Broadridge Financial Solutions, Inc. September 2009 Bank of America - Merrill Lynch SMid Cap Conference 2009 Presentation Richard J. Daly, Chief Executive Officer Exhibit 99.1 |
2 Forward-Looking Statements This presentation and other written or oral statements made from time to time by representatives of Broadridge may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, such as our fiscal year 2009 financial guidance, and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, 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, 2009 (the “2009 Annual Report”), as they may be updated in any future reports filed with the Securities and Exchange Commission. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in the 2009 Annual Report. These risks include: the success of Broadridge in retaining and selling additional services to its existing clients and in obtaining new clients; the pricing of Broadridge’s products and services; changes in laws affecting the investor communication services provided by Broadridge; changes in laws regulating registered securities clearing firms and broker-dealers; declines in trading volume, market prices, or the liquidity of the securities markets; any material breach of Broadridge security affecting its clients’ customer information; Broadridge’s ability to continue to obtain data center services from its former parent company, Automatic Data Processing, Inc. (“ADP”); any significant slowdown or failure of Broadridge’s systems; Broadridge’s failure to keep pace with changes in technology and demands of its clients; availability of skilled technical employees; the impact of new acquisitions and divestitures; competitive conditions; overall market and economic conditions; and any adverse consequences from Broadridge’s spin-off from ADP. Broadridge disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation may include certain Non-GAAP (generally accepted accounting principles) financial measures in describing Broadridge’s performance. Management believes that such Non-GAAP measures, when presented in conjunction with comparable GAAP measures provide investors a more complete understanding of Broadridge’s underlying operational results. These Non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods. These measures should be considered in addition to and not a substitute for the measures of financial performance prepared in accordance with GAAP. The reconciliations of such measures to the comparable GAAP figures are included in this presentation. |
3 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. You may reproduce information contained in this presentation provided you do not alter, edit, or delete any of the content and provided you identify the source of the information as Broadridge Financial Solutions, Inc., which owns the copyright. Broadridge, the Broadridge logo and Aspire are registered trademarks of Broadridge Financial Solutions, Inc. Ridge and Ascendis are trademarks of Broadridge Financial Solutions, Inc. © 2009 Broadridge Financial Solutions, Inc. |
4 AGENDA Broadridge Overview and Summary Business Overview Business Expansion Strategy Overview Financial Overview Conclusion |
5 Broadridge: Investment Thesis Generate very strong and highly predictable free cash flows Strong core Investor Communications business which generates over 70% of annual revenues and earnings Market leader with high client retention rates driven by product innovation Approximately 80% in recurring annual revenues Dependable mid-single-digit revenue growth business (4.5% CAGR since 2002) Highly experienced management team (averaging 14 years) focused on delivering shareholder return Scalable business model with core business generating margin expansion (>16% margins, averaging ~50bps annual growth last 3 fiscal years) Averaged over $250M per year during the last 3 fiscal years Aim to invest in existing businesses and acquisitions to generate mid to high- single-digit revenue growth and return excess cash to shareholders |
6 High: $270 $252 Forecast $290 $251 $248 Broadridge: Free Cash Flow & Capital Allocation Note: Free Cash Flow excludes financing activities in the Clearing and Outsourcing Solutions segment Dividends •Doubled annual dividend from $0.28 to $0.56 per share for FY10, or approximately 35% payout of FY09 GAAP net earnings Stock Repurchases •Authorized repurchase of up to 10 million shares, or approximately 7% of the shares outstanding Acquisitions •Strategic acquisitions to leverage the Broadridge brand and distribution channels Strong predictable free cash flow allows for flexible capital allocation options (1) Free cash flow is a Non-GAAP financial measure and is defined as net cash flow provided by operating activities excluding Ridge Clearing financing activities, less capital expenditures and intangibles. FY06 FY07 FY08 FY09 FY10 Free Cash Flow (Non - GAAP) (1) ($ in millions) Low: $235 |
7 Broadridge Mission Partner with Financial Institutions to: Reduce Risk & Cost Increase Performance • Enable the financial services industry to achieve higher levels of performance by allowing firms to focus on their core business • Help manage their regulatory compliance risk by improving clients’ processing, communication accuracy and data security • Deliver cost savings to financial institutions through outsourcing their non-differentiating back- office processes • Develop long lasting relationships with world class companies built on mutual success Our Mission is To Reduce Clients’ Risk While Lowering Their Total Cost of Ownership |
8 Individual (Retail) and Institutional Clients Broker-Dealers, Banks, Mutual Funds, Corporate Issuers Integrated Solutions Spanning the Investment Lifecycle Investment Decision (Pre-Trade) Trade Processing & Books and Records Asset Servicing (Post-Trade) New Accounts Welcome Kits Proxy Fulfillment Archival Confirms Across the investment lifecycle... ...By partnering with the world’s leading financial institutions... ...And delivering broad and innovative global solutions Investor Communications Proxy management, corporate governance, and stockholder communications Securities Processing Global trade processing for equities, options, mutual funds, and fixed income securities Clearing and Outsourcing Solutions Processing Reporting Statements ...Broadridge touches investors... |
9 Shareholder Positions Images and Pieces Processed Processing Fees (Trades Per Day) Processing Fees and Accounts Interest Rates and Lending Balances Revenue Drivers Market Leader with High Retention Rates Recurring Revenue Complex Proprietary Processing Platforms High Client Satisfaction and Highly Engaged Associates Investor Communication Solutions Clearing & Outsourcing Solutions Securities Processing Solutions Recurring Revenue (~80%) Event- Driven Revenue (~20%) Indispensable Provider for Mission Critical Processing Resilient and Predictable Business Model Business is resilient and largely independent of the stock market being at its highs or lows……….predictable revenue stream drives predictable free cash flow |
10 Business is Resilient in Changing Markets Our revenue growth has been resilient through various economic and market cycles Stock Market Rebounds Decimalization of Trades Internet Bubble Impact Financial Crisis Note: Fiscal year is based on June 30 year end $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 Dow Jones Industrial Average Broadridge Net Revenues th |
11 This is Broadridge • We are a market leader in processing and distributing shareholder communications, and provider of choice for mission-critical securities processing solutions •Over 40 years of experience and a solid customer base with long standing relationships •Our core business is resilient and largely independent of the stock market being at its highs or lows •Strong and predictable Free Cash Flow of ~$250M in each of the last 3 fiscal years BR FY09 Business Revenues (1) BR FY09 Business EBIT & Margins Investor Communications $1,531M (71%) Securities Processing Businesses $635M (29%) Investor Communications EBIT $249M Margin 16.3% Securities Processing Businesses EBIT $134M Margin 21.0% Clearing and Outsourcing Innovative industry service provider leverages processing technology platform to retain and add new clients: Correspondent clearing using broker- dealer subsidiary: • Clearing (~12%) • Outsourcing (~4%) Investor Communications (2) Securities Processing Leading global back-office processing service bureau, as 8 of top 10 U.S. broker-dealers use equity and fixed income components of our processing (3) : Hosted applications for self-clearing firms using Broadridge’s service bureau for: •Equity (~71%) •Fixed Income (~13%) World’s largest processor and provider of investor communications with over one billion communications processed annually: Primary business unit is a clear market leader with over 70% of Broadridge revenues and pre-tax earnings Proxy communications and vote processing and interim communications (~65%) Transaction reporting and fulfillment services (~30%) Other (~5%) Securities Processing Businesses (2) Only service provider offering service bureau, operations outsourcing or correspondent clearing on a single platform (1) Financial information and statistics shown are for the fiscal year ended June 30, 2009. Segments do not add to total for reported revenue and earnings due to FX and other corporate expense not reflected. (2) Percentages represent revenue contribution within each reporting segment. (3) Based on SIFMA’s 2007-2008 Annual Yearbook’s top member firm list ranked by capital. This top 10 list does not include the impact of the Lehman Brothers (declared bankruptcy), Merrill Lynch (acquired by Bank of America) and Bear Stearns (acquired by JP Morgan) transactions which occurred in 2008. |
12 ICS Unique Business Systems Processing Model PROXY PROCESSING OVERVIEW "THE PLUMBING" Broker/Bank 1 Issuer 1 / Fund 1 Broker/Bank 2 Issuer 2 / Fund 2 Broker/Bank 3 Issuer 3 / Fund 3 Broker/Bank 4 Issuer 4 / Fund 4 Broker/Bank 5 Issuer 5 / Fund 5 Broker/Bank 6 Issuer 6 / Fund 6 Broker/Bank 7 Issuer 7 / Fund 7 Broker/Bank 8 Issuer 8 / Fund 8 Broker/Bank 9 Issuer 9 / Fund 9 Brokers/Banks 800+ (1) Issuers 10,000+ (3) Funds 700+ (4) ANNUAL CORPORATE ISSUER AND MUTUAL FUND EVENTS Approximately 12,000 Events Per Year (Annual Corporate Issuer Shareholder Meetings and Mutual Fund Proxy Meetings) Proxy Distribution Over 40% of accounts require special processing Vote Processing Managing 350M active positions (2) Majority of all shares are held in street -side Shareholder Preferences Database Shareholder` Consent Database Equity and Mutual Fund Shareholders Broadridge manages >1,500 Corporate Issuers Broadridge processes on average 70% of U.S. shares outstanding Electronic or Physical Vote Return Data Hub and Platform Electronic or Physical Delivery Street - side Processing Registered Processing > 50% of Hard Copy Mailings Eliminated via E - Delivery and Suppressions 85% of Shares Voted Electronically BROADRIDGE Proxy Processing System Over 8 million lines of code and approximately 500,000 function points Supported by 150+ dedicated programmers Proxy and Interim processing system is the “plumbing” supporting the voting process for corporate governance (1) Represents Broadridge’s estimated total number of brokerage firms and banks in the U.S. and international markets. (2) Represents Broadridge’s estimated total number of positions managed by U.S. brokers and banks. (3) Represents Broadridge’s estimated total number of corporate issuers in the U.S. (4) Represents total number of Fund Sponsors in the U.S. who manage over 16,000 funds including Mutual Funds, Closed-end Funds, ETFs and UITs, according to the Investment Company Institute’s 2009 Investment Company Year Book . |
13 Distribution $757M (49%) Other $46M (3%) Fulfillment $110M (7%) Transaction Reporting $132M (9%) Interims $136M (9%) Proxy $350M (23%) ICS FY09 Product Revenues ICS Product and Client Revenue Overview: We have a strong and diverse product offering… ICS is highly resilient due to our deep customer relationships with our Bank/Broker-Dealer clients Primarily Postage Increase in electronic distribution reduces postage revenue and increases profits Bank/Broker- Dealer $1,383M (90%) Mutual Fund $96M (6%) Corporate Issuer $52M (4%) ICS FY09 Client Revenues …and we have deep and longstanding client relationships |
14 Broadridge’s Unique Securities Processing Model Clearing and Outsourcing business has high growth potential and allows us to serve the entire investment process Securities Processing Self-Clearing with Service Bureau Clearing Fully-Disclosed Clearing Outsourcing Self-Clearing with Ops. Outsourcing & Service Bureau Technology & Data Center Provided by Broadridge Provided by Broadridge Provided by Broadridge (via Ridge) Operational Infrastructure Client Responsibility Provided by Broadridge (via Ridge) Provided by Broadridge (via Ridge) Financing Activities and Compliance Client Responsibility Client Responsibility Provided by Broadridge (via Ridge) Target Large Broker - Dealer Firms Large ~ Medium Broker - Dealer Firms Medium ~ Small Broker - Dealer Firms |
15 Securities Processing Solutions Top 15 Clients Broadridge has faired well during the recent industry consolidations and financial crisis The top 15 SPS clients generate approximately 70% of the SPS segment’s revenues 11 of 15 top clients are under multi-years agreements; contract extensions for additional two clients are in progress Closed contract with Barclays to handle new trade volume as result of Lehman purchase and executed direct contract with Neuberger Berman for processing Closed contract with JP Morgan for Bear Stearns fixed income processing Bank of America/Merrill Lynch transaction resulted in loss of equity processing business and winning of fixed income processing business SPS client relationship are stable in volatile market Alliance Bernstein Bank of America/Merrill Lynch* Barclays Capital Services BMO Nesbitt Burns BNP Paribas CIBC World Markets Deutsche Bank E*Trade Group Edward Jones HSBC Securities J.P. Morgan Chase Jefferies & Company Royal Bank of Canada Scotia Capital UBS Securities Note: The above schedule is an alphabetical listing of the top 15 SPS clients based on fiscal year 2009 revenues * Bank of America/Merrill Lynch includes loss of equity processing business as previously disclosed Equity Processing Fixed Income Processing Retail Institutional Top Clients |
16 Business Expansion Strategy Foundation Five Pillars Be Indispensable! We enable the financial services industry to achieve superior levels of performance through our passion to deliver extraordinary value to our clients, shareholders, and associates Client Retention Accelerate Sales Offer New Solutions Leverage Industry Position Margin Improvement • Improve world class service scores for every product every year • Zero losses to competition • Be “indispensable” • Increase total sales year-over- year • Increase existing client penetration • Value propositions with “teeth” • Improve margins in all products every year Data center Leverage technology Smart/Off-shoring Strict financial controls Challenge the status quo • Create (build or buy) unique solutions enabled by our heritage Notice and Access Global Clearing/ Outsourcing The Investor Network Electronic delivery solutions Global Proxy Access Data • Add sales from new products every year Virtual Shareholder meeting Ascendis™ workflow Solicitation Compliance Client on boarding Aspire® wealth Enhanced retail SPS • BBI and BBP to launch new initiatives CULTURE Trusting / Engaging / Accountable / Client-Centric / Committed / Caring / Passionate/ Ethical “A Great Place to Work” Vision |
17 Business Expansion Focus Closed Sales Long-Term Growth Challenges Broadridge is well-positioned and on the high ground as a result of our recurring revenue base, great value propositions, new initiatives, free cash flow and solid balance sheet •Strong and growing pipeline with large opportunities in all segments •Winning a meaningful percentage of each year’s market-driven sales activity •Growth in recurring closed sales >30% in FY09, representing the second consecutive year of record sales •Leverage our core capabilities and unique communications network •Investments in the business have started to introduce new and exciting opportunities •Meaningful growth opportunities in the mutual fund area via data hub strategy •Accelerating Outsourcing by leveraging our unique multi-tier capabilities •SPS business, despite retaining its market leadership position, faces challenges of price compression and how to monetize its unique opportunities for growth •Overcoming conversion decision hurdles for large clients and industry consolidation $104 $148 $133 $125 CAGR = 11% ED = 17% RC = 9% High: $185 $156 Forecast $81 $96 $76 $85 $113 $23 $37 $49 $63 $43 FY05 FY06 FY07 FY08 FY09 FY10 Closed Sales (Fee Only $ in millions) Event- Driven (ED) Recurring (RC) Low: $165 |
18 Financial Performance is Driven by Recurring Revenues Recurring Revenues: 81% 81% 77% 78% 80% Margins: 16.0% 15.7% 16.2% 16.8% 16.4% $1,717 $2,149 $352 $371 $347 $304 $275 FY09 FY08 FY07 FY06 FY05 Earnings Before Interest and Taxes as adjusted (1)(2) ($ in Millions) ` $1,726 $1,724 $1,651 $1,565 $1,393 $423 $483 $487 $368 $324 FY09 FY08 FY07 FY06 FY05 Net Revenues Recurring Event -Driven) ($ in Millions) ( (1) The comparison between the results of operations for fiscal 2006 and prior periods is affected by the impact of our adoption of SFAS No.123R effective July 1, 2005. See the Selected Financial Data table in our 2009 Annual Report on Form 10-K for additional information. (2) Earnings before provision for interest and income taxes, as adjusted, is a Non-GAAP financial measure. In fiscal 2009, it excludes a one-time gain of $8.4 million on purchase of senior notes. In fiscal 2008 and fiscal 2007, it excludes $13.7 million and $14.0 million, respectively, of one-time transition expenses. We believe that this measure is useful to investors because it excludes the impact of certain transactions or events that we expect to occur infrequently in order to provide meaningful comparisons between current results and previously reported results. Management, therefore, believes such Non-GAAP measure provides a useful means for evaluating Broadridge's comparative operating performance. |
19 Financial Guidance (1) Non-GAAP Fiscal Year 2009 EPS excludes one-time gain of $0.04 from purchase of senior notes and $0.03 per share from the state tax credit true-up benefit for prior fiscal year. (2) The Fiscal Year 2010 EPS guidance is a GAAP measure as we are not anticipating any one-time items. (3) Free cash flow is a Non-GAAP financial measure and is defined as net cash flow provided by operating activities excluding Ridge Clearing financing activities less capital expenditures and intangibles. $ in millions ( except EPS ) Actual Forecast FY09 FY10 Net Revenues $2,149 % growth -3% 4% to 8% Earning Before Interest & Taxes $352 % margin 16.4% 16.0 – 16.3% % growth Diluted Net Income/EPS - Non-GAAP $1.51 (1) $1.50 - $1.60 (2) % growth 6% -1% to 6% Diluted Net Income/EPS - GAAP $1.58 $1.50 - $1.60 Free Cash Flow - Non-GAAP (3) $252M $235M - $270M |
20 Focused on Capital Stewardship and Long-Term Shareholder Value Cash Level on Balance Sheet • Until the current credit crisis alleviates, we expect to keep approximately $100M of cash on hand Strong Predictable FCF Allows for Flexible Capital Allocation Options • Investing for organic growth (~$10-15M per year) • Tuck-in acquisitions to sustain organic growth expand product offering • Continue to grow dividend payout • Pursue opportunistic stock repurchases versus scheduled steady repurchases Manage to a Debt to EBITDA Ratio 1:1 Debt • Maintain investment grade rating with rating agencies as this is important to our large clients and prospects Mid-single-digit organic revenue growth in the long-run • Capitalize on fundamentals driving long-term market growth • Invest in and drive new sales of existing solutions • Rollout new solutions to enable client efficiencies and facilitate client growth • Capture the global securities processing opportunity Improve Margins • Initiatives to sustain and drive continued efficiencies and enhance our scalability Aim to invest through existing businesses and acquisitions to generate mid to high single-digit revenue growth and return excess cash to shareholders |
21 Summary Broadridge is a dependable mid-single-digit revenue grower with a scalable business model providing opportunity for margin expansion We expect to continue to invest in our existing businesses and execute strategic acquisitions to generate mid to high single-digit average revenue growth We expect to generate strong free cash flows and aim to return excess cash to shareholders |
22 Q&A Questions & Answers |