthly fee in the case of fixed price arrangements, in each case which coincides with the pattern of value transfer to the client. These services may be billed in a variety of payment frequencies depending on the specific arrangement.
•Global Technology and Operations—Revenues are generated primarily from fees for trade processing and related services. Revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client. The Company’s arrangements for processing and related services typically consist of an obligation to provide specific services to its clients on a when and if needed basis (a stand ready obligation) with revenue recognized from the satisfaction of the performance obligations on a monthly basis generally in the amount billable to the client. These services are generally provided under variable priced arrangements based on volume of service and can include minimum monthly usage fees. Client service agreements often include up-front consideration in addition to the recurring fee for trade processing. Up-front implementation fees, as well as certain enhancements to existing technology platforms, are deferred and recognized on a straight-line basis over the service term of the contract which corresponds to the timing of transfer of value to the client that commences after client acceptance when the processing term begins. In addition, revenue is also generated from the fulfillment of professional services engagements which are generally priced on a time and materials or fixed price basis, and are recognized as the services are provided to the client which corresponds to the timing of transfer of value to the client. Finally, the Company recognizes license revenues from software term licenses installed on clients’ premises upon delivery and acceptance of the software license, assuming a contract is deemed to exist. Software term license revenue is not a significant portion of the Company’s revenues.
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The Company uses the following methods, inputs, and assumptions in determining amounts of revenue to recognize:
Transaction Price
The Company allocates transaction price to the individual performance obligations within a contract. If the contracted prices reflect the relative standalone selling prices for the individual performance obligations, no allocations are made. Otherwise, the Company uses the relative selling price method to allocate the transaction price, obtained from sources such as the observable price of a good or service when the Company sells that good or service separately in similar circumstances and to similar clients. If such evidence is unavailable, the Company uses the best estimate of the selling price, which includes various internal factors such as pricing strategy and market factors. A significant portion of the Company’s performance obligations are generated from transactions with volume based fees and includes services that are delivered at the same time. The Company recognizes revenue related to these arrangements over time as the services are provided to the client. While many of the Company’s contracts contain some component of variable consideration, the Company only recognizes variable consideration that is not expected to reverse. The Company allocates variable payments to distinct services in an overall contract when the variable payment relates specifically to that particular service and for which the variable payment reflects what the Company expects to receive in exchange for that particular service. As a result, the Company generally allocates and recognizes variable consideration in the period it has the contractual right to invoice the client.
As described above, our most significant performance obligations involve variable consideration which constitutes the majority of our revenue streams. The Company’s variable consideration components meet the criteria in ASU No. 2014-09 for exclusion from disclosure of the remaining transaction price allocated to unsatisfied performance obligations as does any contracts with clients with an original duration of one year or less. The Company has contracts with clients that vary in length depending on the nature of the services and contractual terms negotiated with the client, and they generally extend over a multi-year period.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue. Distribution revenues associated with shipping and handling activities are accounted for as a fulfillment activity and recognized as the related services or products are transferred to the client. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between client payment and the transfer of goods or services is expected to be one year or less.
Disaggregation of Revenue
The Company has presented below its revenue disaggregated by product line and by revenue type within each of its Investor Communication Solutions and Global Technology and Operations reportable segments.
Fee revenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity. In addition, the level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven fee revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. Distribution revenues primarily include revenues related to the physical mailing and distribution of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services, as well as Matrix administrative services.
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| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Investor Communication Solutions | |||||||||||||||||||||||
| Equity proxy | $ | $ | |||||||||||||||||||||
| Mutual fund and exchange traded funds (“ETF”) interims | |||||||||||||||||||||||
| Customer communications and fulfillment | |||||||||||||||||||||||
| Other ICS | |||||||||||||||||||||||
| Total ICS Recurring fee revenues | |||||||||||||||||||||||
| Equity and other | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||
| Total ICS Event-driven fee revenues | |||||||||||||||||||||||
| Distribution revenues | |||||||||||||||||||||||
| Total ICS Revenues | $ | $ | |||||||||||||||||||||
| Global Technology and Operations | |||||||||||||||||||||||
| Equities and other | $ | $ | |||||||||||||||||||||
| Fixed income | |||||||||||||||||||||||
| Total GTO Recurring fee revenues | |||||||||||||||||||||||
| Foreign currency exchange | ( | ( | |||||||||||||||||||||
| Total Revenues | $ | $ | |||||||||||||||||||||
| Revenues by Type | |||||||||||||||||||||||
| Recurring fee revenues | $ | $ | |||||||||||||||||||||
| Event-driven fee revenues | |||||||||||||||||||||||
| Distribution revenues | |||||||||||||||||||||||
| Foreign currency exchange | ( | ( | |||||||||||||||||||||
| Total Revenues | $ | $ | |||||||||||||||||||||
Contract Balances
The following table provides information about contract assets and liabilities:
| September 30, 2020 | June 30, 2020 | ||||||||||
| (In millions) | |||||||||||
| Contract assets | $ | $ | |||||||||
| Contract liabilities | $ | $ | |||||||||
Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and certain other client contracts. Contract liabilities represent consideration received or receivable from clients before the transfer of control occurs (deferred revenue). Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
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NOTE 4. WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic earnings per share (“EPS”) is calculated by dividing the Company’s Net earnings by the basic Weighted-average shares outstanding for the periods presented. The Company calculates diluted EPS using the treasury stock method, which reflects the potential dilution that could occur if outstanding stock options at the presented date are exercised and restricted stock unit awards have vested.
The computation of diluted EPS excluded less than 0.1 million options to purchase Broadridge common stock for the three months ended September 30, 2020, as the effect of their inclusion would have been anti-dilutive. For the three months ended September 30, 2019, there were no options to purchase Broadridge common stock that would have been anti-dilutive to exclude from the computation of diluted EPS.
The following table sets forth the denominators of the basic and diluted EPS computations (in millions):
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Common stock equivalents | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
NOTE 5. INTEREST EXPENSE, NET
Interest expense, net consisted of the following:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Interest expense on borrowings | $ | ( | $ | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense, net | $ | ( | $ | ( | |||||||||||||||||||
NOTE 6. ACQUISITIONS
Pro forma supplemental financial information for all acquisitions is not provided as the impact of these acquisitions on the Company’s operating results was not material for any acquisition individually or in the aggregate.
During the three months ended September 30, 2020, there were no acquisitions.
15
The following represents the fiscal year 2020 acquisitions:
Fiscal Year 2020 Acquisitions:
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
| Shadow Financial | Fi360 | Clear-Structure | Funds-Library | Total | ||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Cash payments, net of cash acquired | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Deferred payments, net | ||||||||||||||||||||||||||||||||
| Contingent consideration liability | ||||||||||||||||||||||||||||||||
| Aggregate purchase price | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net tangible assets acquired / (liabilities assumed) | $ | ( | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||||||||||||||
| Aggregate purchase price | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Shadow Financial Systems, Inc. (“Shadow Financial”)
In October 2019, the Company acquired Shadow Financial, a provider of multi-asset class post-trade solutions for the capital markets industry. The acquisition built upon Broadridge’s post-trade processing capabilities by adding a market-ready solution for exchanges, inter-dealer brokers and proprietary trading firms. In addition, the acquisition has added capabilities across exchange traded derivatives and cryptocurrency. Shadow Financial is included in our GTO reportable segment.
•Goodwill is tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a -year life and -year life, respectively.
Fi360, Inc. (“Fi360”)
In November 2019, the Company acquired Fi360, a provider of fiduciary and Regulation Best Interest solutions for the wealth and retirement industry, including the accreditation and continuing education for the Accredited Investment Fiduciary® Designation, the leading designation focused on fiduciary responsibility. The acquisition has enhanced Broadridge’s retirement solutions by providing wealth and retirement advisors with fiduciary tools that complement its Matrix trust and trading platform. The acquisition has also further strengthened Broadridge’s data and analytics tools and solutions suite that enable asset managers to grow their businesses by providing greater transparency into the retirement market. Fi360 is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a -year life and -year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business' assets and liabilities.
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ClearStructure Financial Technology, LLC (“ClearStructure”)
In November 2019, the Company acquired ClearStructure, a global provider of portfolio management solutions for the private debt markets. ClearStructure’s component services has enhanced Broadridge’s existing multi-asset class, front-to-back office asset management technology suite, providing Broadridge clients with a capability to access the public and private markets. ClearStructure is included in our GTO reportable segment.
•The contingent consideration liability is payable through fiscal year 2023 upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $12.5 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of the contingent consideration liability at September 30, 2020 is $7.0 million.
•Goodwill is primarily tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a -year life and -year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities, and is still subject to a working capital adjustment.
FundsLibrary Limited (“FundsLibrary”)
In February 2020, the Company acquired FundsLibrary, a provider of fund document and data dissemination in the European market. FundsLibrary's solutions enable fund managers to increase distribution opportunities and help them comply with regulations such as Solvency II and MiFID II. The business was combined with FundAssist, Broadridge's existing European funds regulatory communications business. The combination of FundsLibrary's data platform and technology with Broadridge's existing fund calculation, document creation and translation capabilities, creates an end-to-end solution for fund managers and distributors, enabling them to respond to demanding regulatory requirements across multiple jurisdictions. FundsLibrary is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a -year life and -year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities, and is still subject to a working capital adjustment.
NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1 Quoted market prices in active markets for identical assets and liabilities.
Level 2 Observable market-based inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 and Level 2 instruments, as applicable, based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The fair values of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the table below.
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The following tables set forth the Company’s financial assets and liabilities at September 30, 2020 and June 30, 2020, respectively, that are recorded at fair value, segregated by level within the fair value hierarchy:
| September 30, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Money market funds (a) | $ | $ | $ | $ | |||||||||||||||||||
| Other current assets: | |||||||||||||||||||||||
| Securities | |||||||||||||||||||||||
| Other non-current assets: | |||||||||||||||||||||||
| Securities | |||||||||||||||||||||||
| Total assets as of September 30, 2020 | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration obligations | |||||||||||||||||||||||
| Total liabilities as of September 30, 2020 | $ | $ | $ | $ | |||||||||||||||||||
| June 30, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Money market funds (a) | $ | $ | $ | $ | |||||||||||||||||||
| Other current assets: | |||||||||||||||||||||||
| Securities | |||||||||||||||||||||||
| Other non-current assets: | |||||||||||||||||||||||
| Securities | |||||||||||||||||||||||
| Total assets as of June 30, 2020 | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration obligations | |||||||||||||||||||||||
| Total liabilities as of June 30, 2020 | $ | $ | $ | $ | |||||||||||||||||||
_________
(a)Money market funds include money market deposit account balances of $120.0 million and $150.1 million as of September 30, 2020 and June 30, 2020, respectively.
In addition, the Company has non-marketable securities with a carrying amount of $44.8 million and $33.3 million as of September 30, 2020 and June 30, 2020, respectively, that are classified as Level 2 financial assets and included as part of Other non-current assets on the Condensed Consolidated Balance Sheets.
The following table sets forth an analysis of changes during the three months ended September 30, 2020 and 2019, respectively, in Level 3 financial liabilities of the Company:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Beginning balance | $ | $ | |||||||||||||||||||||
| Foreign currency impact on contingent consideration liability | ( | ||||||||||||||||||||||
| Payments | ( | ( | |||||||||||||||||||||
| Ending balance | $ | $ | |||||||||||||||||||||
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NOTE 8. OTHER NON-CURRENT ASSETS
Other non-current assets consisted of the following:
| September 30, 2020 | June 30, 2020 | ||||||||||
| (In millions) | |||||||||||
| Deferred client conversion and start-up costs | $ | $ | |||||||||
| ROU assets (a) | |||||||||||
| Long-term investments | |||||||||||
| Deferred sales commissions costs | |||||||||||
| Contract assets (b) | |||||||||||
| Long-term broker fees | |||||||||||
| Deferred data center costs (c) | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
_________
(a) ROU assets represent the Company’s right to use an underlying asset for the lease term.
(b) Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and certain other client contracts.
(c) Represents deferred data center costs associated with the Company’s information technology services agreements with International Business Machines Corporation (“IBM”). Please refer to Note 14, “Contractual Commitments, Contingencies and Off-Balance Sheet Arrangements” for a further discussion.
The total amount of deferred client conversion and start-up costs and deferred sales commission costs amortized in Operating expenses during the three months ended September 30, 2020 and 2019, were $18.7 million and $17.3 million, respectively.
NOTE 9. PAYABLES AND ACCRUED EXPENSES
Payables and accrued expenses consisted of the following:
| September 30, 2020 | June 30, 2020 | ||||||||||
| (In millions) | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Employee compensation and benefits | |||||||||||
| Accrued dividend payable | |||||||||||
| Accrued broker fees | |||||||||||
| Managed services administration fees | |||||||||||
| Operating lease liabilities | |||||||||||
| Customer deposits | |||||||||||
| Accrued taxes | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
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NOTE 10. BORROWINGS
Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:
| Expiration Date | Principal amount outstanding at September 30, 2020 | Carrying value at September 30, 2020 | Carrying value at June 30, 2020 | Unused Available Capacity | Fair Value at September 30, 2020 | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Current portion of long-term debt | |||||||||||||||||||||||||||||||||||
| Fiscal 2014 Senior Notes (a) | September 2020 | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||
| Long-term debt, excluding current portion | |||||||||||||||||||||||||||||||||||
| Fiscal 2019 Revolving Credit Facility: | |||||||||||||||||||||||||||||||||||
| U.S. dollar tranche | March 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Multicurrency tranche | March 2024 | ||||||||||||||||||||||||||||||||||
| Total Revolving Credit Facility | |||||||||||||||||||||||||||||||||||
| Fiscal 2016 Senior Notes | June 2026 | — | |||||||||||||||||||||||||||||||||
| Fiscal 2020 Senior Notes | December 2029 | — | |||||||||||||||||||||||||||||||||
| Total Senior Notes | — | ||||||||||||||||||||||||||||||||||
| Total long-term debt | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Total debt | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
_________
(a) On September 1, 2020, the Company repaid in full the $400.0 million in Fiscal 2014 Senior Notes that were outstanding at their maturity date.
Future principal payments on the Company’s outstanding debt are as follows:
| Years ending June 30, | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
Fiscal 2019 Revolving Credit Facility: On March 18, 2019, the Company entered into an amended and restated $1.5 billion -year revolving credit facility (the “Fiscal 2019 Revolving Credit Facility”), which replaced the $1.0 billion -year revolving credit facility entered into during February 2017 (the “Fiscal 2017 Revolving Credit Facility”) (together the “Revolving Credit Facilities”). The Fiscal 2019 Revolving Credit Facility is comprised of a $1.1 billion U.S. dollar tranche and a $400.0 million multicurrency tranche.
The weighted-average interest rate on the Revolving Credit Facilities was 1.22 % for the three months ended September 30, 2020 and 3.12 % for the three months ended September 30, 2019. The fair value of the variable-rate Fiscal 2019 Revolving Credit Facility borrowings at September 30, 2020 approximates carrying value and has been classified as a Level 2 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Borrowings under the Fiscal 2019 Revolving Credit Facility can be made in tranches up to 360 days and bear interest at LIBOR plus 101.5 basis points. In addition, the Fiscal 2019 Revolving Credit Facility has an annual facility fee equal to 11.0 basis points on the entire facility. The Company may voluntarily prepay, in whole or in part and without premium or penalty, borrowings under the Fiscal 2019 Revolving Credit Facility in accordance with individual drawn loan maturities. The Fiscal 2019 Revolving Credit Facility is subject to certain covenants, including a leverage ratio. At September 30, 2020, the Company is in compliance with all covenants of the Fiscal 2019 Revolving Credit Facility.
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Fiscal 2014 Senior Notes: In August 2013, the Company completed an offering of $400.0 million in aggregate principal amount of senior notes (the “Fiscal 2014 Senior Notes”). On September 1, 2020, the Company repaid in full the $400.0 million in Fiscal 2014 Senior Notes that were outstanding at their maturity date.
Fiscal 2016 Senior Notes: In June 2016, the Company completed an offering of $500.0 million in aggregate principal amount of senior notes (the “Fiscal 2016 Senior Notes”). The Fiscal 2016 Senior Notes will mature on June 27, 2026 and bear interest at a rate of 3.40 % per annum. Interest on the Fiscal 2016 Senior Notes is payable semi-annually in arrears on June 27 and December 27 of each year. The Fiscal 2016 Senior Notes were issued at a price of 99.589 % (effective yield to maturity of 3.449 %). The indenture governing the Fiscal 2016 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money, to enter into certain sale-leaseback transactions, and to engage in mergers or consolidations and transfer or lease all or substantially all of our assets. At September 30, 2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2016 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2016 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2016 Senior Notes in whole or in part at any time before their maturity. The fair value of the fixed-rate Fiscal 2016 Senior Notes at September 30, 2020 and June 30, 2020 was $558.5 million and $554.3 million, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Fiscal 2020 Senior Notes: In December 2019, the Company completed an offering of $750.0 million in aggregate principal amount of senior notes (the “Fiscal 2020 Senior Notes”). The Fiscal 2020 Senior Notes will mature on December 1, 2029 and bear interest at a rate of 2.90 % per annum. Interest on the Fiscal 2020 Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year. The Fiscal 2020 Senior Notes were issued at a price of 99.717 % (effective yield to maturity of 2.933 %). The indenture governing the Fiscal 2020 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money, to enter into certain sale-leaseback transactions, and to engage in mergers or consolidations and transfer or lease all or substantially all of our assets. At September 30, 2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2020 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2020 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2020 Senior Notes in whole or in part at any time before their maturity. The fair value of the fixed-rate Fiscal 2020 Senior Notes at September 30, 2020 was $815.7 million, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
The Fiscal 2019 Revolving Credit Facility, Fiscal 2016 Senior Notes and Fiscal 2020 Senior Notes are senior unsecured obligations of the Company and are ranked equally in right of payment.
In addition, certain of the Company’s subsidiaries established unsecured, uncommitted lines of credit with banks. As of September 30, 2020 and June 30, 2020, there were no
NOTE 11. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consisted of the following:
| September 30, 2020 | June 30, 2020 | ||||||||||
| (In millions) | |||||||||||
| Operating lease liabilities | $ | $ | |||||||||
| Post-employment retirement obligations | |||||||||||
| Non-current income taxes | |||||||||||
| Acquisition related contingencies | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
The Company sponsors a Supplemental Officer Retirement Plan (the “Broadridge SORP”). The Broadridge SORP is a nonqualified ERISA defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key officers upon retirement based upon the officers’ years of service and compensation. The Broadridge SORP was closed to new participants beginning in fiscal year 2015. The Company also sponsors a Supplemental Executive Retirement Plan (the “Broadridge SERP”). The Broadridge SERP is also a nonqualified ERISA defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key executives upon retirement based upon the executives’ years of service and compensation. The Broadridge SERP was closed to new participants beginning in fiscal year 2015.
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NOTE 12. STOCK-BASED COMPENSATION
The activity related to the Company’s incentive equity awards for the three months ended September 30, 2020 consisted of the following:
| Stock Options | Time-based Restricted Stock Units | Performance-based Restricted Stock Units | |||||||||||||||||||||||||||||||||
| Number of Options | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Grant Date Fair Value | Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||||||||||||||||||||||
| Balances at July 1, 2020 | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Granted | |||||||||||||||||||||||||||||||||||
| Exercise of stock options (a) | ( | — | — | — | — | ||||||||||||||||||||||||||||||
Vesting of restricted stock units | — | — | ( | ( | |||||||||||||||||||||||||||||||
| Expired/forfeited | ( | ( | ( | ||||||||||||||||||||||||||||||||
Balances at September 30, 2020 (b),(c) | $ | $ | $ | ||||||||||||||||||||||||||||||||
____________
(a)Stock options exercised during the period of July 1, 2020 through September 30, 2020 had an aggregate intrinsic value of $43.2 million.
(b)As of September 30, 2020, the Company’s outstanding vested and currently exercisable stock options using the September 30, 2020 closing stock price of $132.00 (approximately 1.5 million shares) had an aggregate intrinsic value of $115.7 million with a weighted-average exercise price of $57.35 and a weighted-average remaining contractual life of 4.9 years. The total of all stock options outstanding as of September 30, 2020 have a weighted-average remaining contractual life of 6.5 years.
(c)As of September 30, 2020, time-based restricted stock units and performance-based restricted stock units expected to vest using the September 30, 2020 closing stock price of $132.00 (approximately 0.7 million and 0.2 million shares, respectively) had an aggregate intrinsic value of $91.8 million and $31.0 million, respectively. Performance-based restricted stock units granted in the table above represent initial target awards, and performance adjustments for (i) change in shares issued based upon attainment of performance goals determined in the period, and (ii) estimated change in shares issued resulting from attainment of performance goals to be determined at the end of the prospective performance period.
The Company has stock-based compensation plans under which the Company annually grants stock option and restricted stock unit awards. Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s common stock on the dates of grant, with the measurement of stock-based compensation expense recognized in Net earnings based on the fair value of the award on the date of grant. Stock-based compensation expense of $10.4 million and $11.8 million, as well as related expected tax benefits of $2.3 million and $2.6 million were recognized for the three months ended September 30, 2020 and 2019, respectively.
As of September 30, 2020, the total remaining unrecognized compensation cost related to non-vested stock options and restricted stock unit awards amounted to $11.2 million and $42.4 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 1.7 years and 1.5 years, respectively.
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NOTE 13. INCOME TAXES
The provision for income taxes for the three months ended September 30, 2020 was $7.8 million compared to $7.9 million for the three months ended September 30, 2019.
The effective tax rate for the three months ended September 30, 2020 was 10.6 % compared to 12.4 % for the three months ended September 30, 2019.
The decrease in the effective tax rate for the three months ended September 30, 2020 was driven by excess tax benefits of $9.3 million for the three months ended September 30, 2020 compared to $5.7 million for the three months ended September 30, 2019.
NOTE 14. CONTRACTUAL COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Data Center Agreements
In March 2010, the Company and IBM entered into an Information Technology Services Agreement (the “IT Services Agreement”), under which IBM provided certain aspects of the Company’s information technology infrastructure. Under the IT Services Agreement, IBM provided a broad range of technology services to the Company including supporting its mainframe, midrange, network and data center operations, as well as providing disaster recovery services. The migration of data center processing to IBM was completed in August 2012. The IT Services Agreement would have expired on June 30, 2022, but a -year extension was signed in March 2015, amending the expiration date to June 30, 2024. In December 2019, the Company and IBM amended and restated the IT Services Agreement (the “Amended IT Services Agreement”), which now expires on June 30, 2027. The Company has the option of incorporating additional services into the Amended IT Services Agreement over time. The Company may renew the term of the Amended IT Services Agreement for up to one additional 12 -month period. Fixed minimum commitments remaining under the Amended IT Services Agreement at September 30, 2020 are $235.7 million through fiscal year 2027, the final year of the Amended IT Services Agreement.
In December 2019, the Company and IBM entered into an information technology agreement for private cloud services (the “IBM Private Cloud Agreement”) under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks. The IBM Private Cloud Agreement has an initial term of approximately 10 years and three months, expiring on March 31, 2030. As a result of the IBM Private Cloud Agreement, the Company transferred certain of its employees in April 2020 to IBM and its affiliates, and that such transferred employees are expected to continue providing services to the Company on behalf of IBM under the IBM Private Cloud Agreement. Pursuant to the IBM Private Cloud Agreement, the Company agreed to transfer the ownership of certain Company-owned hardware (the “Hardware”) located at Company facilities worldwide to IBM. The transfer of the Hardware to IBM closed on September 30, 2020 for a selling price of $18.0 million. Fixed minimum commitments remaining under the IBM Private Cloud Agreement at September 30, 2020 are $226.5 million through March 31, 2030, the final year of the contract.
In March 2014, the Company and IBM United Kingdom Limited (“IBM UK”) entered into an Information Technology Services Agreement (the “EU IT Services Agreement”), under which IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia. The EU IT Services Agreement would have expired in October 2023. In December 2019, the Company amended the existing EU IT Services Agreement whereby the Company will migrate from the existing dedicated on-premise solution to a managed Broadridge private cloud environment provided by IBM, as well as extended the term of the EU IT Services Agreement to June 2029 (the “Amended EU IT Services Agreement”). The Company has the right to renew the term of the Amended EU IT Services Agreement for up to one additional 12 -month period or one additional 24 -month period. Fixed minimum commitments remaining under the Amended EU IT Services Agreement at September 30, 2020 are $29.0 million through fiscal year 2029, the final year of the contract.
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Investments
As of September 30, 2020, the Company has a future commitment to fund $3.1 million to one of the Company’s investees.
Software License Agreements
The Company has incurred the following expenses under software license agreements:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Software License Agreements | $ | $ | |||||||||||||||||||||
Other
In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any claim or litigation is inherently unpredictable, the Company believes that the ultimate resolution of these matters will not, individually or in the aggregate, result in a material impact on its financial condition, results of operations or cash flows.
It is not the Company’s business practice to enter into off-balance sheet arrangements. However, the Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations, and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company may use derivative financial instruments as risk management tools and not for trading purposes. The Company was not a party to any derivative financial instruments at September 30, 2020 or at June 30, 2020.
In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company’s products and services. The Company does not expect any material losses related to such representations and warranties, or collateral arrangements.
The Company’s business process outsourcing and mutual fund processing services are performed by Broadridge Business Process Outsourcing, LLC (“BBPO”), an indirect wholly-owned subsidiary, which is a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Although BBPO’s FINRA membership agreement allows it to engage in clearing and the retailing of corporate securities in addition to mutual fund retailing on a wire order basis, BBPO does not clear customer transactions, process any retail business or carry customer accounts. As a registered broker-dealer and member of FINRA, BBPO is subject to the Uniform Net Capital Rule 15c3-1 of the Securities Exchange Act of 1934, as amended, which requires BBPO to maintain a minimum net capital amount. At September 30, 2020, BBPO was in compliance with this net capital requirement.
BBPO, as a “Managing Clearing Member” of the Options Clearing Corporation (the “OCC”), is also subject to OCC Rule 309(b) with respect to the business process outsourcing services that it provides to other OCC “Managed Clearing Member” broker-dealers. OCC Rule 309(b) requires BBPO to maintain a minimum net capital amount. At September 30, 2020, BBPO was in compliance with this net capital requirement.
In addition, Matrix Trust Company, a subsidiary of the Company, is a Colorado State non-depository trust company and National Securities Clearing Corporation trust member, whose primary business is to provide cash agent, custodial and directed trustee services to institutional customers, and investment management services to collective trust funds. As a result, Matrix Trust Company is subject to various regulatory capital requirements administered by the Colorado Division of Banking and the Arizona Department of Financial Institutions, as well as the National Securities Clearing Corporation. Specific capital requirements that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, when applicable, must be met. At September 30, 2020, Matrix Trust Company was in compliance with its capital requirements.
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NOTE 15. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) BY COMPONENT
The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income/(loss) for the three months ended September 30, 2020, and 2019, respectively:
| Foreign Currency Translation | Pension and Post- Retirement Liabilities | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balances at July 1, 2020 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income/(loss) before reclassifications | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income/(loss) | |||||||||||||||||
| Balances at September 30, 2020 | $ | ( | $ | ( | $ | ( | |||||||||||
| Foreign Currency Translation | Pension and Post- Retirement Liabilities | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balances at July 1, 2019 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income/(loss) before reclassifications | ( | ( | |||||||||||||||
Amounts reclassified from accumulated other comprehensive income/(loss) | |||||||||||||||||
| Balances at September 30, 2019 | $ | ( | $ | ( | $ | ( | |||||||||||
NOTE 16. INTERIM FINANCIAL DATA BY SEGMENT
The Company operates in two reportable segments: Investor Communication Solutions and Global Technology and Operations. See Note 1, “Basis of Presentation” for a further description of the Company’s reportable segments.
The primary components of “Other” are certain gains, losses, corporate overhead expenses and non-operating expenses that have not been allocated to the reportable segments, such as interest expense. Foreign currency exchange is a reconciling item between the actual foreign currency exchange rates and the constant foreign currency exchange rates used for internal management reporting.
Certain corporate expenses, as well as certain centrally managed expenses, are allocated based upon budgeted amounts in a reasonable manner. Because the Company compensates the management of its various businesses on, among other factors, segment profit, the Company may elect to record certain segment-related operating and non-operating expense items in Other rather than reflect such items in segment profit.
Segment results:
| Revenues | |||||||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Investor Communication Solutions | $ | $ | |||||||||||||||||||||
| Global Technology and Operations | |||||||||||||||||||||||
| Foreign currency exchange | ( | ( | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
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| Earnings (Loss) before Income Taxes | |||||||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Investor Communication Solutions | $ | $ | |||||||||||||||||||||
| Global Technology and Operations | |||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Foreign currency exchange | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein.
Overview
Broadridge, a Delaware corporation and a part of the S&P 500® Index, is a global financial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers and corporate issuers. With over 50 years of experience, including over 10 years as an independent public company, we provide financial services firms with advanced, dependable, scalable and cost-effective integrated solutions and an important infrastructure that powers the financial services industry. Our solutions enable better financial lives by powering investing, governance and communications and help reduce the need for our clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities.
Our services include investor communications, securities processing, data and analytics, and customer communications solutions. We serve a large and diverse client base across four client groups: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. For capital markets firms, we help our clients lower costs and improve the effectiveness of their trade and account processing operations with support for their operational technologies, and their administration, finance, risk and compliance requirements. We serve asset management firms by meeting their critical needs for shareholder communications and by providing investment operations technology to support their investment decisions. For wealth management clients, we provide an integrated platform with tools that optimize advisor productivity, enhance client experience, and digitize enterprise operations. For our corporate issuer clients, we help manage every aspect of their shareholder communications, including registered and beneficial proxy processing, annual meeting support, transfer agency services and financial disclosure document creation, management and SEC filing services.
We operate our business in two reportable segments: Investor Communication Solutions and Global Technology and Operations.
Investor Communication Solutions
We provide governance and communications solutions through our Investor Communication Solutions business segment to the following financial services clients: banks/broker-dealers, asset management firms/mutual funds, wealth management firms and corporate issuers. In addition to financial services firms, our Customer Communications business also serves companies in the healthcare, insurance, consumer finance, telecommunications, utilities and other service industries.
A large portion of our Investor Communication Solutions business involves the processing and distribution of proxy materials to investors in equity securities and mutual funds, as well as the facilitation of related vote processing. ProxyEdge® is our innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that helps ensure the voting participation of the largest stockholders of many companies. We also provide the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help our clients meet their regulatory compliance needs.
For asset managers and retirement service providers, we offer data-driven solutions and an end-to-end platform for content management, composition, and multi-channel distribution of regulatory, marketing, and transactional information. Our data and analytics solutions provide investment product distribution data, analytical tools, insights, and research to enable asset managers to optimize product distribution across retail and institutional channels globally. Through Matrix Financial Solutions, Inc. (“Matrix”), we provide mutual fund trade processing services for retirement service providers, third-party administrators, financial advisors, banks and wealth management professionals.
In addition, we provide public corporations and mutual funds with a full suite of solutions to help manage their annual meeting process, including registered and beneficial proxy distribution and processing services, proxy and annual report document management solutions, virtual shareholder meeting services, and solutions that help them gain insight into their shareholder base through our shareholder data services. We also offer financial reporting document composition and management solutions, SEC disclosure and filing services, and registrar, stock transfer and record-keeping services through Broadridge Corporate Issuer Solutions.
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We provide customer communications solutions which include print and digital solutions, content management, postal optimization, and fulfillment services. These services include customer communications management capabilities through the Broadridge Communications CloudSM platform (the “Communications Cloud”). Through one point of integration, the Communications Cloud helps companies create, deliver, and manage multi-channel communications and customer engagement. The platform includes data-driven composition tools, identity and preference management, multi-channel optimization and digital communication experience, archive and information management, digital and print delivery, and analytics and reporting tools.
Global Technology and Operations
We are a leading global provider of securities processing solutions for capital markets, wealth management, and asset management firms. We offer advanced solutions that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, margin, cash management, clearance and settlement, asset servicing, reference data management, reconciliations, securities financing and collateral optimization, compliance and regulatory reporting, and portfolio accounting and custody-related services.
Our core post-trade services help financial institutions efficiently and cost-effectively consolidate their books and records, gather and service assets under management and manage risk, thereby enabling them to focus on their core business activities. Our multi-asset, multi-market, multi-entity and multi-currency solutions support real-time global trade processing of equity, fixed income, mutual fund, foreign exchange, and exchange traded derivatives.
Our comprehensive wealth management platform offers capabilities across the entire wealth management lifecycle and streamlines all aspects of wealth management services, including account management, fee management and client on-boarding. The wealth management platform enables full-service, regional and independent broker-dealers and investment advisors to better engage with customers through digital marketing and customer communications tools. We also integrate data, content and technology to drive new customer acquisition, support holistic advice and cross-sell opportunities through the creation of sales and educational content, including seminars as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Our advisor solutions help advisors optimize their practice management through customer and account data aggregation and reporting.
We offer buy-side technology solutions for the global investment management industry, including portfolio management, compliance and operational workflow solutions for hedge funds, family offices, investment managers and the providers that service this space. Through our Managed Services, we provide business process outsourcing services that support the entire trade lifecycle operations of our buy- and sell-side clients’ businesses through a combination of our technology and our operations expertise. We also provide support for advisor, investor and compliance workflow.
Consolidation and Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”). These Condensed Consolidated Financial Statements present the condensed consolidated position of the Company and include the entities in which the Company directly or indirectly has a controlling financial interest as well as various entities in which the Company has investments recorded under the equity method of accounting as well as certain marketable and non-marketable securities. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding.
The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements for the fiscal year ended June 30, 2020 in the 2020 Annual Report.
Effective July 1, 2019, the Company adopted Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02, “Leases” and its related amendments (collectively referred to as “ASU 2016-02, as amended”) by recognizing a right-of-use (“ROU”) asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the period of adoption. Under this method of adoption, the Company has not restated the prior period Condensed Consolidated Financial Statements presented to the current period presentation. Additional information about the impact of the Company's adoption of ASU No. 2016-02, as amended is included in Note 2, “New Accounting Pronouncements” to the Condensed Consolidated Financial Statements.
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Critical Accounting Policies
In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Management continually evaluates the accounting policies and estimates used to prepare the Condensed Consolidated Financial Statements. The estimates, by their nature, are based on judgment, available information, and historical experience and are believed to be reasonable. However, actual amounts and results could differ from these estimates made by management. In management’s opinion, the Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of results reported. The results of operations reported for the periods presented are not necessarily indicative of the results of operations for subsequent periods. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in the “Critical Accounting Policies” section of Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2020 Annual Report.
KEY PERFORMANCE INDICATORS
Management focuses on a variety of key indicators to plan, measure and evaluate the Company’s business and financial performance. These performance indicators include Revenue and Recurring fee revenue as well as not generally accepted accounting principles measures (“Non-GAAP”) of Adjusted Operating income, Adjusted Net earnings, Adjusted Diluted earnings per share, Free Cash flow, and Closed sales. In addition, management focuses on select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth, as defined below.
Refer to the section “Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures” for a reconciliation of Adjusted Operating income, Adjusted Net earnings, Adjusted Diluted earnings per share, and Free Cash flow to the most directly comparable generally accepted accounting principles (“GAAP”) measures, and an explanation for why these Non-GAAP metrics provide useful information to investors and how management uses these Non-GAAP metrics for operational and financial decision-making. Refer to the section “Results of Operations” for a description of Closed sales and an explanation of why Closed sales is a useful performance metric for management and investors.
Revenues
Revenues are primarily generated from fees for processing and distributing investor communications and fees for technology-enabled services and solutions. The Company monitors revenue in each of our two reportable segments as a key measure of success in addressing our clients’ needs. Fee revenues are derived from both recurring and event-driven activity. The level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven fee revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services as well as Matrix administrative services.
Recurring fee revenue growth represents the Company’s total annual fee revenue growth, less growth from event-driven fee revenues. We distinguish recurring fee revenue growth between organic and acquired:
•Organic – We define organic revenue as the recurring fee revenue generated from Net New Business and internal growth.
•Acquired – We define acquired revenue as the recurring fee revenue generated from acquired services in the first twelve months following the date of acquisition. This type of growth comes as a result of our strategy to purchase, integrate, and leverage the value of assets we acquire.
Revenues and Recurring fee revenue are useful metrics for investors in understanding how management measures and evaluates the Company’s ongoing operational performance. See “Results of Operations” as well as Note 3, “Revenue Recognition” to our Condensed Consolidated Financial Statements in this Form 10-Q.
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Record Growth and Internal Trade Growth
The Company uses select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth in evaluating its business results and identifying trends affecting its business. Record Growth is defined as stock record growth and interim record growth which measure the estimated annual change in total positions eligible for equity proxy materials and mutual fund and exchange traded fund interim communications, respectively, for equities and mutual fund position data reported to Broadridge in both the current and prior year periods. Internal Trade Growth represents the estimated change in trade volumes for Broadridge securities processing clients whose contracts are linked to trade volumes and who were on Broadridge’s trading platforms in both the current and prior year periods. Record Growth and Internal Trade Growth are useful non-financial metrics for investors in understanding how management measures and evaluates Broadridge’s ongoing operational performance within its Investor Communication Solutions and Global Technology and Operations reportable segments, respectively.
The key performance indicators for the three months ended September 30, 2020, and 2019, are as follows:
| Select Operating Metrics | |||||||||||
| Three Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Record Growth | |||||||||||
| Equity proxy | 16 | % | 7 | % | |||||||
| Mutual fund interims | 6 | % | 1 | % | |||||||
| Internal Trade Growth | |||||||||||
| Equity | 20 | % | (7) | % | |||||||
| Fixed Income | (11) | % | 19 | % | |||||||
Results of Operations
The following discussions of Analysis of Condensed Consolidated Statements of Earnings and Analysis of Reportable Segments refer to the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The Analysis of Condensed Consolidated Statements of Earnings should be read in conjunction with the Analysis of Reportable Segments, which provides a more detailed discussion concerning certain components of the Condensed Consolidated Statements of Earnings.
The following references are utilized in the discussions of Analysis of Condensed Consolidated Statements of Earnings and Analysis of Reportable Segments:
“Amortization of Acquired Intangibles and Purchased Intellectual Property” and “Acquisition and Integration Costs” represent certain non-cash amortization expenses associated with acquired intangible assets and purchased intellectual property assets, as well as certain transaction and integration costs associated with the Company’s acquisition activities, respectively.
“Real Estate Realignment and Covid-19 Related Expenses” represent costs associated with the Company's real estate realignment initiative, including lease exit and impairment charges and other facility exit costs, as well as certain expenses associated with the Covid-19 pandemic.
“Investment Gain” represents a non-operating, non-cash gain on a privately held investment.
“Software Charge” represents a charge related to an internal use software product that is no longer expected to be used.
“Net New Business” refers to recurring revenue from Closed sales less recurring revenue from client losses.
The following definitions describe the Company’s Revenues:
Fee revenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity. In addition, the level of recurring and event-driven activity we process directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. The types of services we provide that comprise event-driven activity are:
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•Mutual Fund Proxy: The proxy and related services we provide to mutual funds when certain events occur requiring a shareholder vote including changes in directors, sub-advisors, fee structures, investment restrictions, and mergers of funds.
•Mutual Fund Communications: Mutual fund communications services consist primarily of the distribution on behalf of mutual funds of supplemental information required to be provided to the annual mutual fund prospectus as a result of certain triggering events such as a change in portfolio managers. In addition, mutual fund communications consist of notices and marketing materials such as newsletters.
•Equity Proxy Contests and Specials, Corporate Actions, and Other: The proxy services we provide in connection with shareholder meetings driven by special events such as proxy contests, mergers and acquisitions, and tender/exchange offers.
Event-driven fee revenues are based on the number of special events and corporate transactions we process. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. As such, the timing and level of event-driven activity and its potential impact on revenues and earnings are difficult to forecast.
Generally, mutual fund proxy activity has been subject to a greater level of volatility than the other components of event-driven activity. For the three months ended September 30, 2020, mutual fund proxy fee revenues were 3% lower compared to the three months ended September 30, 2019. During fiscal year 2020, mutual fund proxy fee revenues were 35% lower than the prior fiscal year. Although it is difficult to forecast the levels of event-driven activity, we expect that the portion of fee revenues derived from mutual fund proxy activity may continue to experience volatility in the future.
Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services, as well as Matrix administrative services.
Distribution cost of revenues consists primarily of postage-related expenses incurred in connection with our Investor Communication Solutions segment, as well as Matrix administrative services expenses. These costs are reflected in Cost of revenues.
Closed sales represent an estimate of the expected annual recurring fee revenue for new client contracts that were signed by Broadridge in the current reporting period. Closed sales does not include event-driven or distribution activity. We consider contract terms, expected client volumes or activity, knowledge of the marketplace and experience with our clients, among other factors, when determining the estimate. Management uses Closed sales to measure the effectiveness of our sales and marketing programs, as an indicator of expected future revenues and as a performance metric in determining incentive compensation.
Closed sales is not a measure of financial performance under GAAP, and should not be considered in isolation or as a substitute for revenue or other income statement data prepared in accordance with GAAP. Closed sales is a useful metric for investors in understanding how management measures and evaluates our ongoing operational performance.
The inherent variability of transaction volumes and activity levels can result in some variability of amounts reported as actual achieved Closed sales. Larger Closed sales can take up to 12 to 24 months or longer to convert to revenues, particularly for the services provided by our Global Technology and Operations segment. For the fiscal year ended June 30, 2021, we are reporting Closed sales net of a 5.0% allowance adjustment. For the fiscal year ended June 30, 2020, we reported Closed sales net of a 4.0% allowance adjustment. Consequently, our reported Closed sales amounts will not be adjusted for actual revenues achieved because these adjustments are estimated in the period the sale is reported. We assess this allowance amount at the end of each fiscal year to establish the appropriate allowance for the subsequent year using the trailing five years actual data as the starting point, normalized for outlying factors, if any, to enhance the accuracy of the allowance.
Closed sales for the three months ended September 30, 2020 were $32.9 million, a decrease of $4.8 million or 13%, compared to $37.6 million for the three months ended September 30, 2019. Closed sales for the three months ended September 30, 2020 are net of an allowance adjustment of $1.7 million.
Recent Developments
In March 2020, the World Health Organization declared the outbreak of Covid-19 as a pandemic, which continues to persist throughout the world including the U.S., India, Canada, Europe and other locations where we operate. To date, the Covid-19 pandemic has negatively impacted the global economy, created significant financial market volatility, disrupted global supply chains, and resulted in a significant number of deaths and infections worldwide. In response, several countries worldwide have enacted fiscal stimulus packages while central banks have increased monetary stimulus, both designed to help mitigate the negative macroeconomic effects of Covid-19. In addition, several national, state and local governments have placed restrictions on people from gathering in groups or interacting within a certain physical distance (i.e. social distancing) and in certain cases, have ordered businesses to close, limit operations or mandate that people stay at home.
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The Company’s operations, both our Investor Communication Solutions and Global Technology and Operations segments, are critical components of the overall financial markets infrastructure in the U.S. and globally. As a result, we have been permitted to continue operating in all jurisdictions in which we conduct business (in most cases remotely), including in jurisdictions that have mandated the closure of certain businesses. Accordingly, the Company has taken several measures designed to protect the health of our employees and to minimize our operational disruption and resulting provision of services to our clients from the Covid-19 pandemic, including adopting strict social distancing and cleaning measures in our production facilities, taking the temperature of production-related employees in affected areas on a daily basis as a prerequisite to entering our facilities, load balancing of client jobs between various facilities, and instituting work from home protocols for employees not involved in production operations, amongst other measures.
In fiscal year 2021 to date, there has not been a material impact as a result of Covid-19 on our consolidated revenues and pre-tax income. The Company continues to process above average levels of equity trades for our financial services clients, many of whom themselves have experienced higher levels of trading activity from market volatility caused by the Covid-19 pandemic. In addition, all of our production-related facilities remain operational and are continuing to provide ongoing services to our clients. Further, we have not experienced any significant supply-chain issues as our critical vendors have also remained operational and continue to meet their on-going service level requirements. We continue to actively engage with our clients to assist with their service demands, including our clients’ needs for any supplemental operational services and/or changes to existing service requirements in response to the Covid-19 pandemic.
Notwithstanding the foregoing, we are unable to precisely predict the impact that Covid-19 will have in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our clients, and other factors identified in Part II, Item 1A. “Risk Factors” in this Form 10-Q and the 2020 Annual Report. Given these uncertainties, Covid-19 could disrupt the business of certain of our clients, decrease our clients’ demand for our services, impact our business operations and our ability to execute on our associated business strategies and initiatives, and adversely impact our consolidated results of operations and/or our financial condition in the future. We will continue to closely monitor and evaluate the nature and extent of the impact of Covid-19 to our business, consolidated results of operations, and financial condition.
On August 5, 2020, the SEC proposed modifications to the mutual fund and exchange-traded fund disclosure framework (the “Proposal”). The Proposal calls for streamlined annual and semi-annual shareholder reports which would be the primary source of fund disclosure for existing investors. The Proposal also provides an optional method that would replace the requirement for funds to distribute an annual prospectus to existing shareholders and instead requires timely communication of material changes via supplemental communications. Adoption and implementation of the Proposal as proposed could have an impact on our services, business and financial results. We will closely monitor and evaluate the progress of the Proposal and its potential impact on our business. Please see our “Risk Factors” in Part I, Item 1A. of our 2020 Annual Report for more information.
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Analysis of Condensed Consolidated Statements of Earnings
Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019
The table below presents Condensed Consolidated Statements of Earnings data for the three months ended September 30, 2020 and 2019, and the dollar and percentage changes between periods:
| Three Months Ended September 30, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Revenues | $ | 1,017.4 | $ | 948.6 | $ | 68.8 | 7 | ||||||||||||||||
| Cost of revenues | 787.1 | 727.5 | 59.6 | 8 | |||||||||||||||||||
| Selling, general and administrative expenses | 151.7 | 148.0 | 3.8 | 2 | |||||||||||||||||||
| Total operating expenses | 938.8 | 875.4 | 63.4 | 7 | |||||||||||||||||||
| Operating income | 78.6 | 73.1 | 5.5 | 8 | |||||||||||||||||||
| Margin | 7.7 | % | 7.7 | % | |||||||||||||||||||
| Interest expense, net | (14.4) | (13.1) | (1.3) | 10 | |||||||||||||||||||
| Other non-operating income (expenses), net | 9.5 | 3.8 | 5.6 | 150 | |||||||||||||||||||
| Earnings before income taxes | 73.6 | 63.8 | 9.8 | 15 | |||||||||||||||||||
| Provision for income taxes | 7.8 | 7.9 | (0.1) | (1) | |||||||||||||||||||
| Effective tax rate | 10.6 | % | 12.4 | % | |||||||||||||||||||
| Net earnings | $ | 65.8 | $ | 55.9 | $ | 9.9 | 18 | ||||||||||||||||
| Basic earnings per share | $ | 0.57 | $ | 0.49 | $ | 0.08 | 16 | ||||||||||||||||
| Diluted earnings per share | $ | 0.56 | $ | 0.48 | $ | 0.08 | 17 | ||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 115.3 | 114.4 | |||||||||||||||||||||
| Diluted | 117.4 | 117.1 | |||||||||||||||||||||
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Revenues
The table below presents Condensed Consolidated Statements of Earnings data for the three months ended September 30, 2020 and 2019, and the dollar and percentage changes between periods:
| Three Months Ended September 30, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Recurring fee revenues | $ | 671.2 | $ | 623.2 | $ | 48.1 | 8 | ||||||||||||||||
| Event-driven fee revenues | 45.5 | 40.1 | 5.4 | 13 | |||||||||||||||||||
| Distribution revenues | 332.2 | 313.3 | 18.9 | 6 | |||||||||||||||||||
| Foreign currency exchange | (31.5) | (28.0) | (3.5) | 13 | |||||||||||||||||||
| Total | $ | 1,017.4 | $ | 948.6 | $ | 68.8 | 7 | ||||||||||||||||
| Points of Growth | |||||||||||||||||||||||
| Net New Business | Internal Growth | Acquisitions | Total | ||||||||||||||||||||
| Recurring fee revenue Growth Drivers | 5pts | 0pt | 3pts | 8 | % | ||||||||||||||||||
Revenues increased $68.8 million, or 7%, to $1,017.4 million from $948.6 million.
•Recurring fee revenues increased $48.1 million primarily due to growth from onboarding of new business and carryover impact of acquisitions. Internal growth was neutral due to (i) higher GTO equity trade volumes and higher ICS equity proxy, mutual fund and exchange traded fund communications, partially offset by (ii) lower GTO software license revenues and the impact of lower interest rates on customer cash balances at ICS.
•Event-driven fee revenues increased $5.4 million due to increased mutual fund communications activity.
•Distribution revenues increased $18.9 million primarily due to the increase in recurring fee revenues.
•Currencies negatively impacted revenues by $3.5 million due to a combination of foreign acquisitions and continued international revenue growth.
Total operating expenses. Operating expenses increased $63.4 million, or 7%, to $938.8 million from $875.4 million as a result of an increase in both cost of revenues and selling, general and administrative expenses:
•Cost of revenues - The increase of $59.6 million in cost of revenues primarily reflects costs associated with the Company's real estate realignment initiative, including lease exit and impairment charges and other facility exit costs, higher operating costs from acquisitions and related amortization expense, and higher distribution cost of revenues driven by the increase in distribution revenues.
•Selling, general and administrative expenses - The increase of $3.8 million in selling, general, and administrative expenses primarily reflected the impact of acquisitions, which more than offset the impact of expense reduction initiatives.
Interest expense, net. Interest expense, net was $14.4 million, an increase of $1.3 million, from $13.1 million for the three months ended September 30, 2019. The increase of $1.3 million was primarily due to an increase in interest expense from higher average borrowings.
Other non-operating income (expenses), net. Other non-operating income (expenses), net for the three months ended September 30, 2020 was $9.5 million, compared to other non-operating income (expenses), net of $3.8 million for the three months ended September 30, 2019. The increase of $5.6 million was primarily due to higher gains on investment in the current period.
Provision for income taxes.
•Effective tax rate for the three months ended September 30, 2020: 10.6%
•Effective tax rate for the three months ended September 30, 2019: 12.4%
34
The decrease in the effective tax rate for the three months ended September 30, 2020 was driven by higher excess tax benefits attributable to stock-based compensation of $9.3 million for the three months ended September 30, 2020 as compared to $5.7 million for the three months ended September 30, 2019.
Analysis of Reportable Segments
Broadridge has two reportable segments: (1) Investor Communication Solutions and (2) Global Technology and Operations.
The primary component of “Other” are certain gains, losses, corporate overhead expenses and non-operating expenses that have not been allocated to the reportable segments, such as interest expense. Foreign currency exchange is a reconciling item between the actual foreign currency exchange rates and the constant foreign currency exchange rates used for internal management reporting.
Certain corporate expenses, as well as certain centrally managed expenses, are allocated based upon budgeted amounts in a reasonable manner. Because the Company compensates the management of its various businesses on, among other factors, segment profit, the Company may elect to record certain segment-related operating and non-operating expense items in Other rather than reflect such items in segment profit.
Revenues
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Investor Communication Solutions | $ | 752.9 | $ | 702.6 | $ | 50.2 | 7 | ||||||||||||||||||||||||||||||||||||||||
| Global Technology and Operations | 296.0 | 273.9 | 22.1 | 8 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange | (31.5) | (28.0) | (3.5) | 13 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,017.4 | $ | 948.6 | $ | 68.8 | 7 | ||||||||||||||||||||||||||||||||||||||||
Earnings Before Income Taxes
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Investor Communication Solutions | $ | 52.8 | $ | 23.0 | $ | 29.8 | 130 | ||||||||||||||||||||||||||||||||||||||||
| Global Technology and Operations | 75.3 | 56.4 | 18.9 | 34 | |||||||||||||||||||||||||||||||||||||||||||
| Other | (60.5) | (21.1) | (39.3) | 187 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange | 6.0 | 5.6 | 0.4 | 7 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 73.6 | $ | 63.8 | $ | 9.8 | 15 | ||||||||||||||||||||||||||||||||||||||||
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Investor Communication Solutions
Revenues for the three months ended September 30, 2020 increased $50.2 million to $752.9 million from $702.6 million, and earnings before income taxes increased $29.8 million to $52.8 million from $23.0 million.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| Recurring fee revenues | $ | 375.2 | $ | 349.2 | $ | 26.0 | 7 | ||||||||||||||||||||||||||||||||||||||||
| Event-driven fee revenues | 45.5 | 40.1 | 5.4 | 13 | |||||||||||||||||||||||||||||||||||||||||||
| Distribution revenues | 332.2 | 313.3 | 18.9 | 6 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 752.9 | $ | 702.6 | $ | 50.2 | 7 | ||||||||||||||||||||||||||||||||||||||||
| Earnings Before Income Taxes | |||||||||||||||||||||||||||||||||||||||||||||||
| Earnings before income taxes | $ | 52.8 | $ | 23.0 | $ | 29.8 | 130 | ||||||||||||||||||||||||||||||||||||||||
| Pre-tax Margin | 7.0 | % | 3.3 | % | |||||||||||||||||||||||||||||||||||||||||||
| Points of Growth | |||||||||||||||||||||||||||||||||||||||||||||||
| Net New Business | Internal Growth | Acquisitions | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Recurring fee revenue Growth Drivers | 5pts | (1)pt | 3pts | 7 | % | ||||||||||||||||||||||||||||||||||||||||||
For the three months ended September 30, 2020:
•Recurring fee revenues grew 7% driven by Net New Business and the carryover impact of acquisitions. Internal growth was negatively impacted by lower interest rates on cash balances we hold for retirement accounts, which more than offset the benefit of higher volume of equity proxy, mutual fund, and exchange traded fund communications.
•Event-driven fee revenues grew 13% due to increased mutual fund communications activity.
•Higher distribution revenues resulted primarily from the increase in recurring fee revenues.
•The earnings increase was primarily due to the increase in recurring fee revenues and expense reduction initiatives.
•Pre-tax margins increased by 3.7 percentage points to 7.0% from 3.3%.
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Global Technology and Operations
Revenues for the three months ended September 30, 2020 increased $22.1 million to $296.0 million from $273.9 million, and earnings before income taxes increased $18.9 million to $75.3 million from $56.4 million.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| Recurring fee revenues | $ | 296.0 | $ | 273.9 | $ | 22.1 | 8 | ||||||||||||||||||||||||||||||||||||||||
| Earnings Before Income Taxes | |||||||||||||||||||||||||||||||||||||||||||||||
| Earnings before income taxes | $ | 75.3 | $ | 56.4 | $ | 18.9 | 34 | ||||||||||||||||||||||||||||||||||||||||
| Pre-tax Margin | 25.4 | % | 20.6 | % | |||||||||||||||||||||||||||||||||||||||||||
| Points of Growth | |||||||||||||||||||||||||||||||||||||||||||||||
| Net New Business | Internal Growth | Acquisitions | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Recurring fee revenue Growth Drivers | 5pts | 1pt | 2pts | 8 | % | ||||||||||||||||||||||||||||||||||||||||||
For the three months ended September 30, 2020:
•Recurring fee revenues grew 8% driven primarily by onboarding of new clients. Internal growth contributed 1 point as the benefit of higher equity trading volumes was partially offset by lower software license revenues. Acquisitions contributed 2 points to growth.
•The earnings increase was driven by higher organic revenues and expense reduction initiatives. Expense growth during the quarter was driven by recent acquisitions which more than offset a decline in other expenses. Pre-tax margins increased by 4.8 percentage points to 25.4% from 20.6%.
Other
Loss before income taxes was $60.5 million for the three months ended September 30, 2020, an increase of $39.3 million, or 187%, compared to $21.1 million for the three months ended September 30, 2019.
•The increased loss before income taxes was primarily due to costs associated with the Company's real estate realignment initiative, including lease exit and impairment charges and other facility exit costs of $28.6 million, as well as certain expenses associated with the Covid-19 pandemic.
Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures
The Company’s results in this Quarterly Report on Form 10-Q are presented in accordance with U.S. GAAP except where otherwise noted. In certain circumstances, results have been presented that are not generally accepted accounting principles measures (“Non-GAAP”). These Non-GAAP measures are Adjusted Operating income, Adjusted Operating income margin, Adjusted Net earnings, Adjusted earnings per share, and Free cash flow. These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results.
The Company believes our Non-GAAP financial measures help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that Non-GAAP measures provide consistency in its financial reporting and facilitates investors’ understanding of the Company’s operating results and trends by providing an additional basis for comparison. Management uses these Non-GAAP financial measures to, among other things, evaluate our ongoing operations, and for internal planning and forecasting purposes. In addition, and as a consequence of the importance of these Non-GAAP financial measures in managing our business, the Company’s Compensation Committee of the Board of Directors incorporates Non-GAAP financial measures in the evaluation process for determining management compensation.
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Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Earnings and Adjusted Earnings Per Share
These Non-GAAP measures reflect Operating income, Operating income margin, Net earnings, and Diluted earnings per share, each as adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items the exclusion of which management believes provides insight regarding our ongoing operating performance. These adjusted measures exclude the impact of: (i) Amortization of Acquired Intangibles and Purchased Intellectual Property, (ii) Acquisition and Integration Costs, (iii) Real Estate Realignment and Covid-19 Related Expenses, (iv) Investment Gain, and (v) Software Charge. Amortization of Acquired Intangibles and Purchased Intellectual Property represents non-cash amortization expenses associated with the Company's acquisition activities. Acquisition and Integration Costs represent certain transaction and integration costs associated with the Company’s acquisition activities. Real Estate Realignment and Covid-19 Related Expenses represent costs associated with the Company’s real estate realignment initiative, including lease exit and impairment charges and other facility exit costs, as well as certain expenses associated with the Covid-19 pandemic. The Covid-19 Related Expenses are direct expenses incurred by the Company to protect the health and safety of Broadridge associates, including the cost of personal protective equipment, enhanced cleaning measures in our facilities and other related expenses. Investment Gain represents a non-operating, non-cash gain on a privately held investment. Software Charge represents a charge related to an internal use software product that is no longer expected to be used.
We exclude Acquisition and Integration Costs, Real Estate Realignment and Covid-19 Related Expenses, the Investment Gain, and the Software Charge from our Adjusted Operating income (as applicable) and other adjusted earnings measures because excluding such information provides us with an understanding of the results from the primary operations of our business and enhances comparability across fiscal reporting periods, as these items are not reflective of our underlying operations or performance. We also exclude the impact of Amortization of Acquired Intangibles and Purchased Intellectual Property, as these non-cash amounts are significantly impacted by the timing and size of individual acquisitions and do not factor into the Company's capital allocation decisions, management compensation metrics or multi-year objectives. Furthermore, management believes that this adjustment enables better comparison of our results as Amortization of Acquired Intangibles and Purchased Intellectual Property will not recur in future periods once such intangible assets have been fully amortized. Although we exclude Amortization of Acquired Intangibles and Purchased Intellectual Property from our adjusted earnings measures, our management believes that it is important for investors to understand that these intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets.
Free Cash Flow
In addition to the Non-GAAP financial measures discussed above, we provide Free cash flow information because we consider Free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated that could be used for dividends, share repurchases, strategic acquisitions, other investments, as well as debt servicing. Free cash flow is a Non-GAAP financial measure and is defined by the Company as Net cash flows provided by operating activities plus Proceeds from asset sales, less Capital expenditures as well as Software purchases and capitalized internal use software.
Set forth below is a reconciliation of such Non-GAAP measures to the most directly comparable GAAP measures (unaudited):
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating income (GAAP) | $ | 78.6 | $ | 73.1 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Amortization of Acquired Intangibles and Purchased Intellectual Property | 32.3 | 28.1 | |||||||||||||||||||||
| Acquisition and Integration Costs | 1.7 | 2.5 | |||||||||||||||||||||
Real Estate Realignment and Covid-19 Related Expenses | 31.9 | — | |||||||||||||||||||||
| Software Charge | 6.0 | — | |||||||||||||||||||||
| Adjusted Operating income (Non-GAAP) | $ | 150.6 | $ | 103.7 | |||||||||||||||||||
| Operating income margin (GAAP) | 7.7 | % | 7.7 | % | |||||||||||||||||||
| Adjusted Operating income margin (Non-GAAP) | 14.8 | % | 10.9 | % | |||||||||||||||||||
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| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net earnings (GAAP) | $ | 65.8 | $ | 55.9 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Amortization of Acquired Intangibles and Purchased Intellectual Property | 32.3 | 28.1 | |||||||||||||||||||||
| Acquisition and Integration Costs | 1.7 | 2.5 | |||||||||||||||||||||
Real Estate Realignment and Covid-19 Related Expenses | 31.9 | — | |||||||||||||||||||||
| Investment Gain | (8.7) | — | |||||||||||||||||||||
| Software Charge | 6.0 | — | |||||||||||||||||||||
| Taxable adjustments | 63.3 | 30.6 | |||||||||||||||||||||
| Tax impact of adjustments (a) | (14.6) | (6.5) | |||||||||||||||||||||
| Adjusted Net earnings (Non-GAAP) | $ | 114.5 | $ | 80.0 | |||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Diluted earnings per share (GAAP) | $ | 0.56 | $ | 0.48 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Amortization of Acquired Intangibles and Purchased Intellectual Property | 0.28 | 0.24 | |||||||||||||||||||||
| Acquisition and Integration Costs | 0.01 | 0.02 | |||||||||||||||||||||
Real Estate Realignment and Covid-19 Related Expenses | 0.27 | — | |||||||||||||||||||||
| Investment Gain | (0.07) | — | |||||||||||||||||||||
| Software Charge | 0.05 | — | |||||||||||||||||||||
| Taxable adjustments | 0.54 | 0.26 | |||||||||||||||||||||
| Tax impact of adjustments (a) | (0.12) | (0.06) | |||||||||||||||||||||
| Adjusted earnings per share (Non-GAAP) | $ | 0.98 | $ | 0.68 | |||||||||||||||||||
(a) Calculated using the GAAP effective tax rate, adjusted to exclude $9.3 million of excess tax benefits associated with stock-based compensation for the three months ended September 30, 2020, and $5.7 million of excess tax benefits associated with stock-based compensation for the three months ended September 30, 2019. For purposes of calculating the Adjusted earnings per share, the same adjustments were made on a per share basis.
| Three Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| (In millions) | |||||||||||
| Net cash flows used in operating activities (GAAP) | $ | (44.2) | $ | (86.4) | |||||||
| Capital expenditures and Software purchases and capitalized internal use software | (23.9) | (20.2) | |||||||||
| Proceeds from asset sales | 18.0 | — | |||||||||
| Free cash flow (Non-GAAP) | $ | (50.2) | $ | (106.7) | |||||||
39
Financial Condition, Liquidity and Capital Resources
Cash and cash equivalents consisted of the following:
| September 30, 2020 | June 30, 2020 | ||||||||||
| (In millions) | |||||||||||
| Cash and cash equivalents: | |||||||||||
| Domestic cash | $ | 185.6 | $ | 291.2 | |||||||
| Cash held by foreign subsidiaries | 107.6 | 118.6 | |||||||||
| Cash held by regulated entities | 63.4 | 66.8 | |||||||||
| Total cash and cash equivalents | $ | 356.6 | $ | 476.6 | |||||||
At September 30, 2020, Cash and cash equivalents were $356.6 million and Total stockholders’ equity was $1,413.8 million. At the current time, and in future periods, we expect cash generated by our operations, together with existing cash, cash equivalents, and borrowings from the capital markets, to be sufficient to cover cash needs for working capital, capital expenditures, strategic acquisitions, dividends and common stock repurchases. Given the volatility in the rapidly changing market and economic conditions related to the Covid-19 pandemic, we will continue to evaluate the nature and extent of the impact of the Covid-19 pandemic on our business and financial position.
We expect existing domestic cash, cash equivalents, cash flows from operations and borrowing capacity to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, debt repayment schedules, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. In addition, we expect existing foreign cash, cash equivalents, cash flows from operations and borrowing capacity to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If these funds are needed for our operations in the U.S., we may be required to pay additional foreign taxes to repatriate these funds. However, while we may do so at a future date, the Company does not need to repatriate future foreign earnings to fund U.S. operations.
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Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:
| Expiration Date | Principal amount outstanding at September 30, 2020 | Carrying value at September 30, 2020 | Carrying value at June 30, 2020 | Unused Available Capacity | Fair Value at September 30, 2020 | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Current portion of long-term debt | |||||||||||||||||||||||||||||||||||
| Fiscal 2014 Senior Notes (a) | September 2020 | $ | — | $ | — | $ | 399.9 | $ | — | $ | — | ||||||||||||||||||||||||
| Total | $ | — | $ | — | $ | 399.9 | $ | — | $ | — | |||||||||||||||||||||||||
| Long-term debt, excluding current portion | |||||||||||||||||||||||||||||||||||
| Fiscal 2019 Revolving Credit Facility: | |||||||||||||||||||||||||||||||||||
| U.S. dollar tranche | March 2024 | $ | 380.0 | $ | 380.0 | $ | — | $ | 720.0 | $ | 380.0 | ||||||||||||||||||||||||
| Multicurrency tranche | March 2024 | 157.9 | 157.9 | 149.8 | 242.1 | 157.9 | |||||||||||||||||||||||||||||
| Total Revolving Credit Facility | 537.9 | 537.9 | 149.8 | 962.1 | 537.9 | ||||||||||||||||||||||||||||||
| Fiscal 2016 Senior Notes | June 2026 | 500.0 | 496.3 | 496.1 | — | 558.5 | |||||||||||||||||||||||||||||
| Fiscal 2020 Senior Notes | December 2029 | 750.0 | 741.9 | 741.7 | — | 815.7 | |||||||||||||||||||||||||||||
| Total Senior Notes | 1,250.0 | 1,238.2 | 1,237.8 | — | 1,374.2 | ||||||||||||||||||||||||||||||
| Total long-term debt | $ | 1,787.9 | $ | 1,776.1 | $ | 1,387.6 | $ | 962.1 | $ | 1,912.2 | |||||||||||||||||||||||||
| Total debt | $ | 1,787.9 | $ | 1,776.1 | $ | 1,787.5 | $ | 962.1 | $ | 1,912.2 | |||||||||||||||||||||||||
_________
(a) On September 1, 2020, the Company repaid in full the $400.0 million in Fiscal 2014 Senior Notes that were outstanding at their maturity date.
Future principal payments on the Company’s outstanding debt are as follows:
| Years ending June 30, | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | $ | — | $ | — | $ | — | $ | 537.9 | $ | — | $ | 1,250.0 | $ | 1,787.9 | ||||||||||||||||||||||||||||||
The Company has a $1.5 billion five-year revolving credit facility (the “Fiscal 2019 Revolving Credit Facility”), which is comprised of a $1.1 billion U.S. dollar tranche and $400.0 million multicurrency tranche. Borrowings under the Fiscal 2019 Revolving Credit Facility bear interest at LIBOR plus 101.5 basis points. In addition, the Fiscal 2019 Revolving Credit Facility has an annual facility fee equal to 11.0 basis points on the entire facility.
The Fiscal 2019 Revolving Credit Facility and the senior notes are senior unsecured obligations of the Company and are ranked equally in right of payment. Interest on the senior notes due 2026 is payable semiannually on June 27th and December 27th each year based on a fixed per annum rate equal to 3.40%. Interest on the senior notes due 2029 is payable semiannually on June 1st and December 1st each year based on a fixed per annum rate equal to 2.90%.
Our liquidity position may be negatively affected by changes in general economic conditions, regulatory requirements and access to the capital markets, which may be limited if we were to fail to renew any of the credit facilities on their renewal dates or if we were to fail to meet certain ratios.
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Cash Flows
| Three Months Ended September 30, | |||||||||||||||||
| Change | |||||||||||||||||
| 2020 | 2019 | $ | |||||||||||||||
| (In millions) | |||||||||||||||||
| Net cash flows used in operating activities | $ | (44.2) | $ | (86.4) | $ | 42.2 | |||||||||||
| Net cash flows used in investing activities | $ | (8.7) | $ | (86.3) | $ | 77.6 | |||||||||||
| Net cash flows provided by (used in) financing activities | $ | (72.7) | $ | 258.1 | $ | (330.8) | |||||||||||
| Free cash flow: | |||||||||||||||||
| Net cash flows used in operating activities (GAAP) | $ | (44.2) | $ | (86.4) | $ | 42.2 | |||||||||||
| Capital expenditures and Software purchases and capitalized internal use software | (23.9) | (20.2) | (3.7) | ||||||||||||||
| Proceeds from asset sales | 18.0 | — | 18.0 | ||||||||||||||
| Free cash flow (Non-GAAP) | $ | (50.2) | $ | (106.7) | $ | 56.5 | |||||||||||
The decrease in cash used in operating activities of $42.2 million in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher net earnings and lower cash used in working capital, partially offset by increased scaling of client-related platform implementation and development as compared to the prior year period.
The decrease in cash used in investing activities of $77.6 million in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, primarily reflects no acquisition activity in the three months ended September 30, 2020 compared to the prior year period, as well as proceeds from asset sales in the three months ended September 30, 2020 that did not occur in the prior year period.
The increase in cash used in financing activities of $330.8 million in the three months ended September 30, 2020,as compared to the three months ended September 30, 2019, primarily reflects higher borrowings net of repayments in the prior year period.
Seasonality
Processing and distributing proxy materials and annual reports to investors comprises a large portion of our Investor Communication Solutions business. We process and distribute the greatest number of proxy materials and annual reports during our third and fourth fiscal quarters. The recurring periodic activity of this business is linked to significant filing deadlines imposed by law on public reporting companies. This has caused our revenues, operating income, net earnings, and cash flows from operating activities to be higher in our third and fourth fiscal quarters. Notwithstanding, the seasonality of our revenues makes it difficult to estimate future operating results based on the results of any specific fiscal quarter and could affect an investor’s ability to compare our financial condition, results of operations, and cash flows on a fiscal quarter-by-quarter basis.
Contractual Obligations
In March 2010, the Company and IBM entered into an Information Technology Services Agreement (the “IT Services Agreement”), under which IBM provided certain aspects of the Company’s information technology infrastructure. Under the IT Services Agreement, IBM provided a broad range of technology services to the Company including supporting its mainframe, midrange, network and data center operations, as well as providing disaster recovery services. The migration of data center processing to IBM was completed in August 2012. The IT Services Agreement would have expired on June 30, 2022, but a two-year extension was signed in March 2015, amending the expiration date to June 30, 2024. In December 2019, the Company and IBM amended and restated the IT Services Agreement (the “Amended IT Services Agreement”), which now expires on June 30, 2027. The Company has the option of incorporating additional services into the Amended IT Services Agreement over time. The Company may renew the term of the Amended IT Services Agreement for up to one additional 12-month period. Fixed minimum commitments remaining under the Amended IT Services Agreement at September 30, 2020 are $235.7 million through fiscal year 2027, the final year of the Amended IT Services Agreement.
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In December 2019, the Company and IBM entered into an information technology agreement for private cloud services (the “IBM Private Cloud Agreement”) under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks. The IBM Private Cloud Agreement has an initial term of approximately 10 years and three months, expiring on March 31, 2030. As a result of the IBM Private Cloud Agreement, the Company transferred certain of its employees in April 2020 to IBM and its affiliates, and that such transferred employees are expected to continue providing services to the Company on behalf of IBM under the IBM Private Cloud Agreement. Pursuant to the IBM Private Cloud Agreement, the Company agreed to transfer the ownership of certain Company-owned hardware (the “Hardware”) located at Company facilities worldwide to IBM. The transfer of the Hardware to IBM closed on September 30, 2020 for a selling price of $18.0 million. Fixed minimum commitments remaining under the IBM Private Cloud Agreement at September 30, 2020 are $226.5 million through March 31, 2030, the final year of the contract.
In March 2014, the Company and IBM United Kingdom Limited (“IBM UK”) entered into an Information Technology Services Agreement (the “EU IT Services Agreement”), under which IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia. The EU IT Services Agreement would have expired in October 2023. In December 2019, the Company amended the existing EU IT Services Agreement whereby the Company will migrate from the existing dedicated on-premise solution to a managed Broadridge private cloud environment provided by IBM, as well as extended the term of the EU IT Services Agreement to June 2029 (the “Amended EU IT Services Agreement”). The Company has the right to renew the term of the Amended EU IT Services Agreement for up to one additional 12-month period or one additional 24-month period. Fixed minimum commitments remaining under the Amended EU IT Services Agreement at September 30, 2020 are $29.0 million through fiscal year 2029, the final year of the contract.
At September 30, 2020, the Company has a future commitment to fund $3.1 million to one of the Company’s investees.
Other Commercial Agreements
Certain of the Company’s subsidiaries established unsecured, uncommitted lines of credit with banks. There were no outstanding borrowings under these lines of credit at September 30, 2020.
Off-balance Sheet Arrangements
It is not the Company’s business practice to enter into off-balance sheet arrangements. However, the Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company was not a party to any derivative financial instruments at September 30, 2020 or at June 30, 2020. In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company’s products and services. The Company does not expect any material losses related to such representations and warranties or collateral arrangements.
Recently-issued Accounting Pronouncements
Please refer to Note 2, “New Accounting Pronouncements” to our Condensed Consolidated Financial Statements under Item 1. of Part I of this Quarterly Report on Form 10-Q, for a discussion on the impact of new accounting pronouncements.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes related to market risk from the disclosures in the 2020 Annual Report.
Item 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The Chief Executive Officer and the Interim Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2020 were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to claims and litigation. While the outcome of any claim or litigation is inherently unpredictable, the Company believes that the ultimate resolution of these matters will not, individually or in the aggregate, result in a material impact on its financial condition, results of operations, or cash flows.
Item 1A. RISK FACTORS
In addition to the risk set forth below and the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the “Risk Factors” disclosed under Item 1A. to Part I in our 2020 Annual Report. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes to the risk factors we have disclosed in the “Risk Factors” section of our 2020 Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table contains information about our purchases of our equity securities for each of the three months during our first fiscal quarter ended September 30, 2020:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||||||||||||||||
| July 1, 2020 - July 31, 2020 | — | $ | — | — | 9,586,545 | ||||||||||||||||||
| August 1, 2020 - August 31, 2020 | — | — | — | 9,586,545 | |||||||||||||||||||
| September 1, 2020 - September 30, 2020 | 5,720 | 132.04 | — | 9,586,545 | |||||||||||||||||||
| Total | 5,720 | $ | 132.04 | — | |||||||||||||||||||
_____________
(1)Represents shares purchased from employees to pay taxes related to the vesting of restricted stock units.
(2)During the fiscal quarter ended September 30, 2020, the Company did not repurchase shares of common stock under its share repurchase program. At September 30, 2020, the Company had 9.6 million shares available for repurchase under its share repurchase program. Any share repurchases will be made in the open market or privately negotiated transactions in compliance with applicable legal requirements and other factors.
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Item 6. EXHIBITS
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:
| 101 | The following financial statements from the Broadridge Financial Solutions, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in eXtensible Business Reporting Language (XBRL): (i) condensed consolidated statements of earnings for the three months ended September 30, 2020 and 2019, (ii) condensed consolidated statements of comprehensive income for the three months ended September 30, 2020 and 2019, (iii) condensed consolidated balance sheets as of September 30, 2020 and June 30, 2020, (iv) condensed consolidated statements of cash flows for the three months ended September 30, 2020 and 2019, (v) condensed consolidated statements of stockholders’ equity for the three months ended September 30, 2020 and 2019, and (vi) the notes to the condensed consolidated financial statements. XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 104 | Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101) | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned hereunto duly authorized.
| BROADRIDGE FINANCIAL SOLUTIONS, INC. | |||||||||||
| Date: October 30, 2020 | By: | /s/ Matthew J. Connor | |||||||||
| Matthew J. Connor | |||||||||||
| Vice President, Interim Chief Financial Officer | |||||||||||
| (Interim Principal Financial and Accounting Officer) | |||||||||||
47
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Timothy C. Gokey, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Broadridge Financial Solutions, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 30, 2020
| /s/ Timothy C. Gokey | |||||
| Timothy C. Gokey | |||||
| Chief Executive Officer | |||||
Exhibit 31.2
SECTION 302 CERTIFICATION
I, Matthew J. Connor, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Broadridge Financial Solutions, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 30, 2020
| /s/ Matthew J. Connor | |||||
| Matthew J. Connor | |||||
| Vice President, Interim Chief Financial Officer | |||||
| (Interim Principal Financial and Accounting Officer) | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Broadridge Financial Solutions, Inc. (the “Company”) on Form 10-Q for the three months ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy C. Gokey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Timothy C. Gokey | |||||
| Timothy C. Gokey | |||||
| Chief Executive Officer | |||||
October 30, 2020
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Broadridge Financial Solutions, Inc. (the “Company”) on Form 10-Q for the three months ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. Connor, Vice President, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Matthew J. Connor | |||||
| Matthew J. Connor | |||||
| Vice President, Interim Chief Financial Officer | |||||
| (Interim Principal Financial and Accounting Officer) | |||||
October 30, 2020
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.