REVENUE RECOGNITION

ASU No. 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle is that an entity recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company’s revenues from clients are primarily generated from fees for providing investor communications and technology-enabled services and solutions. Revenues are recognized for the two reportable segments as follows:

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Investor Communication Solutions—Revenues are generated primarily from processing and distributing investor communications and other related services as well as vote processing and tabulation. The Company typically enters into agreements with clients to provide services on a fee for service basis. Fees received for processing and distributing investor communications are generally variably priced and recognized as revenue over time as the Company provides the services to clients based on the number of units processed, which coincides with the pattern of value transfer to the client. Broadridge works directly with corporate issuers (“Issuers”) and mutual funds to ensure that the account holders of the Company’s bank and broker clients, who are also the shareholders of Issuers and mutual funds, receive the appropriate investor communications materials and that the services are fulfilled in accordance with each Issuer’s and mutual fund’s requirements. Broadridge works directly with the Issuers and mutual funds to resolve any issues that may arise. As such, Issuers and mutual funds are viewed as the customer of the Company’s services. As a result, revenues for distribution services as well as proxy materials fulfillment services are recorded in Revenue on a gross basis with corresponding costs including amounts remitted to the broker-dealers and banks (referred to as “Nominees”) recorded in Cost of revenues. Fees for the Company’s investor communications services arrangements are typically billed and paid on a monthly basis following the delivery of the services. The Company also offers certain hosted service arrangements that can be priced on a fixed and/or variable basis for which revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client on a monthly basis based on the number of transactions processed or units delivered, in the case of variable priced arrangements, or a fixed monthly fee in the case of fixed price arrangements, in each case which coincides with the pattern of value transfer to the client. These services may be billed in a variety of payment frequencies depending on the specific arrangement.

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Global Technology and Operations—Revenues are generated primarily from fees for transaction processing and related services. Revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client. The Company’s arrangements for processing and related services typically consist of an obligation to provide specific services to its clients on a when and if needed basis (a stand ready obligation) with revenue recognized from the satisfaction of the performance obligations on a monthly basis generally in the amount billable to the client. These services are generally provided under variable priced arrangements based on volume of service and can include minimum monthly usage fees. Client service agreements often include up-front consideration in addition to the recurring fee for transaction processing. Up-front implementation fees, as well as certain enhancements to existing technology platforms, are deferred and recognized on a straight-line basis over the service term of the contract which corresponds to the timing of transfer of value to the client that commences after client acceptance when the processing term begins. In addition, revenue is also generated from the fulfillment of professional services engagements which are generally priced on a time and materials or fixed price basis, and are recognized as the services are provided to the client which corresponds to the timing of transfer of value to the client.

The Company uses the following methods, inputs, and assumptions in determining amounts of revenue to recognize:

Identification of Performance Obligations

For revenue arrangements containing multiple goods or services, the Company accounts for the individual goods or services as a separate performance obligation if they are distinct, the good or service is separately identifiable from other items in the arrangement, and if a client can benefit from it on its own or with other resources that are readily available to the client. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

Transaction Price

Once separate performance obligations are determined, the transaction price is allocated to the individual performance obligations. If the contracted prices reflect the relative standalone selling prices for the individual performance obligations, no allocations are made. Otherwise, the Company uses the relative selling price method to allocate the transaction price, obtained from sources such as the observable price of a good or service when the Company sells that good or service separately in similar circumstances and to similar clients. If such evidence is unavailable, the Company uses the best estimate of the selling price, which includes various internal factors such as pricing strategy and market factors. A significant portion of the Company’s performance obligations are generated from transactions with volume based fees and includes services that are delivered at the same time. The Company recognizes revenue related to these arrangements over time as the services are provided to the client. While many of the Company’s contracts contain some component of variable consideration, the Company only recognizes variable consideration that is not expected to reverse. The Company allocates variable payments to distinct services in an overall contract when the variable payment relates specifically to that particular service and for which the variable payment reflects what the Company expects to receive in exchange for that particular service. As a result, the Company generally allocates and recognizes variable consideration in the period it has the contractual right to invoice the client.

As described above, our most significant performance obligations involve variable consideration which constitutes the majority of our revenue streams. The Company’s variable consideration components meet the criteria in ASU No. 2014-09 for exclusion from disclosure of the remaining transaction price allocated to unsatisfied performance obligations as does any contracts with clients with an original duration of one year or less. The Company has contracts with clients that vary in length depending on the nature of the services and contractual terms negotiated with the client, and they generally extend over a multi-year period.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue. Distribution revenues associated with shipping and handling activities are accounted for as a fulfillment activity and recognized as the related services or products are transferred to the client. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between client payment and the transfer of goods or services is expected to be one year or less.

Contract Costs

Direct costs incurred to set up or convert a client’s systems to function with the Company’s technology, that are expected to be recovered, are generally deferred and recognized on a straight-line basis over the service term of the arrangement to which the costs relate, which commences after client acceptance when the processing term begins. The Company evaluates the carrying value of deferred client conversion and start-up costs for impairment on the basis of whether these costs are fully recoverable from the expected future undiscounted net operating cash flows of the client to which the deferred costs relate. These deferred costs are reflected in Other non-current assets in the Condensed Consolidated Balance Sheets at December 31, 2018 and June 30, 2018, respectively. Refer to Note 9, “Other Non-Current Assets” for a further description of the Company’s Deferred client conversion and start-up costs.

The Company defers incremental costs to obtain a client contract that it expects to recover, which consists of sales commissions incurred, only if the contract is executed. Deferred sales commission costs are amortized on a straight-line basis using a portfolio approach consistent with the pattern of transfer of the goods or services to which the asset relates, which also considers expected customer lives. As a practical expedient, the Company recognizes the sales commissions as an expense when incurred if the amortization period of the sales commission asset that the entity otherwise would have recognized is one year or less. The Company evaluates the carrying value of deferred sales commission costs for impairment on the basis of whether these costs are fully recoverable from the expected future undiscounted net operating cash flows of the portfolio of clients to which the deferred sales commission costs relate. Refer to Note 9, “Other Non-Current Assets” for a further description of the Company’s Deferred sales commission costs.

Disaggregation of Revenue

The Company has presented below its revenue disaggregated by product line and by revenue type within each of its Investor Communication Solutions and Global Technology and Operations reportable segments.

Fee revenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity. In addition, the level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven fee revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. Distribution revenues primarily include revenues related to the physical mailing and distribution of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services, as well as Matrix administrative services.



	Three Months Ended December 31,			Six Months Ended December 31,

	2018			2018
	(in millions)
Investor Communication Solutions
Equity proxy	$	41.7		$	72.7
Mutual fund and exchange traded funds (“ETF”) interims	60.7			118.5
Customer communications and fulfillment	182.6			357.5
Other ICS	82.1			165.9
Total ICS Recurring fee revenues	367.2			714.6

Equity and other	19.5			43.6
Mutual funds	28.6			81.4
Total ICS Event-driven fee revenues	48.1			125.1

Distribution revenues	322.9			664.2

Total ICS Revenues	$	738.1		$	1,503.9

Global Technology and Operations
Equities and other	$	196.5		$	384.2
Fixed income	40.1			80.1
Total GTO Recurring fee revenues	236.6			464.3

Foreign currency exchange	(21.4		)	(42.0		)

Total Revenues	$	953.4		$	1,926.2

Revenues by Type
Recurring fee revenues	$	603.8		$	1,179.0
Event-driven fee revenues	48.1			125.1
Distribution revenues	322.9			664.2
Foreign currency exchange	(21.4		)	(42.0		)
Total Revenues	$	953.4		$	1,926.2

Contract Balances

The following table provides information about contract assets and liabilities:



	December 31, 2018		July 1, 2018
	(in millions)
Contract assets	$	35.9	$	35.5
Contract liabilities	$	258.0	$	162.8

Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and certain other client contracts. Contract liabilities represent consideration received or receivable from clients before the transfer of control occurs (deferred revenue). Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.

During the six months ended December 31, 2018, contract liabilities increased primarily due to the impact of client contract terminations. The Company recognized $89.9 million of revenue during the six months ended December 31, 2018 that was included in the contract liability balance as of July 1, 2018.

Changes in Accounting Policy

Except for the changes below, the Company has consistently applied its revenue and cost accounting policies to all periods presented in its Condensed Consolidated Financial Statements. The details of the significant changes are disclosed below.

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Sales Commissions - The Company previously recognized sales commissions related to contracts with clients as selling expenses when incurred. Under ASU No. 2014-09, the Company capitalizes incremental sales commissions as costs of obtaining a contract and, if expected to be recovered, amortizes such costs using a portfolio approach consistent with the pattern of transfer of the good or service to which the asset relates.

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Deferred Client Conversion and Start-Up Costs - The Company previously capitalized direct and incremental client conversion or start-up costs to set up or convert a client’s systems to function with the Company’s technology that are expected to be recovered. Under ASU No. 2014-09, the Company will capitalize certain additional client conversion or start-up costs that are directly related to the client conversion but that are not considered incremental costs to the Company.


•	Proxy Revenues - The Company previously recognized proxy revenues following the client’s shareholder meeting, which is typically 30 days after the proxy materials distribution. Under ASU No. 2014-09, the Company will recognize proxy revenues primarily at the time of proxy materials distribution to the client’s shareholders.

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Software Term License Revenues - The Company previously recognized revenue from software term licenses that are not hosted by the Company ratably over the contract term. Under ASU No. 2014-09, for software license arrangements that are distinct, the Company recognizes software license revenue upon delivery assuming a contract is deemed to exist. For arrangements with clients that include significant customization, modification or production of software such that the software is not distinct from the associated implementation services, revenue is typically recognized over time based upon efforts expended to measure progress towards completion or in certain cases upon completion of the installation. Software term license revenue is not a significant portion of the Company’s revenues.


•	Termination Fees - The Company previously recognized client contract termination fees at a point in time upon deconversion or receipt of a non-refundable cash payment. Under ASU No. 2014-09, a contract termination is considered a contract modification and therefore, the Company recognizes contract termination fees over the remaining modified contract term.

Quantitative Impact on Financial Statements

The following tables summarize the impact of ASU No. 2014-09 adoption on the Company’s Condensed Consolidated Statement of Earnings for the three and six months ended December 31, 2018, respectively.



	Three Months Ended December 31, 2018						Six Months Ended December 31, 2018
	As reported		Effects of ASU 2014-09		Without Effects of ASU No. 2014-09		As reported		Effects of ASU 2014-09			Without Effects of ASU No. 2014-09
	(in millions)						(in millions)
Consolidated Statement of Earnings
Revenues	$	953.4	$	82.2	$	1,035.6	$	1,926.2	$	118.9		$	2,045.1
Cost of revenues	734.0		14.1		748.1		1,473.0		13.3			1,486.3
Selling, general and administrative expenses	141.2		0.4		141.6		274.9		(2.5		)	272.3
Operating income	78.2		67.7		145.9		178.3		108.1			286.4
Earnings before income taxes	64.3		67.7		132.0		153.6		108.1			261.7
Provision for income taxes	14.4		16.6		31.0		27.0		26.5			53.5
Net earnings	$	49.9	$	51.1	$	101.0	$	126.6	$	81.6		$	208.2
Basic earnings per share	$	0.43	$	0.44	$	0.87	$	1.09	$	0.70		$	1.79
Diluted earnings per share	$	0.42	$	0.43	$	0.85	$	1.06	$	0.68		$	1.74

The following table summarizes the impact of ASU No. 2014-09 adoption on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2018.



	As reported		Effects of ASU 2014-09			Without Effects of ASU No. 2014-09
	(in millions)
Consolidated Balance Sheet
Assets:
Current assets	$	966.4	$	(2.3	)	$	964.1
Total assets	$	3,357.6	$	(126.9	)	$	3,230.7
Liabilities:
Current liabilities	$	597.9	$	(8.1	)	$	589.8
Total liabilities	$	2,234.9	$	(108.2	)	$	2,126.7
Stockholders’ equity:
Total stockholders’ equity	$	1,122.6	$	(18.7	)	$	1,104.0

The adoption of ASU 2014-09 did not change the net cash provided by or used in operating activities, investing activities or financing activities on the Condensed Consolidated Statements of Cash Flows, nor the amount of Other comprehensive income (loss) on the Condensed Consolidated Statements of Comprehensive Income.