What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-01 compared with 2021-11-03 · 181 added, 102 removed, 390 unchanged (42% of the section changed)

78 unchanged sentences

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.

Internal Trade Growth represents the estimated change in daily average 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, 2021, and 2020, are as follows:

The key performance indicators for the three and six months ended December 31, 2021, and 2020, are as follows:

Select Operating Metrics

Three Months Ended

September 30,

December 31, Six Months Ended

2021 2020 2021 2020

Record Growth

3 unchanged sentences

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, 2021 compared to the three months ended September 30, 2020.

The following discussions of Analysis of Condensed Consolidated Statements of Earnings and Analysis of Reportable Segments refer to the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020.

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.

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“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.

“Investment Gains” represents non-operating, non-cash gains on privately held investments.

“Software Charge” represents a charge related to an internal use software product that is no longer expected to be used.

16 unchanged sentences

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, 2021, mutual fund proxy fee revenues were 169% greater compared to the three months ended September 30, 2020.

For the six months ended December 31, 2021, mutual fund proxy fee revenues were 120% greater compared to the six months ended December 31, 2020.

During fiscal year 2021, mutual fund proxy fee revenues were 17% greater than the prior fiscal year.

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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 ending June 30, 2022 and for the fiscal year ended June 30, 2021, we reported Closed sales net of a 5.0% allowance adjustment.

For the three and six months ended December 31, 2021 and for the fiscal year ended June 30, 2021, we reported Closed sales net of a 5.0% 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, 2021 were $29.8 million, a decrease of $2.0 million or 6%, compared to $31.8 million for the three months ended September 30, 2020.

Closed sales for the three months ended September 30, 2021 are net of an allowance adjustment of $1.6 million.

Closed sales for the three months ended December 31, 2021 were $82.7 million, an increase of $38.4 million or 87%, compared to $44.3 million for the three months ended December 31, 2020.

Closed sales for the three months ended December 31, 2021 are net of an allowance adjustment of $4.4 million.

Closed sales for the six months ended December 31, 2021 were $112.6 million, an increase of $36.4 million or 48%, compared to $76.1 million for the six months ended December 31, 2020.

Closed sales for the six months ended December 31, 2021 are net of an allowance adjustment of $5.9 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.

The Covid-19 pandemic 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.

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After addressing the initial surge of the Covid-19 pandemic, we are now focused on running our business effectively in the new work from home paradigm while preparing for a more flexible workplace model in the future.

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 masking, social distancing and cleaning measures in our production facilities.

We have actively promoted vaccination by providing our associates with paid time off to get vaccinated and offer Covid-19 vaccines at our on-site medical clinic in Long Island, New York.

Accordingly, the Company has taken several measures and expect to take further actions 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 masking, social distancing and cleaning measures in our production facilities.

We are compliant with applicable federal, state and local Covid-19 rules, restrictions, orders and guidance, and are promoting vaccination among our associates.

In fiscal year 2022 to date, there has not been a material impact as a result of Covid-19 on our consolidated revenues and pre-tax income.

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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 would allow fund companies to send investors streamlined and tailored annual and semi-annual shareholder reports instead of long-form shareholder reports.

The Proposal also would replace the need for funds to distribute an annual prospectus to existing shareholders with instead sending 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 2021 Annual Report for more information.

Analysis of Condensed Consolidated Statements of Earnings

Three Months Ended September 30, 2021 versus Three Months Ended September 30, 2020

The table below presents Condensed Consolidated Statements of Earnings data for the three months ended September 30, 2021 and 2020, and the dollar and percentage changes between periods:

Three Months Ended December 31, 2021 versus Three Months Ended December 31, 2020

The table below presents Condensed Consolidated Statements of Earnings data for the three months ended December 31, 2021 and 2020, and the dollar and percentage changes between periods:

Three Months Ended

September 30,

2021 2020 $ %

7 unchanged sentences

Interest expense, net (21.4) (11.1) (10.3) 93

Other non-operating income (expenses), net (2.4) 9.5 (11.9) (125)

Other non-operating income, net 4.4 1.0 3.4 NM

Earnings before income taxes 51.9 69.4 (17.5) (25)

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Diluted 118.7 117.8

The table below presents Condensed Consolidated Statements of Earnings data for the three months ended September 30, 2021 and 2020, and the dollar and percentage changes between periods:

NM - Not meaningful

The table below presents Condensed Consolidated Statements of Earnings data for the three months ended December 31, 2021 and 2020, and the dollar and percentage changes between periods:

Three Months Ended

September 30,

2021 2020 $ %

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Revenues increased $204.6 million, or 19%, to $1,259.6 million from $1,054.9 million.

• Recurring fee revenues increased $101.3 million driven by 5 pts of growth from onboarding of new business and 2 pts from internal growth driven by our ICS business.

• Recurring fee revenues increased $125.0 million driven by 6 pts of growth from onboarding of new business and 4 pts from internal growth.

Growth from acquisitions was 9 pts, most notably from our recent Itiviti acquisition which closed in May 2021.

• Event-driven fee revenues increased $19.9 million primarily due to increased mutual fund proxy activity and mutual fund communications.

• Distribution revenues increased $57.7 million primarily due to the increase in customer communication mailings and the recent postage rate increase.

Total operating expenses .

Operating expenses increased $215.3 million, or 22%, to $1,190.7 million from $975.5 million as a result of an increase in both cost of revenues and selling, general and administrative expenses:

• Cost of revenues - The increase of $172.0 million in cost of revenues primarily reflects (i) the impact of higher amortization expense from acquired intangible assets, (ii) higher distribution expenses, including the impact of the recent postage rate increase, and (iii) higher operating costs from acquisitions.

• Selling, general and administrative expenses - The increase of $43.3 million in selling, general, and administrative expenses primarily reflects (i) the impact of acquisitions, and (ii) higher professional services fees.

Interest expense, net.

Interest expense, net was $21.4 million, an increase of $10.3 million, from $11.1 million for the three months ended December 31, 2020.

The increase of $10.3 million was due to an increase in debt outstanding related to the May 2021 acquisition of Itiviti.

Other non-operating income, net.

Other non-operating income, net for the three months ended December 31, 2021 was $4.4 million, compared to other non-operating income, net of $1.0 million for the three months ended December 31, 2020.

The increased income of $3.4 million was primarily due to higher net gains on investments in the current year period.

Provision for income taxes .

• Effective tax rate for the three months ended December 31, 2021:

• Effective tax rate for the three months ended December 31, 2020:

The decrease in the effective tax rate for the three months ended December 31, 2021 was driven by higher total discrete tax items, inclusive of the excess tax benefits related to equity compensation, compared to the prior year period.

Six Months Ended December 31, 2021 versus Six Months Ended December 31, 2020

The table below presents Condensed Consolidated Statements of Earnings data for the six months ended December 31, 2021 and 2020, and the dollar and percentage changes between periods:

Six Months Ended

2021 2020 $ %

(in millions, except per share amounts)

Revenues $ 2,452.5 $ 2,072.3 $ 380.1 18

Cost of revenues 1,892.5 1,593.5 299.0 19

Selling, general and administrative expenses 387.8 320.7 67.1 21

Total operating expenses 2,280.3 1,914.3 366.1 19

Operating income 172.1 158.1 14.1 9

Margin 7.0 % 7.6 %

Interest expense, net (44.0) (25.6) (18.5) 72

Other non-operating income, net 2.0 10.5 (8.5) (81)

Earnings before income taxes 130.1 143.0 (12.9) (9)

Provision for income taxes 15.7 20.9 (5.2) (25)

Effective tax rate 12.1 % 14.6 %

Net earnings $ 114.4 $ 122.1 $ (7.7) (6)

Basic earnings per share $ 0.98 $ 1.06 $ (0.08) (8)

Diluted earnings per share $ 0.97 $ 1.04 $ (0.07) (7)

Weighted average shares outstanding:

Basic 116.4 115.5

Diluted 118.5 117.6

The table below presents Condensed Consolidated Statements of Earnings data for the six months ended December 31, 2021 and 2020, and the dollar and percentage changes between periods:

Six Months Ended

2021 2020 $ %

($ in millions)

Recurring fee revenues $ 1,548.5 $ 1,322.2 $ 226.2 17

Event-driven fee revenues 141.1 90.0 51.0 57

Distribution revenues 768.4 675.0 93.4 14

Foreign currency exchange (5.5) (14.9) 9.4 (63)

Total $ 2,452.5 $ 2,072.3 $ 380.1 18

Points of Growth

Net New Business Internal Growth Acquisitions Total

Recurring fee revenue Growth Drivers 5pts 3pts 9pts 17 %

Revenues increased $380.1 million, or 18%, to $2,452.5 million from $2,072.3 million.

• Recurring fee revenues increased $226.2 million driven by 5 pts of growth from onboarding of new business and 3 pts from internal growth.

Growth from acquisitions was 9 pts, most notably from our recent Itiviti acquisition which closed in May 2021.

• Event-driven fee revenues increased $51.0 million primarily due to increased mutual fund proxy activity.

• Distribution revenues increased $35.7 million primarily due to the increase in customer communication mailings and event-driven activity.

• Distribution revenues increased $93.4 million primarily due to the increase in customer communication mailings and the recent postage rate increase.

Total operating expenses .

Operating expenses increased $366.1 million, or 19%, to $2,280.3 million from $1,914.3 million as a result of an increase in both cost of revenues and selling, general and administrative expenses:

• Cost of revenues - The increase of $127.0 million in cost of revenues primarily reflects (i) higher operating costs from acquisitions including amortization expense from acquired intangible assets, (ii) higher distribution expenses, and (iii) higher labor related expenses, partially offset by (iv) the absence of the real estate realignment charge that occurred in the prior year period.

• Selling, general and administrative expenses - The increase of $23.8 million in selling, general, and administrative expenses primarily reflects the impact of acquisitions.

• Cost of revenues - The increase of $299.0 million in cost of revenues primarily reflects (i) the impact of higher amortization expense from acquired intangible assets (ii) higher distribution expenses, including the impact of the recent postage rate increase, and (iii) higher operating costs from acquisitions, partially offset by (iv) the absence of the real estate realignment charge that occurred in the prior year period.

• Selling, general and administrative expenses - The increase of $67.1 million in selling, general and administrative expenses primarily reflects (i) the impact of acquisitions, and (ii) higher professional services fees.

Interest expense, net.

Interest expense, net was $22.6 million, an increase of $8.2 million, from $14.4 million for the three months ended September 30, 2020.

The increase of $8.2 million was primarily due to an increase in higher average debt outstanding.

Other non-operating income (expenses), net.

Other non-operating expense, net for the three months ended September 30, 2021 was $2.4 million, compared to other non-operating income, net of $9.5 million for the three months ended September 30, 2020.

The increased expense of $11.9 million was primarily due to higher gains on investments in the prior year period.

Interest expense, net was $44.0 million, an increase of $18.5 million, from $25.6 million for the six months ended December 31, 2020.

The increase of $18.5 million was due to an increase in debt outstanding related to the May 2021 acquisition of Itiviti.

Other non-operating income, net.

Other non-operating income, net for the six months ended December 31, 2021 was $2.0 million, compared to other non-operating income, net of $10.5 million for the six months ended December 31, 2020.

The decrease of $8.5 million was primarily due to lower net gains on investments in the current year period as compared to the prior year period.

Provision for income taxes .

• Effective tax rate for the three months ended September 30, 2021:

• Effective tax rate for the three months ended September 30, 2020:

The increase in the effective tax rate for the three months ended September 30, 2021 was driven by lower total discrete tax items, inclusive of the excess tax benefits related to equity compensation, compared to the prior year period.

• Effective tax rate for the six months ended December 31, 2021:

• Effective tax rate for the six months ended December 31, 2020:

The decrease in the effective tax rate for the six months ended December 31, 2021 was driven by higher total discrete tax items, inclusive of the excess tax benefits related to equity compensation, compared to the prior year period.

Analysis of Reportable Segments

6 unchanged sentences

Three Months Ended

September 30,

December 31, Six Months Ended

Change Change

2021 2020 $ % 2021 2020 $ %

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Three Months Ended

September 30,

December 31, Six Months Ended

Change Change

2021 2020 $ % 2021 2020 $ %

7 unchanged sentences

Three Months Ended

September 30,

December 31, Six Months Ended

Change Change

2021 2020 $ % 2021 2020 $ %

1 unchanged sentence

Investor Communication Solutions $ 16.2 $ 22.2 $ (6.0) (27) $ 37.1 $ 44.5 $ (7.4) (17)

Global Technology and Operations 48.4 10.7 37.7 NM

Global Technology and Operations 47.6 10.7 36.9 NM 96.0 21.4 74.6 NM

Other — 0.4 (0.4) (100) — 0.7 (0.7) (100)

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Investor Communication Solutions

Revenues for the three months ended September 30, 2021 increased $108.0 million to $853.5 million from $745.6 million, and earnings before income taxes increased $30.0 million to $82.4 million from $52.4 million.

Revenues for the three months ended December 31, 2021 increased $117.3 million to $893.3 million from $776.0 million, and earnings before income taxes increased $17.9 million to $58.8 million from $40.9 million.

Revenues for the six months ended December 31, 2021 increased $225.3 million to $1,746.8 million from $1,521.5 million, and earnings before income taxes increased $47.9 million to $141.2 million from $93.3 million.

Three Months Ended

September 30,

December 31, Six Months Ended

Change Change

2021 2020 $ % 2021 2020 $ %

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Pre-tax Margin 6.6 % 5.3 % 8.1 % 6.1 %

Points of Growth

Net New Business Internal Growth Acquisitions Total

Recurring fee revenue Growth Drivers 6pts 5pts 0pts 11 %

For the three months ended September 30, 2021:

• Recurring fee revenues grew 11% driven primarily by Net New Business and Internal Growth.

Points of Growth Points of Growth

Net New Business Internal Growth Acquisitions Total Net New Business Internal Growth Acquisitions Total

Recurring fee revenue Growth Drivers 6pts 4pts 0pts 10 % 6pts 5pts 0pts 11 %

For the three months ended December 31, 2021:

• Recurring fee revenues grew 10% driven by Net New Business and Internal Growth.

Internal Growth benefited from higher volume of mutual fund and exchange-traded fund communications.

• Event-driven fee revenues grew 44% primarily due to increased mutual fund proxy activity and mutual fund communications.

• Higher distribution revenues resulted primarily due to an increase in customer communication mailings and the recent postage rate increase.

• The earnings increase was primarily due to the increase in recurring and event-driven fee revenues.

Pre-tax margins increased by 1.3 percentage points to 6.6% from 5.3%.

Amortization expense from acquired intangibles decreased by $6.0 million to $16.2 million in the second quarter of fiscal year 2022 from $22.2 million in the prior period.

For the six months ended December 31, 2021:

• Recurring fee revenues grew 11% driven by Net New Business and Internal Growth.

Internal Growth benefited from higher volume of mutual fund and exchange-traded fund communications and equity proxy.

• Event-driven fee revenues grew 57% primarily due to increased mutual fund proxy activity.

• Higher distribution revenues resulted primarily due to an increase in customer communication mailings and event-driven activity.

• Higher distribution revenues resulted primarily due to an increase in customer communication mailings and the recent postage rate increase.

• The earnings increase was primarily due to the increase in recurring and event-driven fee revenues.

Pre-tax margins increased by 2.0 percentage points to 8.1% from 6.1%.

Amortization expense from acquired intangibles decreased by $1.4 million to $20.9 million in the first quarter of fiscal year 2022 from $22.2 million in the prior period.

Amortization expense from acquired intangibles decreased by $7.4 million to $37.1 million in the six months ended December 31, 2021 from $44.5 million in the prior period.

Global Technology and Operations

Revenues for the three months ended September 30, 2021 increased $60.2 million to $340.6 million from $280.4 million, and earnings before income taxes decreased $51.2 million to $18.7 million from $69.9 million.

Revenues for the three months ended December 31, 2021 increased $85.2 million to $370.6 million from $285.3 million, and earnings before income taxes decreased $14.2 million to $34.4 million from $48.6 million.

Revenues for the six months ended December 31, 2021 increased $145.4 million to $711.2 million from $565.7 million, and earnings before income taxes decreased $65.4 million to $53.1 million from $118.5 million.

Three Months Ended

September 30,

December 31, Six Months Ended

Change Change

2021 2020 $ % 2021 2020 $ %

4 unchanged sentences

Pre-tax Margin 9.3 % 17.0 % 7.5 % 20.9 %

Points of Growth

Net New Business Internal Growth Acquisitions Total

Recurring fee revenue Growth Drivers 3pts (2)pts 20pts 21 %

For the three months ended September 30, 2021:

• Recurring fee revenues grew 21% driven primarily by 20pts of growth from recent acquisitions including 19pts from the Itiviti acquisition.

• The earnings decrease was driven by increased amortization of acquired intangibles and increased expenditures to implement and support new business.

Points of Growth Points of Growth

Net New Business Internal Growth Acquisitions Total Net New Business Internal Growth Acquisitions Total

Recurring fee revenue Growth Drivers 4pts 4pts 22pts 30 % 4pts 1pt 21pt 26 %

For the three months ended December 31, 2021:

• Recurring fee revenues increased $85.2 million, or 30%, to $370.6 million.

The growth was driven by 22pts of growth from acquisitions, primarily Itiviti, as well as 8 pts of organic growth from onboarding of new clients and higher license revenues.

• The earnings decrease was driven by increased amortization of acquired intangibles and increased expenditures to implement and support new business, partially offset by contribution from higher recurring revenues.

Pre-tax margins decreased by 7.7 percentage points to 9.3% from 17.0%.

Amortization expense from acquired intangibles increased by $37.7 million to $48.4 million in the first quarter of fiscal year 2022 from $10.7 million in the prior year period primarily as a result of the Itiviti acquisition.

Loss before income taxes was $21.5 million for the three months ended September 30, 2021, a decrease of $24.4 million compared to $45.9 million for the three months ended September 30, 2020.

• The decreased loss before income taxes was primarily due to (i) the absence of the real estate realignment charge that occurred in the prior year period in which the Company recorded lease and other facility exit costs of $28.6 million, partially offset by (ii) higher interest expense due to an increase in average debt outstanding.

Amortization expense from acquired intangibles increased by $36.9 million to $47.6 million in the second quarter of fiscal year 2022 from $10.7 million in the prior year period primarily as a result of the Itiviti acquisition.

For the six months ended December 31, 2021:

• Recurring fee revenues increased $145.4 million, or 26%, to $711.2 million.

The growth was driven by 21pts of growth from acquisitions, primarily Itiviti, as well as 5 pts of organic growth mainly from onboarding of new clients.

Pre-tax margins decreased by 13.4 percentage points to 7.5% from 20.9%.

Amortization expense from acquired intangibles increased by $74.6 million to $96.0 million in the first six months of fiscal year 2022 from $21.4 million in the prior year period primarily as a result of the Itiviti acquisition.

Loss before income taxes was $39.7 million for the three months ended December 31, 2021, an increase of $22.4 million compared to $17.3 million for the three months ended December 31, 2020.

• The increased loss before income taxes was primarily due to (i) higher interest expense due to an increase in average debt outstanding and (ii) higher spend on technology and other initiatives.

Loss before income taxes was $61.2 million for the six months ended December 31, 2021, a decrease of $2.0 million compared to $63.2 million for the six months ended December 31, 2020.

• The decreased loss before income taxes was primarily due to (i) the absence of the real estate realignment charge that occurred in the prior year period in which the Company recorded lease and other facility exit costs of $31.7 million, partially offset by (ii) higher interest expense due to an increase in average debt outstanding, and (iii) higher spend on technology and other initiatives.

Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures

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Depending on the period presented, these adjusted measures exclude the impact of certain of the following items:

(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.

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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.

Investment Gains represent non-operating, non-cash gains on privately held investments.

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 exclude Acquisition and Integration Costs, Real Estate Realignment and Covid-19 Related Expenses, Investment Gains, 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.

8 unchanged sentences

Three Months Ended

September 30,

December 31, Six Months Ended

2021 2020 2021 2020

(in millions)

3 unchanged sentences

Real Estate Realignment and Covid-19 Related Expenses

1.7 5.8 3.5 37.8

Software Charge — — — 6.0

3 unchanged sentences

Three Months Ended

September 30,

December 31, Six Months Ended

2021 2020 2021 2020

(in millions)

3 unchanged sentences

Real Estate Realignment and Covid-19 Related Expenses

Investment Gain — (8.7)

1.7 5.8 3.5 37.8

Investment Gains (7.5) — (7.5) (8.7)

Software Charge — — — 6.0

3 unchanged sentences

Three Months Ended

September 30,

December 31, Six Months Ended

2021 2020 2021 2020

Diluted earnings per share (GAAP) $ 0.40 $ 0.48 $ 0.97 $ 1.04

2 unchanged sentences

Real Estate Realignment and Covid-19 Related Expenses

Investment Gain — (0.07)

0.01 0.05 0.03 0.32

Investment Gains (0.06) — (0.06) (0.07)

Software Charge — — — 0.05

2 unchanged sentences

Adjusted earnings per share (Non-GAAP) $ 0.82 $ 0.73 $ 1.89 $ 1.70

(a) Calculated using the GAAP effective tax rate, adjusted to exclude $4.3 million of excess tax benefits associated with stock-based compensation for the three months ended September 30, 2021, and $9.3 million of excess tax benefits associated with stock-based compensation for the three months ended September 30, 2020.

(a) Calculated using the GAAP effective tax rate, adjusted to exclude $7.1 million and $11.5 million of excess tax benefits associated with stock-based compensation for the three and six months ended December 31, 2021, respectively, and $3.6

million and $12.8 million of excess tax benefits associated with stock-based compensation for the three and six months ended December 31, 2020, respectively.

For purposes of calculating the Adjusted earnings per share, the same adjustments were made on a per share basis.

Three Months Ended

September 30,

Six Months Ended

(in millions)

Net cash flows used in operating activities (GAAP) $ (135.4) $ (44.2)

Net cash flows (used in) provided by operating activities (GAAP) $ (94.6) $ 83.3

Capital expenditures and Software purchases and capitalized internal use software (29.2) (50.8)

3 unchanged sentences

Cash and cash equivalents consisted of the following:

September 30, 2021 June 30, 2021

December 31, 2021 June 30, 2021

(in millions)

4 unchanged sentences

Total cash and cash equivalents $ 281.2 $ 274.5

At September 30, 2021, Cash and cash equivalents were $316.7 million and Total stockholders’ equity was $1,753.8 million.

At December 31, 2021, Cash and cash equivalents were $281.2 million and Total stockholders’ equity was $1,748.1 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.

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Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:

Date Principal amount outstanding at September 30, 2021 Carrying value at September 30, 2021 Carrying value at June 30, 2021 Unused

Capacity Fair Value at September 30, 2021

Date Principal amount outstanding at December 31, 2021 Carrying value at December 31, 2021 Carrying value at June 30, 2021 Unused

Capacity Fair Value at December 31, 2021

(in millions)

Long-term debt, excluding current portion

Long-term debt

Fiscal 2021 Revolving Credit Facility:

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The Fiscal 2021 Revolving Credit Facility also has an annual facility fee equal to 11.0 basis points on the entire facility (subject to step-ups to 20.0 basis points and step-downs to 7.0 basis points based on ratings).

In March 2021, the Company entered into a term credit agreement (“Term Credit Agreement”) providing for term loan commitments in an aggregate principal amount of $2.55 billion, comprised of a $1.0 billion tranche (“Tranche 1”) and a $1.55 billion tranche (“Tranche 2,” together with Tranche 1, the “Fiscal 2021 Term Loans”).

In March 2021, the Company entered into a term credit agreement, as amended on December 23, 2021, (“Term Credit Agreement”) providing for term loan commitments in an aggregate principal amount of $2.55 billion, comprised of a $1.0 billion tranche (“Tranche 1”) and a $1.55 billion tranche (“Tranche 2,” together with Tranche 1, the “Fiscal 2021 Term Loans”).

The Tranche 1 Loans were repaid in full in May 2021.

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of Part I of this Quarterly Report on Form 10-Q for a more detailed discussion.

Three Months Ended

September 30,

Six Months Ended

(in millions)

Net cash flows used in operating activities $ (135.4) $ (44.2) $ (91.2)

Net cash flows (used in) provided by operating activities $ (94.6) $ 83.3 $ (178.0)

Net cash flows used in investing activities (53.9) (43.9) (10.0)

Net cash flows provided by (used in) financing activities 159.2 (156.6) 315.8

Effect of exchange rate changes on Cash and cash equivalents (4.1) 6.2 (10.3)

Net change in Cash and cash equivalents $ 6.6 $ (111.0) $ 117.6

Free cash flow:

Net cash flows used in operating activities (GAAP) $ (135.4) $ (44.2) $ (91.2)

Net cash flows (used in) provided by operating activities (GAAP) $ (94.6) $ 83.3 $ (178.0)

Capital expenditures and Software purchases and capitalized internal use software (29.2) (50.8) 21.6

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Free cash flow (Non-GAAP) $ (123.8) $ 50.5 $ (174.3)

The increase in cash used in operating activities of $91.2 million in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, was primarily due to higher cash used in working capital and increased scaling of client-related platform implementation and development as compared to the prior year period.

The increase in cash used in investing activities of $27.7 million in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily reflects higher acquisition activity and the absence of the $18 million in proceeds from asset sales which occurred in the prior year period, partially offset by lower capital expenditures.

The increase in cash provided by financing activities of $289.7 million in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily reflects higher borrowings net of repayments in the current year period as compared to the prior year period.

The increase in cash used in operating activities of $178.0 million in the six months ended December 31, 2021, as compared to the six months ended December 31, 2020, was primarily due to higher cash used in working capital and increased scaling of client-related platform implementation and development as compared to the prior year period.

The increase in cash used in investing activities of $10.0 million in the six months ended December 31, 2021, as compared to the six months ended December 31, 2020, primarily reflects higher acquisition activity and the absence of the $18 million in proceeds from asset sales which occurred in the prior year period, partially offset by lower capital expenditures.

The increase in cash provided by financing activities of $315.8 million in the six months ended December 31, 2021, as compared to the six months ended December 31, 2020, primarily reflects higher borrowings net of repayments in the current year period as compared to the prior year period.

Processing and distributing proxy materials and annual reports to investors comprises a large portion of our Investor Communication Solutions business.

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Contractual Obligations

Data Center Agreements

In March 2010, the Company and International Business Machines Corporation (“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.

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On July 28, 2021, the Company entered into a novation agreement with IBM (the “U.S.

Novation Agreement”) pursuant to which IBM novated the Amended IT Services Agreement to Kyndryl, Inc., an entity formed in connection with IBM’s planned spin-off of its managed infrastructure services business (“Kyndryl”), effective September 1, 2021.

Fixed minimum commitments remaining under the Amended IT Services Agreement at September 30, 2021 are $189.3 million through fiscal year 2027, the final year of the Amended IT Services Agreement.

Novation Agreement”) pursuant to which IBM novated the Amended IT Services Agreement to Kyndryl, Inc., an entity formed in connection with IBM’s spin-off of its managed infrastructure services business (“Kyndryl”), effective September 1, 2021.

Fixed minimum commitments remaining under the Amended IT Services Agreement at December 31, 2021 are $169.7 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 “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.

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Novation Agreement.

Fixed minimum commitments remaining under the Private Cloud Agreement at September 30, 2021 are $192.3 million through March 31, 2030, the final year of the contract.

Fixed minimum commitments remaining under the Private Cloud Agreement at December 31, 2021 are $191.0 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.

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On August 19, 2021, the Company entered into a novation agreement with IBM UK pursuant to which IBM UK novated the EU IT Services Agreement to Kyndryl UK Limited, effective September 1, 2021.

Fixed minimum commitments remaining under the Amended EU IT Services Agreement at September 30, 2021 are $29.5 million through fiscal year 2029, the final year of the contract.

Fixed minimum commitments remaining under the Amended EU IT Services Agreement at December 31, 2021 are $30.5 million through fiscal year 2029, the final year of the contract.

Cloud Services Resale Agreement

On December 31, 2021, the Company and Presidio Networked Solutions LLC (“Presidio”), a reseller of services of Amazon Web Services, Inc.

and its affiliates (collectively, “AWS”), entered into an Order Form and AWS Private Pricing Addendum, dated December 31, 2021 (the “Order Form”), to the Cloud Services Resale Agreement, dated December 15, 2017, as amended (together with the Order Form, the “AWS Cloud Agreement”), whereby Presidio will resell to the Company certain public cloud infrastructure and related services provided by AWS for the operation, management and support of the Company’s cloud global distributed platforms and products.

The AWS Cloud Agreement expires on December 31, 2026.

Fixed minimums remaining under the AWS Cloud Agreement at December 31, 2021 are $250.0 million through December 31, 2026.

The Company has an equity method investment that is a variable interest in a variable interest entity, the Company is not the primary beneficiary and therefore does not consolidate the investee.

The Company’s potential maximum loss exposure related to this unconsolidated investment totaled $31.3 million as of September 30, 2021, which represents the carrying value of our investment and is recorded in Other non-current assets in the Company’s Condensed Consolidated Balance Sheets.

In addition, as of September 30, 2021, the Company also has a future commitment to fund $1.7 million to one of the Company’s other investees.

Fixed Operating Lease Cost

Fixed operating lease cost for the three months ending September 30, 2021 and September 30, 2020 are as follows:

Three Months Ended

September 30,

(in millions)

Fixed Operating Lease Cost $ 11.3 $ 24.4

The Company’s potential maximum loss exposure related to its unconsolidated investments in this variable interest entity totaled $33.5 million as of December 31, 2021, which represents the carrying value of the Company's investments.

In addition, as of December 31, 2021, the Company also has a future commitment to fund $1.5 million to one of the Company’s other 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, 2021.

There were no outstanding borrowings under these lines of credit at December 31, 2021.

Off-balance Sheet Arrangements

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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 outstanding derivative financial instruments at September 30, 2021 and June 30, 2021.

The Company was not a party to any outstanding derivative financial instruments at December 31, 2021 and June 30, 2021.

In March 2021, the Company entered into a derivative instrument designed to mitigate the Company’s exposure to the impact of changes in interest rates on the Fiscal 2021 Senior Notes.

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Accordingly, changes in the fair value of the Treasury Lock were recorded as part of Other comprehensive income (loss), net each period up to when the Treasury Lock was settled.

In May 2021, the Treasury Lock was settled for a pre-tax loss of $11.0 million, after which the final settlement loss will be reclassified into Interest expense, net ratably over the ten year term of the Fiscal 2021 Senior Notes.

The expected amount of the existing loss that would be reclassified into earnings before income taxes within the next twelve months is approximately $1.1 million.

In May 2021, the Treasury Lock was settled for a pre-tax loss of $11.0 million, after which the final settlement loss will be amortized into Interest expense, net ratably over the ten year term of the Fiscal 2021 Senior Notes.

The expected amount of the existing loss that will be amortized into earnings before income taxes within the next twelve months is approximately $1.1 million.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis