45th Annual JP Morgan
TMT Investor Conference
May 24, 2017
1 © 2017 |
Forward-Looking Statements
This presentation and other written or oral statements made from time to time by representatives 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 in the “Fiscal Year 2017
Financial Guidance” section are 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. These risks and uncertainties include those risk factors discussed in Part I, “Item 1A. Risk Factors” of our Annual
Report on Form 10-K for the fiscal year ended June 30, 2016 (the “2016 Annual Report”), as they may be updated in any future reports filed with the
Securities and Exchange Commission. All forward-looking statements speak only as of the date of this presentation and are expressly qualified in their
entirety by reference to the factors discussed in the 2016 Annual Report.
These risks include: 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; changes in laws and regulations affecting Broadridge’s clients or the services provided by Broadridge; any material
breach of Broadridge security affecting its clients’ customer information; declines in participation and activity in the securities markets; the failure of
Broadridge’s outsourced data center services provider 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. Broadridge disclaims 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.
2 © 2017 |
Use of Non-GAAP Financial Measures
Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures
The Company’s results in this presentation are presented in accordance with U.S. generally accepted accounting principles (“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 its 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 the Company's ongoing operations, for internal planning and forecasting purposes and in the calculation of performance-based compensation. In
addition, and as a consequence of the importance of these Non-GAAP financial measures in managing its business, the Company’s Compensation Committee of
the Board of Directors incorporates Non-GAAP financial measures in the evaluation process for determining management compensation.
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, as adjusted to exclude the impact
of certain costs, expenses, gains and losses and other specified items that management believes are not indicative of the Company's ongoing operating
performance. These adjusted measures exclude the impact of Amortization of Acquired Intangibles and Purchased Intellectual Property, Acquisition and
Integration Costs and the Message Automation Limited ("MAL") investment gain. Amortization of Acquired Intangibles and Purchased Intellectual Property
represents non-cash 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. The MAL investment gain represents a non-cash, nontaxable gain on the Company’s 25%
investment of shares of MAL. The Company excludes Amortization of Acquired Intangibles and Purchased Intellectual Property, Acquisition and Integration Costs
and the MAL investment gain from these measures because excluding such information provides the Company with an understanding of the results from the
primary operations of its business and these items do not reflect ordinary operations or earnings. Management believes these measures may be useful to an
investor in evaluating the underlying operating performance of the Company's business.
Free Cash Flow
In addition to the Non-GAAP financial measures discussed above, the Company provides Free cash flow information because it considers 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 and other discretionary investments. Free cash flow is a Non-GAAP financial measure and is defined by the Company as Net
cash flows provided by operating activities less Capital expenditures and Software purchases and capitalized internal use software.
Reconciliations of such Non-GAAP measures to the most directly comparable financial measures presented in accordance with GAAP can be found in the tables
that are part of this presentation.
Use of Material Contained Herein
The information contained in this presentation is being provided for your convenience and information only. This information is accurate as of the date of its
initial presentation. If you plan to use this information for any purpose, verification of its continued accuracy is your responsibility. Broadridge assumes no duty
to update or revise the information contained in this presentation.
3 © 2017 |
What is Broadridge?
Unique Franchises with Ubiquitous Presence
Growing and Predictable Revenues
• 6% Revenue CAGR since FY2011 with 98% client revenue retention rate
Strong Free Cash Flow
• FY2016 CapEx:Revenue ratio of 2.6%
Balanced Capital Allocation
• 45% dividend payout ratio target and focus on tuck-in M&A
Strong and Experienced Management Team
• Focused on Delivering Top Quartile TSR
• Investing for Long-Term Growth
4 © 2017 |
Broadridge’s Unique Franchise in Financial Services
98%
client revenue
retention rate
50+ years of
financial services experience
of the top-101
global banks are our clients 10
#1 leading provider
of U.S. beneficial proxy and
prospectus, U.S. fixed income &
Canadian equity processing
Billion
investor communications
processed annually
2+
average daily in North American
fixed income & equity trades
$5+ Trillion
of outstanding shares in
U.S. processed, 50%+
rest of world
80%+
markets where we clear
and settle trades
70+
Investor
Communication
Solutions
Global
Technology
& Operations
+
1. Top 10 global banks based on total revenues in equity, FICC and IBD per Coalition Research, 1Q’14.
Note: All Broadridge results and statistics are for FY ended 6/30/16 other than 5-year average client revenue retention rate.
Our solutions range from SaaS to customized managed services supporting full outsourcing
5 © 2017 |
Strong and Predictable Business Model
98% client revenue
retention rate
Consistently high
retention rate reflects
the strength of our
client relationships
Long-term contracts
Expanding portfolio of
growth products
Growth products
contributing a growing %
of revenue
NACC acquisition should
accelerate digital growth
91%+ of total revenue
is recurring
Diverse revenue
distribution
• Over 1,100 banks and
broker-dealers
• ~10,000 corporate issuers
• ~800 mutual fund families
Note: All Broadridge results and statistics are for FY ended 6/30/16 other than 5-year average revenue retention rate.
$2.07
$2.13 $2.07
$2.21 $2.17
$2.30
$2.43
$2.56
$2.69
$2.90
$1.6
$1.8
$2.0
$2.2
$2.4
$2.6
$2.8
$3.0
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Broadridge Revenues: FY2007-FY2016$ in billions
Resilience in the
downturn
6 © 2017 |
Broadridge Brings Technology Solutions
to its Core Client Segments
Capital Markets
Wealth
Management
Asset
Management
Corporates
Communications Processing Data & Analytics
• 1,100 Banks &
Broker-dealers
• 6,700 Institutional
Investors
• 140,000,000
Individual Accounts
• 100,000 Financial
Advisors
• 800 Mutual Fund
and ETF Families
• 250 Retirement
Service Providers
• 10,000 Corporate
Issuers US &
Canada
• 45,000 Global
Corporate Issuers
7 © 2017 |
$24B Market Propelled By Key Market Trends
Current Addressable Market Key Market Trends
$16B
$8B
Global Technology & Operations
Investor Communication Solutions
Mutualization
Strong drive to standardize duplicative,
non-differentiating industry capabilities
Digitization
Digital technologies that enable lower
cost, higher touch interactions
Data and Analytics
Network and data assets that enable
clients to create unique value
8 © 2017 |
Fiscal Year 2016 Total Revenues of $2.9 Billion
FY 2016 Revenues by Type
Recurring Fee Revenue Growth
FY2011-FY2016 $0.9
29%
$1.9
64%
$0.2
7%
Distribution
Recurring Fees
Event-Driven
FY 2016 Revenues by Segment
$2.2
75%
$0.7
25% ICS
GTO
$ in billions
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
$1.3
$1.5
$1.5
$1.6
$1.7
$1.9
9 © 2017 |
$1,647
$1,776
$1,881
$2,030
$2,220
$1,500
$1,600
$1,700
$1,800
$1,900
$2,000
$2,100
$2,200
$2,300
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
$ in millions
ICS Revenue Breakdown and Growth Trends
FY 2016 ICS Revenues of $2.22 billion1
Broad Client Base
$864
39%
$290
13%
$321
14%
$193
9%
$353
16%
$199
9%
B A N K S
B R O K E R - D E A L E R S
M U T U A L F U N D S
C O R P O R AT E I S S U E R S
Distribution
Other ICS
Customer Comm.
& Fulfillment
Mutual Fund
Interims
Equity Proxy
Increase in electronic
distribution reduces postage
revenue and increases margins
1. Financial metrics in millions and statistics are for FY16 ended 6/30/16.
$2.22 Bn
(77% of
Broadridge)
5 Yr. Revenue CAGR of 7%
Event-Driven
Recurring
10 © 2017 |
Customer Communications Combination Highlights
Compelling financial and strategic opportunities
Compelling near term
financial benefits
Attractive medium term
expansion opportunity
Larger long term
digital opportunity
Projected to be accretive to
EPS and Adjusted EPS in FY
2017 (EPS accretion
included in 2017 guidance)
$20 million of annualized
cost synergies expected in
18-30 months post-close
Deeper penetration of key
client segments
Creates North America’s
premier customer
communications
technology platform
Scaled point of
consolidation for in-house
platforms as industry
evolves and moves to
digital communications
Enables accelerated
investment in next-gen
digital capabilities
Expected to create leading
digital and multi-channel
communications provider
through Inlet and other
capabilities
Positions BR to address low
e-adoption rates for
financial services and
service providers
Strategically aligned with key industry trends of
Mutualization, Digitization, and Data & Analytics
11 © 2017 |
$642 $645
$681 $693
$738
$300
$400
$500
$600
$700
$800
$900
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
$ in millions
GTO Revenue Breakdown and Growth Trends
By Product1
Strong Market Position
Clears and settles in over 70 countries
Processes avg. of over $5 trillion in equity and fixed
income trades per day in US and Canadian securities
18 of the 23 primary fixed income dealers in the US
are our clients
Equity (83%)
Transaction-Based, $137
Non-transaction, $476
Fixed Income (17%)
Transaction-Based, $58
Non-transaction, $67
1. Financial metrics in millions and statistics are for FY16 ended 6/30/16. Broadridge has two segments, ICS and GTO.
$738 M
(25% of
Broadridge)
5 Yr. Revenue CAGR of 4%
12 © 2017 |
$97
$203
$53
$538
$86
$97
$122
$137
$114
$192
$80
$240
$76
$167
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
FY 2013 FY 2014 FY 2015 FY 2016 9M 2017
Net Share Repurchase Dividends Acq / Inv.
Pr
io
ri
ty
Executing Our Capital Stewardship Strategy To Enhance
Shareholder Value
Committed to a strong
dividend
Targeting tuck-in acquisitions
to drive growth
Share repurchases
Maintain investment grade
credit rating
Fiscal Years 2013 – 9M 2017: Select
Uses of Cash
(a) Purchases of Treasury stock, net of proceeds from exercise of stock options
(b) Includes other investments
$ in millions
13 © 2017 |
FY15–FY17F FY16A FY17F*
Recurring Fee Revenue Growth 7-10% 9% 29-31%
Total Revenue Growth 5-7% 8% 43-45%
Adjusted Operating Income Margin +50-60bps/yr. 18.5% ~15%
Adjusted Earnings Growth 9-11% 8% 12-17%
On Track to Achieve Three Year Financial Objectives*
3-Year CAGR
* As of May 10, 2017 Third Quarter Fiscal Year 2017 Earnings report - includes impact of DST’s North American Customer
Communications business, which was completed on July 1, 2016
14 © 2017 |
Fiscal Year 2017 Guidance as of 5/10/17*
Recurring fee revenue growth 29 - 31% Expected to be at lower end of range
Total revenue growth 40 - 42% Expected to be at upper end of range
Adjusted Operating income margin - Non-GAAP ~15%
Diluted earnings per share growth 2 - 7%
Adjusted earnings per share growth - Non-GAAP 12 - 17% Expected to be at middle of range
Free cash flow - Non-GAAP $350M - $400M
Closed sales $140M - $180M Expected to be at upper half of range
Segments
ICS Total revenue growth 50 - 52%
ICS Pre-tax margin ~12%
GTO Total revenue growth 6 - 9%
GTO Pre-tax margin ~21% Revised from 19.5%
* As of May 10, 2017 Third Quarter Year Fiscal 2017 Earnings report
15 © 2017 |
Sustainable Growth, Operational Excellence, and Sound
Capital Deployment Drive Performance
• Drive organic growth
in current markets
• Exploit adjacencies
7–10% Recurring Fee
3-Year CAGR
(FY14–FY17F)
Sustainable Growth
• Realize efficiencies
• Increase operational
leverage
Consistent Margin1
Expansion
Operational
Excellence
• Consistent, strong FCF
• Balance investing and
returning cash to
shareholders
Target ~45% payout ratio2,
Tuck-in M&A and
share repurchases
Capital Strategy
Top Quartile
Total Shareholder Return
• Strong and resilient franchise
• Ubiquitous presence in financial services
• Deep industry expertise
• Powerful service profit chain culture
1. Represents Adjusted Earnings Before Interest and Taxes Margin. 2. Dividend subject to Board approval
Broadridge Third Quarter and First Nine Months
Fiscal Year 2017 Highlights
17 © 2017 |
Third Quarter 2017 Summary
Strong financial results
o Total revenues rose 46% and recurring fee revenues rose 30%
o Operating income rose 9% and Diluted EPS was up 21%
o Adjusted Operating income rose 22% and Adjusted EPS was up 19%
Record Closed sales up 66%
o Record YTD Closed sales up 33%
o Strong sales reflect breadth of product line
Balanced capital allocation
o Made tuck-in acquisition to strengthen GTO product suite
o 1.6 million shares repurchased in the quarter
18 © 2017 |
Business Update
Broad momentum across both GTO and ICS
o Mid-single digit growth from Net New Business
o Broad product breadth driving growth
Stock position growth at 6% in third quarter - on track for another
year of mid-single digit growth
Stronger mutual fund position growth in line with increase in overall
flows to mutual funds and ETFs
Strong Closed sales results reflect broad strength of Broadridge's
solutions and client relationships
o Pipeline continues to grow
Business environment is stable
o Event driven revenues expected to be strong in both 4Q17 and 1H18
o Regulatory update: BR technology and digital assets well-aligned with
key priorities of new administration
19 © 2017 |
3Q 2017 Revenue Growth Drivers
▪ Third Quarter 2017 Recurring fee revenue grew 30% to $592 million
▪ Third Quarter 2017 Total revenue grew 46% to $1,009 million
$1,009
M
+20% +2%
+25%
0%
$689 M
$455 M
$592 M
+7%
-2% -1%
+26% +30%
+46%
Organic Growth: 4%
20 © 2017 |
Nine Months 2017 Revenue Growth Drivers
▪ Nine Months 2017 Recurring fee revenue grew 32% to $1.6 billion
▪ Nine Months 2017 Total revenue grew 45% to $2.8 billion
$2.8 B
+21%
-1%
+26%
-1%
$1.9 B
$1.2 B
$1.6 B
+7%
-2%
0%
+27% +32%
+45%
Organic Growth: 5%
21 © 2017 |
Third Quarter 2017 Operating Income and EPS
Comparison
$ in millions, except per share amounts
3Q17 Change in Operating Income and
Adjusted Operating Income
3Q 2017 Change in EPS and Adjusted EPS
19%
22%
9%
21%
22 © 2017 |
Nine Months Fiscal Year 2017 Operating Income and
EPS Comparison
$ in millions, except per share amounts
9 Months Fiscal 2017 Change in Operating
Income and Adjusted Operating Income
9 Months Fiscal 2017 Change in EPS and
Adjusted EPS
12% 16%
2% 2%
23 © 2017 |
($ in millions)
Investor Communication Solutions ("ICS")
Q3 2016 Q3 2017 Change 9M 2016 9M 2017 Change
Recurring fee revenues $263 $389 48% $698 $1,053 51%
Total revenues $515 $826 60% $1,417 $2,259 59%
Earnings before income taxes $67 $74 10% $147 $125 (15)%
Pre-tax margins 13.0 % 8.9 % 10.4 % 5.5 %
Global Technology and Operations ("GTO")
Q3 2016 Q3 2017 Change 9M 2016 9M 2017 Change
Total revenues $191 $203 6% $548 $592 8%
Earnings before income taxes $40 $44 10% $100 $129 29%
Pre-tax margins 21.0 % 21.9 % 18.2 % 21.8 %
Segment Results
24 © 2017 |
Capital Allocation and Summary Balance Sheet
Select Uses of Cash
in 3Q 2017
• $37 million in capital
expenditures and software
investment
• $20 million* to acquire
Message Automation
• $100 million to acquire BR
shares
Summary Balance Sheet
as of March 31, 2017
Assets
Cash and equivalents $ 270
Other assets 2,972
Total assets $ 3,242
Liabilities and Stockholders' Equity
Total debt outstanding $ 1,267
Other liabilities 1,033
Total liabilities $ 2,300
Total stockholders' equity $ 942
* Net of cash acquired
Amounts may not sum due to rounding
$ in millions
25 © 2017 |
Closing Summary
On pace for another "Broadridge year"
o Expecting 5-7% revenue growth excluding impact of NACC
o Expecting double digit growth in Adjusted EPS
Balanced capital allocation enables internal investment
o Investments have aligned Broadridge with key industry growth
trends
Further innovation key to sustaining Broadridge's growth and
enhancing the value we provide to clients
o Focus on delivering network value and enhanced technology to
our clients
26 © 2017 |
GAAP Reconciliations
27 © 2017 |
Reconciliation of GAAP to Non-GAAP Measures
$ in millions, except per share figures Three Months Ended March 31, Nine Months Ended March 31,
2017 2016 2017 2016
Operating income (GAAP) $ 109.7 $ 100.6 $ 234.6 $ 229.9
Adjustments:
Amortization of Acquired Intangibles and Purchased Intellectual Property 19.7 7.8 52.8 24.0
Acquisition and Integration Costs 4.2 1.3 12.0 4.0
Adjusted Operating income (Non-GAAP) $ 133.6 $ 109.8 $ 299.4 $ 257.9
Operating income margin (GAAP) 10.9 % 14.6 % 8.4 % 12.0 %
Adjusted Operating income margin (Non-GAAP) 13.2 % 15.9 % 10.7 % 13.4 %
Three Months Ended March 31, Nine Months Ended March 31,
2017 2016 2017 2016
Net earnings (GAAP) $ 75.9 $ 63.7 $ 139.7 $ 137.4
Adjustments:
Amortization of Acquired Intangibles and Purchased Intellectual Property 19.7 7.8 52.8 24.0
Acquisition and Integration Costs 4.2 1.3 12.0 4.0
MAL investment gain (9.3 ) — (9.3 ) —
Tax impact of adjustments (7.2 ) (2.8 ) (21.3 ) (9.4 )
Adjusted Net earnings (Non-GAAP) $ 83.3 $ 70.0 $ 174.0 $ 156.1
Three Months Ended March 31, Nine Months Ended March 31,
2017 2016 2017 2016
Diluted earnings per share (GAAP) $ 0.63 $ 0.52 $ 1.15 $ 1.13
Adjustments:
Amortization of Acquired Intangibles and Purchased Intellectual Property 0.16 0.06 0.44 0.20
Acquisition and Integration Costs 0.03 0.01 0.10 0.03
MAL investment gain (0.08 ) — (0.08 ) —
Tax impact of adjustments (0.06 ) (0.02 ) (0.18 ) (0.08 )
Adjusted earnings per share (Non-GAAP) $ 0.69 $ 0.58 $ 1.43 $ 1.28
Note: Amounts may not sum due to rounding.
Nine Months Ended March 31,
2017 2016
Net cash flows provided by operating activities (GAAP) $ 162.1 $ 161.1
Capital expenditures and Software purchases and capitalized internal use software (69.4 ) (56.1 )
Free cash flow (Non-GAAP) $ 92.6 $ 105.0
(Unaudited)
28 © 2017 |
Reconciliation of GAAP to Non-GAAP Measures -
FY17 Guidance
(Unaudited)
Adjusted Earnings Per Share Growth Rate (1)
Diluted earnings per share (GAAP) 2% - 7%
Adjusted earnings per share (Non-GAAP) 12% - 17%
Adjusted Operating Income Margin (2)
Operating income margin % (GAAP) ~13%
Adjusted Operating income margin % (Non-GAAP) ~15%
Free Cash Flow
Net cash flows provided by operating activities (GAAP) $470 - $550 million
Capital expenditures and Software purchases and capitalized internal use software (120) - (150) million
Free cash flow (Non-GAAP) $350 - $400 million
(1) Adjusted EPS growth (Non-GAAP) is adjusted to exclude the projected impact of Amortization of Acquired Intangibles and Purchased Intellectual Property,
Acquisition and Integration Costs and the MAL investment gain. Fiscal year 2017 Non-GAAP Adjusted EPS guidance estimates exclude Amortization of
Acquired Intangibles and Purchased Intellectual Property, Acquisition and Integration Costs, and the MAL investment gain, net of taxes, of approximately
$0.42 per share.
(2) Adjusted Operating income margin (Non-GAAP) is adjusted to exclude the projected impact of Amortization of Acquired Intangibles and Purchased
Intellectual Property, and Acquisition and Integration Costs. Fiscal year 2017 Non-GAAP Adjusted Operating income margin guidance estimates exclude
Amortization of Acquired Intangibles and Purchased Intellectual Property, and Acquisition and Integration Costs of approximately $92 million.