{ "docId": "019dd923-622c-750b-8b99-4706c419301b", "docSlug": "a2803989ab19", "documentTitle": "Broadridge Financial Solutions, Inc. (BR)", "authorId": "54_Spruce_Point_Capital", "authorName": "Ben Axler", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-09-28 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 6, "pageCount": 81, "prevPage": 5, "nextPage": 7, "slideType": "executive_summary", "function": "summarize", "density": "overcrowded", "nDataPoints": 8, "notes": "The slide uses a high-contrast, aggressive tone typical of activist short reports.", "elementsJson": [ "headline_text", "paragraph", "callout_box" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-4706c419301b/6", "deckHref": "/decks/019dd923-622c-750b-8b99-4706c419301b", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-4706c419301b.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-4706c419301b#slide-6", "components": [ { "bbox": { "h": 0.38, "w": 0.11, "x": 0.01, "y": 0.0615 }, "kind": "callout", "text": "Broadridge Is No Fintech Leader And Lacks SaaS-Like Qualities", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "854fe4da-d13e-4f5e-b531-20dca11d318f", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "We believe BR’s aggressive capitalization of hundreds of millions of unrecoverable technology conversion costs should be immediately expensed and that it would be in violation of its debt covenant.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-2040-777a-854a-a936d195a284", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.37, "w": 0.87, "x": 0.12, "y": 0.62 }, "kind": "list", "text": "BR promotes itself as a “Global Fintech Leader”. But in reality, we believe at least 40% of its revenues are tied to mundane, low-value added business process outsourcing (BPO) activities such as printing and distributing credit card statements and financial documents, some of which carries literally no margin. BR promotes its “Recurring Revenue” but we don’t believe it is high quality or worthy of a premium multiple to other financial technology peers. When recently probed by the SEC about the effects of pricing and volume on revenue reporting, BR reveals that it is mostly volume driven, and changes in prices are not a primary driver. Lack of pricing power, through regulated or market forces, is suggestive to us of a company providing a marginally beneficial service. BR lists its number #1 driver of Non-GAAP operating income margin as “Scale and Natural OpEx leverage from a SaaS business.” However, Spruce Point does not believe that BR is a high quality SaaS business as its financials look nothing like one. When conducting a benchmarking analysis of BR’s deferred revenue relative to its recurring revenue, we find it to be 11%, or wildly below notably SaaS companies such as Salesforce, ServiceNow or Workday at 50%. Furthermore, relative to BR’s own selected financial and information technology peer group, we find it’s gross margin of 28.0% are dramatically below its peer average of 55.3%.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8bfc6e54-7f65-44dd-8092-14b42b091884", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "downside risk: 65% - 75%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-2040-777a-854a-ac173a665ae1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.16 }, "kind": "paragraph", "text": "Broadridge Financial Solutions, Inc. (NYSE: BR or “the Company”) is an S&P 500® component that we believe is highly misunderstood to be a defensive financial technology leader with SaaS-like qualities. In reality, we believe it is largely a low value-added business process outsourcer (BPO) with rising financial stress, and has dubious technology prowess. We believe BR is experiencing growing pressures and has wasted over $1.0 billion in a struggling technology partnership with UBS Wealth Management Americas that we believe lacks economic viability given it has an estimated 70- to 80- year-payback period.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "952231de-df59-4411-81cd-d7b2de88b9a3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.31 }, "kind": "paragraph", "text": "We believe BR’s aggressive capitalization of hundreds of millions of unrecoverable technology conversion costs should be immediately expensed and that it would be in violation of its debt covenant. Furthermore, we believe BR has abused shareholders by reaping lucrative cash compensation tied to the UBS project on the false premise that “Closed Sales” would quickly convert to revenues. In reality, not a single dollar of revenue is expected to be booked until 5 years after the project started. Investors should be put on red alert that BR recently advertised a job to replace its Chief Accounting Officer, and it also just replaced its Chief Technology Officer.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c67cd942-81d0-47e9-a06f-814ac4b9e2a5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.46 }, "kind": "paragraph", "text": "To buttress falling profits and declining organic cash flow, we believe management levered the Company with an expensive purchase of Itiviti at 10x sales, and raised $2.2 billion of incremental debt on exaggerated claims that will ultimately fail investors. With significant recent executive turnover, and strong evidence to suggest that the SEC or other governmental agencies may have recently investigated it, we believe BR’s share price is wildly overvalued at 3.7x and 16x EBITDA. We estimate 65% – 75% downside ($37.35 - $52.30) as investors hold BR accountable for its dubious actions, and recognize its peak leverage, and limited excess cash for debt reduction headed into an economic correction leave it more vulnerable this cycle.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c9406700-6c5b-4318-979b-058c6e7154e7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.68, "x": 0.31, "y": 0.02 }, "kind": "title", "text": "Strong Sell Opinion On Broadridge Financial Solutions (NYSE: BR) With 65% - 75% Downside Risk", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b6bf2f9f-ae3c-4afa-bd49-f15ceb8d0ad5", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Thesis archetype", "slug": "thesis-archetype", "agent": null, "layer": "slide", "matchId": "bb8c492b-d32c-4087-b270-dae8d220b455", "evidence": "Strong Sell Opinion On Broadridge Financial Solutions (NYSE: BR) With 65% - 75% Downside Risk", "confidence": 0.9 } ], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }