Broadridge Financial Solutions, Inc.

Good morning, and welcome to the Broadridge second quarter and fiscal year 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please send to 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. To withdraw your questions, you may press star and two. You'll also note today's event is being recorded. At this time, I'd like to turn the floor over to Edding Tebow, Head of Investor Relations. Please go ahead.

Thank you, Jamie. And good morning, everybody, and welcome to Broadridge's second quarter fiscal year 2024 earnings conference 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 Chief Financial Officer, Edmund Reist. Before I turn the call over to Tim, a few standard call-outs. 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 reconciliations to the comparable GAAP measures can be found in the earnings release and presentation. With that, let me now turn the call over to Tim Gokey.

Tim? Thank you, Edding. Good morning, and it was great reconnecting with so many of you at our investor day in December. As you heard, we are more optimistic than ever about the near and long-term growth opportunity that lies ahead. You'll hear many of those same themes today as I discuss our positive second quarter results in fiscal year outlook. Before I do, let me comment on the unique and complex moment in which we find ourselves. At Davos two weeks ago, it was energizing to talk with our senior clients about the opportunities and challenges they see ahead. A lot of the discussion was on the promise of AI and how we move our industry forward. Broderidge's recent announcement of Ops GPT to leverage generative AI to transform capital markets operations was particularly timely. At the same time, the geopolitical challenges and uncertainties in the environment are clear, which makes our highly recurring and resilient business model all the more attractive. Against this backdrop, it was rewarding to hear our clients continue to think of Broderidge as an important partner for innovation and growth. as well as for efficiency and resilience. And with that, let me turn to the quarter. First, Broderidge's second quarter results mark another step toward our growth plans for both fiscal 24 and the next three years, with healthy organic growth across both segments that was in line with our long-term goals. Second, position growth trends remained positive with stronger fund position growth and mid-single-digit equity position growth. Third, we are executing against the growth plan we shared last month at our investor day by driving the democratization and digitization of investing, simplifying and innovating trading, and modernizing wealth management. Fourth, we generated strong free cash flow in the quarter, keeping us on track to achieve our 100% FY24 conversion objective, and as Edmund will discuss, return more capital to shareholders. Finally, as we enter the seasonally larger second half of our fiscal year, we expect to deliver another strong set of results. We are reaffirming our guidance for 69% recurring revenue growth, 8-12% adjusted EPS growth, and importantly, strong closed sales. Now let's turn from the headlines to slide four to review our results, starting with our governance franchise. ICS recurring revenue rose 6% in the second quarter. New sales were the biggest driver of growth, a direct result of our focus on delivering innovation across our governance business. We are seeing growth from adding new broker-dealer clients and from sales of our global insights data to asset managers. We're seeing continued momentum in our regulatory composition and disclosure business, and we're benefiting from a strong growth in our digital solutions and customer communications. Increasing investor participation remains an important driver for our regulatory revenues, which rose 8% in the second quarter, with mid-single-digit position growth across both equities and funds. In a seasonally small quarter, equity position growth was 6%, The biggest driver continues to be managed accounts, which represent just under 50% of positions and which continues to grow in double digits compared to low single-digit growth for self-directed accounts. Fund and ETF position growth increased from last quarter to 5% as a slowdown in the growth of passive funds was offset by a pickup in the number of active fund positions. Looking ahead, as Edmund will outline, We expect mid-single-digit position growth in the second half in both equities and funds as investor participation remains healthy. In December, you also heard us discuss the growth opportunities in our other ICS product lines. In Q2, we saw strong growth across issuer and data-driven fund solutions. In customer communications, strong growth in high-margin digital revenue offset lower print. I was particularly pleased with the continued digital transition, which you will recall is a key part of our strategy. In Q2, a significant proportion of this transition was driven by the successful onboarding of one of the largest U.S. wealth managers to our wealth and focus platform. This is the platform we highlighted at our investor day, and it's great to see our printed digital strategy playing out. Four months in, Wealth and Focus is delivering lower costs and increased investor engagement for our clients, with industry-leading open rates and click-throughs. Capital markets revenues rose 10% to $262 million. Our focus on optimizing trading and connectivity in the front office continues to pay dividends in the form of strong growth in PTCS. On the post-trade side, we're helping to simplify our clients' back-office technology I was pleased to see a new win at a regional bank who will be using multiple broadband products to drive their transition to self-clearing. We also continue to drive innovation in capital markets with distributed ledger and AI capabilities. Early this month, we launched our OpsGPT AI solution. OpsGPT uses generative AI to synthesize complex transactions, settlements, and positions data to enhance clients' sales resolution. As clients focus on reducing the cost and complexity of their operations, especially in the accelerated world of T plus one, they see Broadridge as a natural partner, given our deep subject matter expertise and early investment to leverage AI. This progress and innovation, combined with strong BTCS sales in the front office and wins in the back office, reinforces how we are successfully helping our clients simplify and innovate in trading. Turning now to wealth and investment management, revenues rose 4% to $143 million, and strong growth from UBS was partially offset by the E-Trade transition. In early January, we onboarded the first client for Alternatives Workflow Module. As you know, alternatives are one of the fastest-growing asset classes. Wealth managers are offering these products to a rapidly growing set of investors, but many of the back-office processes remain antiquated. We are seeing strong interest in alternative workflow as wealth firms seek to address this growing opportunity and challenge. Moving to closed sales, closed sales rose 12% for the first half. As you know, the second half of the year typically accounts for the bulk of our closed sales, and I'm pleased to note that our current pipeline sits at record levels. As important, we're starting to see more movement within the pipeline increasing our confidence for the second half. While our clients remain cautious, we are seeing them invest in products that drive revenue, improve productivity, and meet regulatory requirements, which plays to the strength of our solutions. In governance, we've built a strong pipeline around our digital and print solutions for the new tailored shareholder reports. We're also experiencing increasing demand for our global insight data products from asset managers, and we continue to see significant print and digital opportunities in customer communications. In capital markets, clients are beginning to look to a world beyond the implementation of T plus one, which is driving growing interest in our post-trade capabilities. And in wealth, we saw significant sales in the first half as we begin to convert our strong pipeline. The net result is that we remain on track to deliver strong closed sales for the year, in line with our guidance of $280 million. to $320 million. Let's move to slide five for some final thoughts on our quarter and outlook. First, I'll reiterate that Broadridge delivered second quarter results that keep us on track for continued growth with more than 6% recurring revenue growth constant currency and strong free cash flow. Second, those of you who attended our investor day last month heard me talk about how we have made investments over the years to align our business with clear long-term growth trends, including the democratization of investing, the digitization of communications, the acceleration of trading, the growing importance of data and AI, and an evolving regulatory environment. Being aligned with those drivers enables us to help our clients operate, innovate, and grow, and in so doing, deliver steady and consistent growth for our investors. This quarter, again illustrated how we are executing against those priorities in governance, capital markets, and wealth and investment management. Among these drivers, AI in particular has the potential to drive step changes in client outcomes. We have committed to be a leader in AI within our space. In the not-distant future, AI will be incorporated into all products, and we are at work doing that across Broadridge. More fundamentally, companies with unique data will be in a differentiated position. And we believe that our position at the Center of Financial Services gives us a unique opportunity to provide industry solutions that will make a difference. That's a win-win formula for our clients and our shareholders. The products we've already introduced, including BondGPT, OpsGPT, and Distribution AI, are a first step in that direction. Third, Based on all that progress, we are reiterating our guidance for both recurring revenue and adjusted EPS growth, as well as our outlook for closed sales for the full fiscal year. Fourth, we remain on track to deliver a free cash flow conversion of 100% this year, while funding the internal investment we need to continue to deliver innovation to our clients. That's an approach that will enable us to retain our investment grade rating fund internal investment, and deliver a strong and growing dividend, while we execute strategic tuck-in M&A, and as Edmund will discuss, return additional capital to shareholders. And that brings me to my last point, which is that Broadridge is well-positioned to deliver on the three-year financial objectives we laid out in December, including 7% to 9% recurring revenue growth, constant currency, 5% to 8% of which are organic, 8% to 12% adjusted EPS growth, as well as to continue to grow beyond FY26 as we attack our $60 billion and growing market opportunity. Before I close, I want to thank our 15,000 talented, knowledgeable, and hardworking associates. Yesterday, Broadridge was recognized as one of Fortune's most admired companies, This is the 10th time we've been recognized, and that's a direct result of our associates' commitment to delivering great service, resiliency, and innovation that makes our clients and our industry stronger and that enables better financial lives for millions of investors every day. Thank you. And with that, let me turn it over to Edmund.