Broadridge Financial Solutions, Inc.

Good morning and welcome to the Broadridge fourth quarter and fiscal year 2023 earnings conference call. All participants will be in a 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 and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Eddings Thiebaud, Head of Investor Relations. Please go ahead.

Thank you, Jamie. Good morning, everybody, and welcome to Broadridge's fourth quarter and fiscal year 2023 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 Rees. Before I turn the call over to Tim, a few standard reminders. One, 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. Two, 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 the comparable gap 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. It's great to be here this morning to review our strong fiscal 23 results. I'm particularly proud of what Broad Roots has been able to accomplish over the past year and where we stand now as we look forward. In fiscal 23, We finalized the rollout of our new wealth platform suite, completed the product integration of our front office trading capabilities, and brought new innovation and digitization to our governance clients. At the same time, we delivered strong financial results and record-free cash flow. We met our leverage target, and we delivered at or above the high end of our three-year financial objectives. The net result is that Broadridge is exiting 2023 poised to deliver another strong year in fiscal 24 and well positioned for continued long-term growth. I'm especially proud of our execution, given the uncertain market environment. Our financial services clients are dealing with fallout from the steepest rate increases in decades, a sharp slowdown in investment banking activity, fund outflows, banking crises, and increased regulation. They are reducing headcount and delaying purchasing decisions. Those pressures have had an impact on our sales, as I'll touch on later in this call. On the other hand, recent data points suggest an economy that's proven to be more resilient than anticipated, contributing to the clear sense of urgency our clients feel about next-generation technology. They know they need to streamline their operations, increase their digital capabilities, and drive innovation. They want partners who can help them accomplish these goals. And they recognize that Broadridge is one of only a handful of scale technology players investing to deliver new solutions built on modern technology. That's great for our business and is driving our record pipeline. So it is an uneven environment. But for Broadridge, it's a market that further highlights the resiliency of our business and the value of our investments for the future. With that as background, let's look at the headlines from the quarter and the year. First, Broadridge delivered another strong quarter. Recurring revenue grew 8%, with strong growth across both our segments. Earnings rose 21%, driven by the combination of strong revenue growth and disciplined expense management. Second, those results closed out a strong fiscal year. In 2023, recurring revenue and adjusted EPS both rose 9%, and free cash flow conversion improved to 90%. Importantly, Broadridge met or exceeded our three-year financial objectives. Third, our ability to deliver strong results, despite an uneven market, was driven by strong execution across governance, capital markets, and wealth. and by the long-term trends underpinning our growth. Fourth, we expect to deliver another strong year in fiscal 24. Our guidance calls for 6 to 9% recurring revenue growth, all organic, and 8 to 12% adjusted EPS growth. We also expect free cash flow conversion of approximately 100%. Finally, I'm delighted to announce a 10% increase in our annual dividend. Dividends are an important part of our long-term capital allocation, and we're proud of our track record of increasing dividends every year since we became a public company in 2007, including double-digit increases in 11 of the past 12 years. As a result of our strong free cash flow, we expect to resume share repurchases in fiscal 24 and to also have the flexibility to fund tuck-in M&A if the right opportunity arises. As I noted earlier, 2023 was the final year of our latest set of three-year objectives. So let's turn to slide five to highlight our performance against those goals. In fiscal 20, we reported recurring revenues of $2.9 billion and adjusted EPS of just over $5. Three years later, we've grown our recurring revenues nearly 40% to $4 billion and reported adjusted EPS just above $7. We met or exceeded the high end of our objectives for recurring revenue growth, adjusted operating income margin, and adjusted EPS growth. Our ability to deliver on those goals becomes even more meaningful viewed in the context of a longer lens. The fiscal 20 to 23 period marks the fourth consecutive three-year cycle in which we have delivered against a similar set of objectives. That track record underscores the long-term trends driving demand for what we do. Broadridge's focus on driving profitable growth and the strength of our recurring revenue business model. Next, let's review our business performance, starting with our governance franchise on slide five. Our ICS business delivered another very strong year as recurring revenue growth of 9% was powered by a combination of revenue from new sales, increased investor participation, and higher interest income. All four product lines reported strong growth. The biggest growth driver remained new sales. Our business benefited from new digital and print wins in our customer communications business and by increasing our relationships with fast-growing digital brokers. Our regulatory business also benefited from increased investor participation, which continued to grow at a healthy pace. We saw balanced position growth across both equities and funds, despite the headwinds from an equity market that, for much of the year, was lower. After two very strong years, equity position growth of 9% returned to more normalized mid-to-high single digits, driven by double-digit growth in managed accounts and single-digit growth in self-directed accounts. Mutual fund and ETF position growth was also strong at 8%, with balanced mid-single digit growth across both equity and fixed income funds. And while we saw growth of passive funds, demand for active funds also continued to be positive. One reason clients are choosing to do more with Broadridge is our commitment to innovation, including our work on driving digitization and shareholder engagement. For example, we are driving the digitization of wealth management communications with our omnichannel wealth and focus product. Our ability to consolidate information simplifies the investor experience while lowering costs for our clients. Thanks to our investments in digital, Broadridge has become the leading omnichannel communications hub. We're enabling a new frontier in investor engagement for funds with our work behind the scenes on voting choice. Over the course of 2023, we've rolled out pilot programs for four of the five largest ETF managers in the United States. We're enabling these fund managers to capture the voting preferences of millions of ETF shareholders, giving them an even stronger voice in the governance of the underlying companies they own. We're also helping funds adapt to the new Tailored Shareholder Report regulations by applying our unique digital and inline print capabilities to create a better investor experience at lower cost to fund companies. Those are just some of the examples of the innovative solutions that are differentiating Broadridge, driving high client retention and engagement, and enabling strong revenue growth for our governance franchise. Now let's move to a capital markets franchise, where our BTCS business continues to drive growth. Capital markets revenues rose 11% to $965 million, driven by strong growth in BTCS, and by the onboarding of new global post-trade clients. Our clients continue to look for ways to simplify their operating model, whether by bringing together disparate platforms in the front office, pursuing global multi-asset solutions in the back office, or connecting front to back. We're meeting that demand with a standardized global multi-asset trading platform, componentized solutions deliver a unified global book, and the front-to-back integration that enables clients to improve controls and reduce cost and risk by implementing straight-through processing. We're also delivering leading-edge solutions like the distributed ledger repo. Earlier this spring, we saw our clients execute intraday repo transactions on our DLR network. These new capabilities match distributed ledger technology with existing market settlement infrastructure to give our clients added flexibility to manage liquidity. We're also developing new AI applications, including an AI-enabled interface for a bond trading platform, reducing the friction around pre-trade analysis by making it easier to identify bonds with similar characteristics. Let's turn to wealth and investment management on slide seven. Wealth and investment management revenues rose 4% to $560 million in fiscal 23. Our growth was paced by revenues from new sales, driven by demand from modular solutions, especially advisor tools like our digital marketing platform, which more than offset the impact of a significant license sale in the prior year. During the fourth quarter, we finalized our rollout plan with UBS, which enabled us to begin to recognize revenue on July 1st as planned. We have built a suite of solutions that can drive advisor productivity, enhance the client experience, and reduce cost and risk by digitizing operations. It can help wealth firms better acquire, manage, and grow client accounts. It's a fully modular suite of components linked by a common data layer and common APIs. With the new UBS contract in place, we are now focused on our goal of $20 to $30 million of annualized wealth platform sales. Over the past few months, we've developed a targeted marketing plan to expand our outreach efforts and build on early demand. We're seeing strong near-term demand for Advisor Experience Suite, our corporate actions platform, and our alternatives product. Deeper in the pipeline, we're seeing significant interest in other modular solutions from wealth managers who want to enhance their client experience, as well as those considering more fundamental changes and how they serve clients. I'll wrap up my business review with a discussion of closed sales, where we continue to feel the impact of market uncertainty and longer sales cycles. After 11 years of record sales, closed sales of $246 million were down 12% from fiscal 22. While US sales were largely on track, we saw many delayed decisions in Europe. The good news is that we believe these are delays and that they will have little impact on our long-term growth trajectory. We have not seen projects drop or experience competitive losses. As a result, our pipeline is at an all-time record, and we expect strong sales growth in fiscal 24. Let's wrap up on slide 8 with some closing call-outs. First, Broadridge had another strong year in fiscal 23 financially and operationally. We delivered strong financial results, including record-free cash flow, and achieved critical growth and leverage milestones. We also finalized the delivery of our wealth platform and continue to enhance our governance and capital market solutions. Second, the same long-term trends that have propelled our growth show no signs of easing. Third, we expect to deliver another strong year in fiscal 24 with continued top and bottom-line growth as well as record closed sales and higher free cash flow conversion. With a return to more balanced capital allocation in 2024, we expect to make further progress in raising our ROIC to the mid to high teens over the next three years. Finally, I've never been more confident in the outlook for our company. As I look across Broadridge, our governance business has a differentiated core offer and innovative new solutions like pass-through voting, digital communications, and tailored shareholder reports. Our capital markets business is driving simplification and innovation in the front and back office. And our wealth business is now bringing the platform of tomorrow to clients today. We've never been better positioned for sustainable differentiation and innovation-driven growth. And with the end of our investment phase, returned historic free cash flow conversion, balanced capital allocations, and increasing ROIC to go with that growth, we are well positioned to drive strong returns for our shareholders. I'll wrap up on that note, but before I turn it over to Edmund, let me thank our almost 15,000 associates. To those listening on this call, thank you for your focus on our clients. Your work is helping us enable better financial lives for millions. Edmund, over to you.