Broadridge Financial Solutions, Inc.

Good morning and welcome to the Broad Ranch Second Quarter 2022 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 Edding Stebo, Head of Investor Relations. Please go ahead.

Thank you, Andrea. Good morning, and welcome to Broadridge's second quarter fiscal year 2022 earnings 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 this morning are Tim Gokey, our CEO, and our CFO, Edmund Rees. Before I turn the call over to Tim, a few standard reminders. First, 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 page of the slides and 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 their comparable gap measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thanks, Eddings. I'm excited to be here this morning to talk about our strong results, record sales, and our outlook for another really good year. I'll start with highlights for the quarter. First, Broadridge reported another quarter of strong results. Recurring revenues rose 19%, adjusted operating income rose 19%, and after the interest cost of activity, adjusted EPS rose 12%. More importantly, we are entering the seasonally larger second half of our year with strong momentum. Second, our growth is diversified across multiple sources and is backed by strong underlying market trends. Our strong organic growth is being driven first and foremost by revenue from new sales across both ICS and GTO as we continue to convert our backlog into revenues. We're also benefiting from the long-term tailwind provided by healthy position growth in our governance business, as well as the continued successful integration of ITIVITY. Third, we continue to execute on our growth strategy across our governance, capital markets, and wealth and investment management franchises. Our strong closed sales underscore how our investments are paying off and how our value proposition continues to resonate in the market. Finally, after a strong start to the year, we expect to deliver at the high end of our 12 to 15% recurring revenue growth guidance. We're also reaffirming our adjusted EPS guidance of 11 to 15%, positioning us for another year of steady and consistent adjusted EPS growth while funding additional investment. After a strong FY21 and with our guidance for FY22, we remain well positioned to deliver at the higher end of our three-year recurring revenue and adjusted EPS objectives. Execution against our long-term growth plan has been a key driver of results over the first half of fiscal 22. So let's turn to slide four for an update starting with governance. Our governance business is performing really well. ICS recurring revenues rose 10% to $427 million in the quarter, with the biggest driver being revenue from new sales across all four product lines. The franchise also continues to benefit from strong underlying position growth, including 20% equity stock record growth in a seasonally small quarter for proxies and another quarter of strong ETF and mutual fund position growth Position growth remains broad-based across both equities as well as funds and ETFs. For example, while equity position growth was strongest in energy and financials, every industry sector reported growth of more than 10%. And we're also seeing almost identical growth across both managed accounts and individually directed accounts. On the fund side, we saw position growth across both active and passive funds, with growth across equity and fixed income, and alternative asset classes. These trends remained resilient in January despite the decline in equity markets. Our weekly testing has actually showed some modest strengthening in position growth since the beginning of the year. Overall, our data shows more Americans are investing in our capital markets across different types of accounts and an increasingly diverse range of asset classes and securities. Moreover, they're staying invested in the face of market turbulence. For Broadridge, this is an opportunity to continuously raise the bar to serve more accounts and drive enhanced digital capabilities to ensure that investors, both new and existing, get the critical communications they need to make better investing decisions and to participate in the governance of those investments. We are also investing to further enhance the proxy voting system by implementing a end-to-end vote confirmation for thousands of public companies. Over the past year, we've worked closely with an industry group led by the Society for Corporate Governance, the Council of Institutional Investors, and others to enhance the vote reconciliation process. This spring, we'll be rolling out these enhancements to reassure investors that every vote is counted as cast for all Fortune 500 companies as well as all of the more than 2,500 public companies for whom Broadridge tabulates proxy votes. This is an investment that will further improve an already highly accurate process, and it's a great example of how we work at the center of the governance network in partnership with issuers and funds to strengthen the system as a whole. Before I turn to capital markets, I'm pleased to report that our customer communications business saw 9% growth in recurring revenues in the quarter. This business has been a strong contributor to earnings growth in recent years, and it's positive to see it adding to our top line as well. Interestingly, we're seeing strong demand for print solutions, with several new clients coming on board. These new wins give us more opportunities to upsell digital solutions. Moving to capital markets, recurring revenues rose 41% to $224 million, driven primarily by the addition of activity. When we announced the activity acquisition last spring, we highlighted both near and medium term benefits.