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| 8-K - 8-K - BROADRIDGE FINANCIAL SOLUTIONS, INC. | form8-krenovember2016prese.htm |
JP Morgan FinTech and
Specialty Finance Forum
November 30, 2016
1© 2016
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© 2016
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. 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, and Acquisition and
Integration Costs. 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 Company excludes Amortization of Acquired Intangibles and Purchased Intellectual Property, and Acquisition and Integration Costs 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© 2016
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© 2016
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© 2016
Broadridge Brings Technology Solutions
to its Core Client Segments
Capital Markets
Wealth
Management
Asset
Management
Corporates
Communications Processing Data & Analytics
• 1,100 Banks &
Brokers
• 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
6© 2016
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 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
7© 2016
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
8© 2016
$24B Market Opportunity Bolstered 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
9© 2016
$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%
$199
9%
$290
13%
$321
14%
$193
9%
$353
16%
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© 2016
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© 2016
$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© 2016
Pr
iorit
y
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 - 2016: Select Uses of
Cash
(a) Purchases of Treasury stock, net of proceeds from exercise of stock options
(b) Includes other investments
$86 $97
$122 $137
$36
$192
$80
$240
$76
$97
$203
$53
$492
$0
$100
$200
$300
$400
$500
$600
FY 2013 FY 2014 FY 2015 FY 2016 Q1 2017
Acq / Inv. Net Share Repurchase Dividends
$ in millions
13© 2016
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 November 9 First Quarter Fiscal Year 2017 Earnings report - includes impact of DST’s North American Customer
Communications business, which was completed on July 1, 2016
14© 2016
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 First Quarter Fiscal Year 2017 Highlights
16© 2016
First Quarter 2017 Financial Summary
First quarter is seasonally smallest quarter of Broadridge's fiscal year
Total revenue growth of 51% and recurring revenue growth of 32%
o NACC acquisition biggest driver of growth
o Organic recurring fee revenue growth of 3%
Strong bottom line growth
o Diluted EPS flat year-over-year
o Adjusted EPS grew 9% to $0.36
Closed sales up 26% to $22 million
On track to achieve Fiscal Year 2017 guidance and three year
financial objectives*
* As of November 9 First Quarter Fiscal Year 2017 Earnings report
17© 2016
Business Update
Interim record growth improved sequentially - still below recent
levels
NACC integration going well
o On track to achieve $20 million of targeted synergies
o Building blocks of digital strategy coming into place including
rollout of Broadridge Communications Cloud at Money 20/20
Acquisition of Inveshare technology assets will accelerate
development of blockchain capabilities for proxy market
o Builds on legacy of technology-driven innovation in proxy market
M&O Systems acquisition is most recent tuck-in acquisition by
Broadridge
Regulatory update
o SEC Investment Company Reporting Modernization rule adopted
without notice and access provision
Appendix
19© 2016
Reconciliation of Non-GAAP to GAAP Measures
$ in million, except per share figures Three Months Ended September 30,
2016 2015
Operating income (GAAP) $ 66.0 $ 59.1
Adjustments:
Amortization of Acquired Intangibles and Purchased Intellectual Property 12.8 8.1
Acquisition and Integration Costs 2.8 1.3
Adjusted Operating income (Non-GAAP) $ 81.6 $ 68.4
Operating income margin (GAAP) 7.4% 9.9%
Adjusted Operating income margin (Non-GAAP) 9.1% 11.5%
Three Months Ended September 30,
2016 2015
Net earnings (GAAP) $ 33.7 $ 33.5
Adjustments:
Amortization of Acquired Intangibles and Purchased Intellectual Property 12.8 8.1
Acquisition and Integration Costs 2.8 1.3
Tax impact of adjustments (5.4) (3.3)
Adjusted Net earnings (Non-GAAP) $ 43.9 $ 39.6
Three Months Ended September 30,
2016 2015
Diluted earnings per share (GAAP) $ 0.28 $ 0.28
Adjustments:
Amortization of Acquired Intangibles and Purchased Intellectual Property 0.11 0.07
Acquisition and Integration Costs 0.02 0.01
Tax impact of adjustments (0.04) (0.03)
Adjusted earnings per share (Non-GAAP) $ 0.36 $ 0.33
Note: Amounts may not sum due to rounding.
Three Months Ended September 30,
2016 2015
Net cash flows used in operating activities (GAAP) $ (87.4) $ (24.6)
Capital expenditures and Software purchases and capitalized internal use software (14.7) (17.8)
Free cash flow (Non-GAAP) $ (102.1) $ (42.4)
(Unaudited)
20© 2016
Reconciliation of Non-GAAP to GAAP Measures –
Fiscal Year 2017 Guidance
(Unaudited)
Adjusted Earnings Per Share Growth Rate (1)
Diluted earnings per share (GAAP) 9% - 14%
Adjusted earnings per share (Non-GAAP) 12% - 17%
Adjusted Operating Income Margin (2)
Operating income margin % (GAAP) ~13.6%
Adjusted Operating income margin % (Non-GAAP) ~15%
Free Cash Flow
Net cash flows provided by operating activities (GAAP) $470 - $550
Capital expenditures and Software purchases and capitalized internal use software (120) - (150)
Free cash flow (Non-GAAP) $350 - $400
(1) Adjusted EPS growth (Non-GAAP) is adjusted to exclude the projected impact of Amortization of Acquired Intangibles and Purchased Intellectual Property
and Acquisition and Integration Costs and is calculated using diluted shares outstanding. Fiscal year 2017 Non-GAAP Adjusted EPS guidance estimates exclude
estimated Amortization of Acquired Intangibles and Purchased Intellectual Property, and Acquisition and Integration Costs, net of taxes, of approximately
$0.40 per share.
(2) Adjusted Operating income margin (Non-GAAP) is adjusted to exclude the projected impact of Acquired Intangibles and Purchased Intellectual Property and
Acquisition and Integration Costs. Fiscal year 2017 Non-GAAP Adjusted Operating income margin guidance estimates exclude estimated Acquired Intangibles
and Purchased Intellectual Property and Acquisition and Integration Costs of approximately $74 million.