Broadridge Financial Solutions, Inc.

Good morning and welcome to the Broadridge Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Eddings T. Alt, Head of Investor Relations. Please go ahead.

Thank you, Andrea. Good morning, everybody, and welcome to Broadridge's third quarter fiscal year 2021 earnings conference call. Our earnings release and the slides of the company this call may be found on the investor relations section of Broadridge.com. Joining me on the call today are Tim Gokey, our CEO, and our CFO, Edmund Rees. Before I turn the call over to Tim, a few standard reminders. We will be making forward-looking statements on today's call regarding Broderidge that involve risks. A summary of these risks can be found on the second and third pages of the slides in a more complete description on our annual report on Form 10-K. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broderidge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable gap measures can be found on the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thanks, Eddings, and good morning. I'll begin with an overview of our key messages and an update on our third quarter results, including our performance against our strategic objectives. Edmund will review our financial results, and then we'll take your questions. It's an exciting time to be at Broadridge, and we have a lot to cover, so let's get started. I'm pleased to share that Broadridge delivered strong third quarter results. Recurring revenues and adjusted operating income both rose 8%. Our results in both ICS and GTO are being propelled by long-term trends, including increasing digitization, mutualization, and the democratization of investing. These trends are driving strong new business growth, record growth in the number of shareholders, and higher trading volumes. We're also executing well against our strategic growth plan across governance, capital markets, and wealth and investment management. I'll highlight some of those initiatives in a few minutes. The combination of those strong results and continued execution against our growth plans is giving us the confidence to continue to invest in our business. We've continued to fund attractive investments in our products, platforms, and people, including the pending acquisition of ITIVITY. We're also substantially increasing our guidance for fiscal year 2021 on both the top and bottom line. We now expect recurring revenue growth of 8% to 10% and adjusted EPS growth of 11% to 13%. While the new guidance reflects the impact of activity, the bulk of this raise is organic, as Edmund will discuss. The net result of all these points, our strong third quarter results, our continued internal and M&A investment, and our outlook for fiscal 2021, is that Broadridge is executing well and is on track to deliver at the higher end of our three-year financial objectives, including 8% to 12% adjusted EPS growth. We remain focused on delivering long-term growth, driven by secular trends and consistent investment across our governance, wealth, and capital markets businesses, and in turn, generate consistent, sustainable, top-quartile shareholder returns. Broadridge's ability to generate those attractive returns is driven by executing on our clear long-term growth plan. So let me update you on some highlights of our recent progress on slide 5. I'll start with ICS. Recurring revenues rose 11% to $586 million, driven by revenue from new sales and very strong equity record growth. The biggest driver of ICS's strong growth was revenue from new sales, and I'm pleased to see the impact of recent investments on our results. Let me share two examples where our focus on product investment and strong execution are translating directly into increased revenue growth. The first is the Shareholder Rights Directive 2. Over the past two years, we've created a shareholder communications hub linking millions of investors across the EU with hundreds of wealth managers, winning almost 300 new clients along the way. Now, as we enter proxy season, we're starting to see those efforts translate into new revenues, helping to drive 80-plus percent growth in our international proxy business. Virtual shareholder meetings continue to be a great example of product investment translating into new revenues. Over the past year, we've upgraded our VSM capabilities to include the latest in virtual meeting capabilities, including state-of-the-art video and audio technology, improved Q&A functionality, one-click shareholder authentication, and seamless proxy voting. Those upgrades have helped retain our existing clients and have driven additional growth. We are now on pace to serve almost 1,900 virtual shareholder meetings this Foxy season, up from 1,400 last spring. The second factor driving ICS was very strong equity record growth, which was 20% for the quarter. It's clear the move to reducing trading commissions has triggered a significant expansion in the number of market participants, which contributed to the increase in equity record growth. That strong growth has been broad-based across our broker clients, but it's been most pronounced at the online brokers. It has also been broad-based across issuers, with 20% growth across both widely held stocks and those with more medium-sized shareholder bases. We did see large increases at a handful of names, including so-called meme stocks like GameStop, but those increases only contributed one point of the overall growth. Commission-free trading is the latest step in a long-term trend that includes the rise of ETFs, lower trading costs across all participants, and changes in investor interfaces that have propelled high single-digit equity and fund record growth over the past decade. Broadridge has invested to scale its capabilities to meet that rise in demand. increase the digitization of critical regulatory communications, and ensure that both new and existing investors get the information they need to understand the risks and participate in the governance of their investments. Looking forward, we expect strong record growth to extend into the fourth quarter, with our testing indicating 25% stock record growth for Q4. To close off on governance, Let me touch briefly on regulatory. I want to congratulate Commissioner Gensler on his confirmation as SEC Chairman. As we have with every chair and administration of both parties over the past 40 years, we look forward to assisting by investing in the next generation of technology to help the SEC achieve its mandate to better inform and protect investors, all while reducing costs for registrants and creating a fair return for our shareholders. Let's turn now to our capital markets franchise. Capital markets recurring revenues slipped by 1% as steady international growth was offset, as expected, by lower license revenues. We anticipate this period of flattish revenue to continue through the fourth quarter before picking up again in fiscal 22 as we onboard our very healthy backlog. On the strategic front, Our planned acquisition of Activity represents a significant enhancement of our ability to drive value to our clients. For those who may have missed our call a few weeks ago, let me remind you why we think this transaction is such an exciting step forward for our global capital markets franchise. As a leading provider of order management and trade execution technology and connectivity solutions for financial institutions, Activity gives Broadridge a compelling opportunity to extend our capital market service offerings. The combination of activities, front office trading solutions, with Broadridge's leading post-trade back-office capabilities, will allow us to serve our clients' entire trade lifecycle from order to settlement. With increasing high-frequency and algo-driven trading, it's increasingly important to serve clients across traditional boundaries. This combination will bring critical data from the back to the front office to improve trading decisions. and it will enable our clients to simplify and improve their front-to-back technology stack and operating model. The combination also strengthens our joint capabilities across equities, exchange-traded derivatives, and fixed income, and it substantially extends our global reach, creating significant cross-selling opportunities and enhancing our relationships with blue-chip clients. The acquisition virtually doubles our business in APAC and further expands our reach in Europe. that expanded footprint and scale positions us to take advantage of growing mutualization trends in both EMEA and Asia. Activity adds more than $6 billion to Broadridge's total addressable market and will drive stronger growth, margins, and earnings, as Edmund will discuss in his remarks. Early feedback from our clients has been overwhelmingly positive, giving us added confidence that our front-to-back thesis and our near-term medium growth outlook are sound. Also of note in our capital markets franchise is the continued development of our LTX fixed income trading platform. LTX recently completed the first ever multi-buyer digital block trade. Enabling a single seller to simultaneously access the aggregated liquidity from multiple buyers is a milestone for the fixed income market, and I hope one of the many steps towards creating a more liquid corporate bond market. To date, 10 dealers and over 40 asset managers have joined the LTX platform, and an additional 14 institutions are signed in the onboarding process, including one of the world's largest fixed income managers. Let's turn next to our wealth and investment management business, where revenues grew by 7%, driven by new client additions and higher equity trading volumes. A key part of our growth strategy is to expand our sales of component solutions, so it's terrific to see new client onboardings across a full range of our wealth and investment management products. We also continue to make progress on building our industry-leading wealth management platform, which will help clients with the digital transformation of their wealth business. We're already live with our average daily balance billing solution and industry milestone. We're currently in active testing of our front office workstation with select advisors, setting the stage for a period of extensive testing of the broader platform before going live. Our sales and marketing efforts with several new clients to this platform are advancing well. Clients see that using the broader wealth platform to drive digitization by seamlessly connecting the back office functions we already provide with additional select front and middle office capabilities will drive a stronger top and bottom line by bringing new capabilities to advisors and clients, while digitizing financial advisor, branch, and back office interactions. Another important part of our wealth strategy is developing a robust partner network to ensure that we can integrate cutting-edge capabilities from innovative partners. Recent partnerships include FLEGU for predictive analytics, Bancorp Bank for securities-based lending, and the TFIN Group, a wealth management fintech accelerator. These partnerships and others represent ongoing steps in building a network that will enable our clients to rapidly adopt new technologies. Before I turn the call over to Edmund, I want to step back for a moment and reflect on how far we've come over the past year. When I spoke to you at the close of our fiscal third quarter a year ago, the economic outlook was deeply uncertain, and from the New York area, and much of the world was locked down. My remarks at the time were focused on the steps we were taking to keep our associates safe and to meet the needs of our clients in an unprecedented time. Today, after 12 long months, there remain significant challenges, and I'm thinking in particular of our more than 3,000 associates in India and of their families and friends. But the global outlook is unquestionably brighter, with increasing economic growth marching hand-in-hand with rising vaccination rates. The pandemic has also accelerated many long-term trends, including digitization, mutualization, and next-generation resiliency. And the lower cost and friction for investing is bringing in millions of new investors. These changes are clearly having a significant impact across wealth management, governance, and capital markets. They're causing financial services leaders to rapidly adopt next-generation technologies. And Broadridge is building the suite of capabilities that will help them navigate and win this period of change. We do so from a position of strength. We started the fiscal year last July expecting 2% to 6% recurring revenue growth and 4% to 10% adjusted EPS growth. Our focus then was on driving enough expense savings to ensure that we could continue to fund critical growth investments. Fast forward 9 months and we are poised to deliver 8-10% recurring revenue growth, driven by a combination of strong new sales and healthy financial markets. After achieving our expense targets, we are now investing heavily in new product capabilities enhancing a global post-trade platform, and building next-generation capabilities across digital communications, wealth management, and fixed income trading, among other investments. We're also adding talent and investing in our people to make Broadridge the best place for the most talented associates in our industry. Last, but not least, we're on the brink of closing our $2.5 billion acquisition of ITIVITY, expanding our capital markets franchise, and further strengthening our global footprint. And yet, even after those investments and the near-term dilution from activity, we're positioned to deliver 11% to 13% adjusted EPS growth. Broadridge is on its front foot and leaning into the opportunities we see ahead. It has been a remarkable year. Looking further ahead, we're on track to achieve the higher end of our three-year growth objectives, driving strong recurring revenue and double-digit adjusted EPS growth. We see long-term trends continuing to drive demand for our services, and our investments are creating new avenues for growth long beyond our current three-year objectives. The future of Broadridge is brighter than ever. In my 10 years at Broadridge, I've never been as confident about our long-term outlook as I am on this call today. Before I turn it over, I want to thank our associates. We've asked a lot of our team over the past 12 months, and they're delivering. They stayed focused on clients, and through them, on helping to build better financial lives for millions. Let me now turn the call over to Edmund for more detailed financial review. Edmund?