Broadridge Financial Solutions, Inc.

Good morning, and welcome to the Broadridge Fourth Quarter and Fiscal Year 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. Please note this event is being recorded. I'd now like to turn the conference over to Eddines Thiebaud, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Broadridge's fourth quarter fiscal year 2022 earnings call. Our earnings release and the slides that accompany 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 Reese. Before I turn the call over to Tim, a few standard reminders. We will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides in a more complete description on our annual report on Form 10-K. We'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliation to their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thank you, Eddings. And good morning to everyone joining us. I'm pleased to update you on Broderidge's strong fourth quarter and full year performance for fiscal 22, as well as our positive outlook for fiscal 23. This performance is driven by strong execution, positive underlying trends, and our acquisition of activity, which exceeded our expectations in year one. We expect this strong performance to continue into fiscal 23 and beyond. I'll provide an overview, and Edmund will take us through the key details. Before turning to our results, a note about what we're seeing from our unique position at the center of the equities, fixed income, and fund markets. Despite the uncertainty and market pullback in the quarter ending in June, investors continue to be engaged, and position growth remains robust our broker and asset management clients continue to face the imperative for digitizing their business. At the same time, they face regulatory change greater than any time since the global financial crisis. Our conversations with clients, both in North America and globally, remain very active as they pursue industry solutions for common needs and digital innovation for areas where they seek to differentiate. With that background, Let's move to an overview of our results, which highlight the strength and resilience of our business model. First, Broadridge closed the year on a very strong note. Fourth quarter recurring revenues rose 15%, driven by exceptional 12% organic growth. Adjusted EPS rose 21% to $2.65. Second, these results were the capstone on a very strong year. For the full year, recurring revenues rose 16%, driving higher margins, and after accounting for higher interest expense, adjusted EPS growth of 14%. We also delivered an 11th consecutive year of record closed sales, up more than 20%. Third, our growth is powered by execution against strong underlying market trends, including increased invested participation and diversification, and the digitization of financial services, as well as the successful integration and strong performance of our activity acquisition. Fourth, we continue to drive balanced capital allocation as a core part of our long-term value creation algorithm. We continue to invest in modern, scalable technology platforms, and yesterday, our board approved a 13% increase in our annual dividend Broadridge has increased its dividend every year since becoming an independent company, with double-digit increases in nine of the last 10 years. That's a testament to our execution, the strength and resilience of our business model, and, of course, the long-term trends driving our growth. Fifth and last, our outlook for fiscal 23 is positive. Our business model is built to deliver growth through all economic cycles. Our fiscal 23 guidance calls for a strong 6% to 9% organic recurring revenue growth. This will drive double-digit growth in adjusted operating income and 7% to 11% adjusted EPS growth. We also expect another year of very strong sales. The combination of excellent fiscal 21 and 22 results, coupled with a strong fiscal 23 outlook, Has Broadridge well positioned to deliver at or above the higher end of our three-year investor day objectives for the period that ends next June? That will mark the third successive three-year period in which we've delivered on our objectives. To build on those highlights, let's turn to a review of our execution against the three key opportunities that are driving our growth. First, extending our governance business. by driving digital engagement. Second, leveraging our acquisition of activity to grow our capital markets business. And third, building on our wealth franchise by delivering on the capabilities that make up our open wealth platform. I'll touch on each of these initiatives as I review our businesses, starting with governance, on slide four. Our ICS business delivered another very strong year, as recurring revenue growth of 11% was powered by a combination of increased investor participation and revenue from new sales. Investor participation continued to grow at a very healthy pace in fiscal 22. Equity position growth remained well above trend at 18% for the year, and we benefited from increasing investor participation on the fund side as well, with mutual fund and ETF record growth of 14%. We remain positive on the trends driving long-term investor participation and diversification growth, and we see this growth normalizing in the mid- to high-single-digit range in fiscal 23 and beyond as market appreciation slows and we lap the benefit from zero-commission trading. Importantly, we're delivering increased digitization across our regulatory business. For proxies, digitization rose to 86%, from 81% two years ago. For funds, digitization rose to 78%, from 69% two years ago. When you apply that change across some 2.2 billion shareholder communications, you can see that Broadridge generated tens of millions in incremental savings for issuers and funds, while significantly reducing greenhouse gas emissions. New sales was the other big driver of growth. Our focus on innovation is increasing shareholder and client engagement across the full governance network from broker-dealers and wealth managers to public companies to funds to end investors. For example, for our broker-dealer clients, we instituted end-to-end vote confirmation for nearly 3,000 public companies and are rolling out universal proxy functionality this month. For fund companies, We're helping the world's largest fund managers launch pass-through voting. We launched a new cloud-based European funds reporting platform, and we're growing our data and analytics solutions. For issuers, we rolled out an upgraded virtual shareholder meeting platform across more than 2,500 annual meetings, making it easier than ever for investors to participate. We also upgraded our proxy vote app, enabling deeper investor engagement. Finally, Our continued focus on digitizing customer communications enabled us to close a landmark deal to serve as the core digital communications infrastructure for a Tier 1 wealth manager, while continuing to onboard and serve our growing roster of new clients. These innovations helped drive strong revenue growth and led to what was clearly another strong year for our governance franchise. Now let's move to our capital markets franchise, where the acquisition of Activity is helping to transform our position in the market. In capital markets, we're driving trading innovation, simplifying global post-trade technology, and building new enterprise data and network-enabled solutions. Activities leading front office capabilities have meaningfully extended our franchise, deepening our relationships with key clients. Capital markets revenues rose 39% to $921 million primarily driven by our acquisition of activity, on which I will touch in a moment. In the meantime, despite our focus on the acquisition, we drove organic growth of 5%. The biggest factor in organic growth was revenue from new sales as we onboarded multiple new clients to our global post-trade platform. It is great to see our platform investments converting to revenue growth. We're also developing enterprise and network solutions Our digital ledger repo solution is now live with three clients, with a fourth signed, and others in the pipeline. Our production volume is now averaging more than $50 billion a day, and we expect that will climb further by year end. Today, our clients are using digital ledger repo to process intra-company transactions and reduce external counterparty expense. We're further enhancing our capabilities in early fiscal 23 to include sponsored repos, While the revenue from this business remains small today, the pipeline is strong, and we see a long runway for future growth. Another key network initiative is LTX, our fixed income trading platform, where we continue to make steady progress toward a full launch. The biggest growth initiative in capital markets this past year has been the acquisition of activity, which is delivering even more value than we first anticipated. So let's turn to slide six for a double-click on the performance of that business. I'm pleased to report that the integration is going very well. We are near completion on most streams. We're driving revenue and cost synergies. And we've strengthened and deepened the management team. We've also officially rebranded the business Broadridge Trading and Connectivity Solutions, or BTCS. When we announced the acquisition last spring, we highlighted Three key drivers for why we thought this is a strong fit and would generate significant value for our shareholders. A year later, these drivers have only been reinforced. The first driver was the compelling strategic fit with our capital markets franchise. We expected that the combination of activities front office and connectivity solutions with our back office capabilities would give us an unmatched ability to add value across the trade lifecycle. That thesis is playing out, and we're in dialogues with multiple clients who increasingly see Broadridge as a critical partner in a multi-year process of modernizing their trading infrastructure. We're also well into developing the capability to enable common data sets across the trade lifecycle, which will be a significant benefit for many clients. Our second driver was to use our expanded global scale and footprint to unlock additional growth. A year later, our international revenues have grown by more than 60%, enabling us to strengthen our position in both Europe and Asia Pacific. Clients see us as an increasingly global player, and ITIVITY clients are seeing the benefit of being partnered with a larger player, especially one with a reputation for investment and service. Last, ITIVITY is delivering clear financial benefits. came in ahead of our acquisition case at $256 million, and we exceeded our earnings target. We've actioned almost $10 million in synergies, including $3 million of revenue synergies and $6 million on the cost side. Our incremental scale helped fuel more than $30 million in closed sales, with multiple competitive wins in fiscal 22. Thanks to those sales, we are on target to deliver double-digit growth in fiscal 23 and beyond. So we're off to a strong start in realizing activities potential. Looking ahead, we have a clear roadmap for continued growth, driving share gains in the near term, executing on revenue synergies in the medium term, and over the long term, driving a suite of modular solutions covering the entire front-to-back trade lifecycle. Now let's turn to slide seven for an overview of our progress in building the leading wealth tech player. In wealth management, we are building on our core strength as the leading back-office technology provider, delivering new component solutions and developing an agile modular platform that will link the full suite of our capabilities. Wealth and investment management revenues rose 5% in fiscal 2022, powered by new sales in both the U.S. and Canada, which helped offset the impact of lower trading volumes. as we lapped the peak of the meme stock phenomena over the second half of last year. Our open, component-based wealth management platform remains our top priority. To date, we've rolled out managed account billing and advisor workstations, both to strong reviews. We recently delivered the second generation of the workstation with even more capability. Looking ahead, we're deep into integration testing, on the remainder of the course week with strong results and anticipate being largely code complete by the end of calendar 22. We remain on track to go live in summer of 23. Ongoing client discussions are enabling us to sharpen our open value proposition, open platform value proposition. Our ability to offer clients a set of modular solutions linked by a common enterprise integration layer enables them to modernize key parts of their tech staff one step at a time with clear value at each step. This modular approach is drawing significant interest from clients, and we expect it to drive increased wealth sales in fiscal 23. So to sum up, we are executing well across each of our franchise businesses. Now let's move to slide eight, and I'll wrap up my review with some closing thoughts. First, Rogers delivered another strong year of financial and operating results. Second, we're executing on our growth plans in three attractive opportunities. We're driving digitization to extend governance. We're leveraging activity to grow capital markets. And we're successfully building wealth management. Our investments in each of these areas are creating significant momentum in the marketplace. Third, our growth is being propelled by the accelerating pace of change in the financial services industry. Clients are evolving their business models, rapidly seeking to digitize and adopting next-generation technologies. Slowing global growth is likely to further accelerate these changes as our clients invest to compete for market share and drive productivity. By accelerating digitization and mutualizing non-differentiating costs, our solutions help them meet those needs. And that brings me to my fourth and last point. Broadridge has never been better positioned for long-term growth. Our guidance calls for 69% recurring revenue growth in fiscal 23 and 7 to 11% adjusted EPS growth. We're on track to deliver at or above our three-year objectives. And with a $60 billion market opportunity, we see a long runaway for growth. Before I finish, I want to thank our associates around the world. Their work is the driving force behind the innovation that we're bringing to the financial services industry. This work is critical for our clients, and through them, we're making a difference in improving the financial lives of millions around the globe. Edmund, over to you.