{ "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": 7, "pageCount": 81, "prevPage": 6, "nextPage": 8, "slideType": "executive_summary", "function": "diagnose_problem", "density": "overcrowded", "nDataPoints": 8, "notes": "The slide uses a two-row layout to contrast 'Rising Financial Stress' with the 'UBS Partnership Disaster'.", "elementsJson": [ "headline_text", "callout_box", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-4706c419301b/7", "deckHref": "/decks/019dd923-622c-750b-8b99-4706c419301b", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-4706c419301b.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-4706c419301b#slide-7", "components": [ { "bbox": null, "kind": "callout", "text": "We believe BR will be in violation of its Leverage Ratio covenant at 3.5x but has avoided tripping it through an aggressive cost capitalization policy.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-2040-777a-854a-d2132f2d61b2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.25, "x": 0.02, "y": 0.02 }, "kind": "image", "text": "Spruce Point Capital Management", "attrs": null, "subkind": "logo", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "efeea2d4-8952-42ce-b9de-6290fdcfab78", "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-d65d1a94771e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.35, "w": 0.14, "x": 0.02, "y": 0.55 }, "kind": "paragraph", "text": "UBS Partnership Is An Utter Billion Dollar Disaster. BR's CTO Was Just Replaced. Unrecoverable Costs Need To Be Expensed. BR Would Be In Violation Of Its Debt Covenant Absent Aggressive Cost Capitalization", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "363cc3f5-9f3d-4c57-b086-e37cc0a075c2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.48, "w": 0.83, "x": 0.16, "y": 0.5 }, "kind": "paragraph", "text": "Announced in 2018 as a partnership to \"redefine\" wealth management technology in North America, Broadridge partnered with UBS to develop a front-to-back end wealth management platform. Spruce Point believes it is a mismanaged project without any revenues recognized by BR in almost four years. Throughout, management has struck an overly optimistic tone and only recently acknowledged delays, and now claiming revenue by mid-2023. However, we caution that subsequent to these statements, its Chief Technology Officer was replaced and it posted a job opening for a new Chief Accounting Officer. Yet, BR counted revenue towards Closed Sales in year one, allowing management to reap unjust cash incentive compensation in 2019. BR is not disclosing how much it has sunk into the development costs, which are accumulating on its balance sheet under \"Deferred client conversion and start-up costs.\" There is a large discrepancy between what's shown in BR's investor presentation and the imputed capitalization costs on the balance sheet. We estimate BR has invested between $1.0 – $1.25 billion. UBS annual revenue potential is at best $70 million, and margins are projected to be below average. Since 2018, total UBS Americas wealth advisors have declined by approximately 11%. We estimate it will take BR 71 – 83 years to recoup its total investment in the UBS project, and its Present Value is $209 million, well below the $1.0 billion or more estimated investment. Furthermore, we think it unlikely BR will be able to extend the sale of the UBS platform across other wealth management companies to plug the hole. Based on these findings, we believe BR should immediately cease capitalization of costs, commence expensing, and take an impairment charge. Of note, BR recently added a risk factor warning about potential asset impairments. We believe BR will be in violation of its Leverage Ratio covenant at 3.5x but has avoided tripping it through an aggressive cost capitalization policy.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "57a2aa26-fc32-4253-b78b-61cdc6b2c178", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.14, "x": 0.02, "y": 0.25 }, "kind": "paragraph", "text": "Thought of as a Defensive Investment, We Find Ample Evidence of Rising Financial Stress", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "684f6b3b-559c-4445-a795-8093cdb4f575", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.32, "w": 0.83, "x": 0.16, "y": 0.17 }, "kind": "paragraph", "text": "As a company processing proxy statements and other financial documents, BR is thought to be a stable, infrastructure-like investment immune to economic pressures. However, Spruce Point believes BR is experiencing short and long-term pressures impacting financial results. Upon the departure of its CFO in 2020, BR stopped providing Free Cash Flow guidance, which has been trending down ever since. BR also stopped reporting backlog that's not yet live. The rift between BR's GAAP and Non-GAAP results is diverging at an increasing rate, and absent the recent Itiviti acquisition and UBS contract (to be discussed later), we believe organic operating cash flow declined 18% in FY 2022. BR has turned working capital negative in six of the last nine quarters, and it recently made updates to its \"Forward Looking Statements\" and modifications to long-standing statements in its 2022 Annual Report. BR's customer concentration is increasing, and it has been putting less emphasis on its client revenue retention metric. Consistent with many struggling companies Spruce Point has analyzed, BR has made multiple recent revisions to its segment reporting which even affected its \"Closed Sales\" metric. Ironically, the change was implemented in 2021 after Closed Sales grew just 1.4%, a multi-year low growth rate.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a272ef9e-d0a4-418b-b22f-37baad90e60a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.67, "x": 0.31, "y": 0.03 }, "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": "aac7169f-e6c6-405f-850b-3dd802a03598", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Thesis archetype", "slug": "thesis-archetype", "agent": null, "layer": "slide", "matchId": "4ee6541f-343e-45ed-9cc7-d388a65d91fc", "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 }