Broadridge Financial Solutions, Inc.

Good day and welcome to the Broadridge Financial Solutions third quarter and fiscal year 2024 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 2. Please note this event is being recorded. I would now like to hand the call over to Edding Tebow, Head of Investor Relations. Please go ahead.

Thank you, Andrea. Good morning, everybody, and welcome to Broadridge's third quarter fiscal year 2024 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 this morning are Tim Gokey, our Chief Executive Officer, and our Chief Financial Officer, Edmund Reese. Before I turn the call over to Tim, a few standard call-outs. One, we'll 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. Two, we'll 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 GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thank you, Ed. And good morning. It's great to be here to review our third quarter results and update you on our full year outlook. Overall, I'm pleased with the performance of our business in a complex environment. We see a market in which the underlying fundamentals are solid, where capital markets and retail investor activity are beginning to strengthen, and where our clients are highlighting the need for continued technology investment. While all that is going on, those same clients are being careful with their spending as they weigh the new hire-for-longer scenario as well as other tail risks. These trends play to Broadridge's strengths. Our testing is indicating that healthy markets are driving a pickup in investor participation and position growth, and are delivering innovative solutions across governance, capital markets, and wealth. Sales continue to be strong, highlighting our clients' willingness to move ahead with solutions that address revenue, cost, or regulatory needs. My conversations with clients make it clear that they see Broadage as a partner in helping them grow their business and adapt to change. It's a strong position. and will be further enhanced as we put our cash flow to work with a balance of capital returns and targeted M&A. So, let's dig into the quarter. First, broaders reported 4% recurring revenue growth and 9% adjusted EPS growth. Those results were modestly impacted by the timing of annual meetings, which pushed some governance revenues into the fourth quarter. Second, We continue to execute against our strategy to drive the democratization and digitization of investing, simplify and innovate trading, and modernize wealth management. Our strategy is supported by long-term trends, including position growth, which we continue to see in the mid to high single-digit range. Third, that execution is coming through in our closed sales, which rose 29% in the quarter and are now up 19% year-to-date. We expect that positive momentum to continue in the fourth quarter. Fourth, we remain on track to achieve our objective for 100% free cash flow conversion for the full year. That positions us to use our capital to increase share repurchases and to fund strategic tech and M&A. Finally, as we move through our seasonally large fourth quarter, Broadridge is on track to deliver another year of steady and consistent growth in line with our long-term financial objectives. We are reaffirming our outlook for fiscal 24 adjusted EPS at the middle of our 8% to 12% range, with recurring revenue growth constant currency at the low end of our 6% to 9% range. With strong year-to-date sales, we also expect record-closed sales of $280 million to $320 million. Now let's turn from the headlines to slide four to review highlights of our execution, starting with our governance franchise. ICS recurring revenue rose 1% in the third quarter as the timing of regulatory communications impacted our quarterly growth. In regulatory communications, revenues were flat despite 5% equity position growth. As many of you know, the peak period for proxy communications falls right at the end of March, so any shift in the annual meeting schedule can have an impact on quarterly revenues. This year, with Easter and the last week of March instead of April last year, we saw a substantial number of companies push back to date for their annual meeting. That change led to a shift of regulatory revenue from March to April, or from the third to fourth quarter. This timing shift will have no impact on our full year results. Outside of timing, position growth trends were mixed, As I noted, equity position growth is 5% in line with our testing, driven by double-digit growth in managed accounts. Fund and ETF record growth declined to negative 1% for the quarter. Quarterly fund position growth can vary more widely than the full year number because it is impacted by the timing and types of communications that are distributed during any particular quarter. More broadly, the cumulative impact of lower fund flows and the shift in money market funds that began over a year ago has weighed on growth, especially for active funds. Year-to-date fund record growth is 2%. Looking ahead, fund flows are improving, and our testing indicates a modest pickup in the fourth quarter. As Edmund will outline, for the year, we expect stock record growth at 6% and fund record growth of 3%. Driving and enabling the democratization of investing is a key part of our long-term growth strategy. There's no better opportunity to demonstrate what that means than in a large and very visible proxy fight. As part of the Disney contest, Broadridge processed and distributed multiple rounds of communications to millions of registered and beneficial shareholders holding almost 2 billion shares on behalf of hundreds of our broker-dealer clients. Each vote was subject to multiple reviews and a process verified by an independent accounting firm so that all sides could be highly confident in the accuracy of the Broadridge votes. Vote tallies were available daily to all participants. The process culminated with an annual meeting hosted on Broderidge's virtual shareholder meeting platform, and the outcome was known immediately when the meeting closed. Contests like Disney are a great showcase for issuers, investors, our broker-dealer clients, and regulators of how Broderidge's significant investments in technology and digital communications, combined with a commitment to accuracy, enhance investor confidence in our markets. Outside of highly visible contests, we continue to enhance investor engagement by supporting the growth of Voting Choice across funds. In recent months, we've gone live with five of the largest asset managers across a mix of both retail and institutional-focused funds and ETS. This, in turn, is leading to strong interest to extend this service from more asset managers, and for a wider set of fund categories. We're also continuing the rollout of our tailored shareholder report solution as we help the funds industry navigate regulatory change. We're in production testing now, and we go fully live beginning in July. Turning to capital markets, revenues rose 8% to $266 million, driven by strong growth in BTCF, which continues to deliver on the pillars of our original acquisition case, During the quarter, we signed a leading U.S. and global bank as the first client for a global futures and options SaaS platform. This new capability will build on our existing products and significantly expand our derivatives trading solutions. It also represents another step forward in our goal of expanding BTCS's capabilities across asset classes and to our U.S. client base, which was a key part of our long-term growth plan at the time of the acquisition. On the post-trade side, we completed the implementation of our global post-trade platform for a leading Nordic bank. Our platform consolidates the bank's legacy in-house systems, streamlining its operations across 25 European markets and 10 custodians across both equities and fixed income. This particular bank was a long-term BTCS client, so it's also another example of leveraging our front office relationship to extend our solutions across the trade lifecycle. We also continue to see nice traction with our digital ledger repo and an AI with our bond GPT and ops GPT solutions. Turning now to wealth investment management, revenues rose 11% to $159 million, as strong growth from UBS and the license revenue was partially offset by the E-Trade transition. In the first full year since the rollout of our wealth platform, we are seeing significant interest in our broad suite of wealth capabilities and that's driving strong sales momentum with year-to-date wealth and investment management sales up 75%. I'm especially pleased to see strong interest in Canada for our wealth component capabilities. Canada accounts for approximately a third of our wealth and investment management revenues, and we see a long-term opportunity to adapt our wealth tools for Canadian firms. Moving to sales, closed sales rose 29% in the third quarter and are up 19% year-to-date. We've benefited from strong sales of our digital and print solutions for the new Taylor Chairholder Reports, and we continue to see significant print and digital opportunities in custom communications. Our pipeline remains at record levels as clients focus on solutions that drive revenue growth, like our front office trading tools, and meet their regulatory requirements, like Taylor Chairholder Reports. That combination of strong sales and a record pipeline is giving us increased confidence in our ability to achieve record close sales in line with our 280 to 320 million full-year guidance. Let's move to slide five for some additional thoughts on our quarter and outlook. First, we're poised to deliver another year of mid-single-digit organic recurring revenue growth and double-digit earnings growth, right in line with the long-term growth goals we laid out at our investor day in December. In a quarter impacted by the timing of annual meetings, we reported 9% adjusted EPS growth. Now, one month into the fourth quarter, we have high visibility into our remaining volumes. For the full year, we're tracking to recurring revenue growth of 6%, adjusted EPS growth of approximately 10%, and record closed sales. Second, our growth continues to be driven by long-term trends, increasing investor engagement, the demand for digitization, accelerating trading, regulatory change, leveraging data and AI, and the need to modernize wealth management have all combined to drive strong sales over the first three quarters. As a result, we're going into our largest sales quarter with a strong pipeline and increasing visibility. Position growth has moved from pandemic highs, and overall trends remain in line with the mid to high single-digit growth rate of the past decade. Looking beyond the fourth quarter, the outlook for financial services firms appears to be improving, Capital market activity is picking up, and innovation is driving sales growth as our clients increase their level of investment. At the same time, strong equity markets are driving investor engagement, and fund investors are beginning to rotate out of money market funds, both of which bode well for future position growth. Third, we're executing on our growth strategy. We're driving shareholder engagement and governance, enhancing our digital capabilities and customer communications, delivering innovative new capabilities in capital markets, and are expanding our ability to drive growth and wealth across North America. We're also investing to strengthen our product teams, sales capabilities, and technology capabilities, including, of course, AI. Fourth, we're on track to achieve our 100% free cash flow conversion objective, and the combination of strong free cash flow and our investment-grade balance sheet positions us to return additional capital to shareholders. We're also seeing a growing number of attractive M&A opportunities to further complement our organic growth. Finally, Broadridge remains well-positioned to drive long-term growth. We remain on track to deliver on our three-year growth objectives of 7% to 9% recurring revenue growth constant currency, 5% to 8% organic, and 8% to 12% adjusted EPS growth, with fiscal 24 right in line for those goals. And with continued execution supported by long-term demand trends, we are well positioned to continue to grow beyond FY26 as we attack our $60 billion and growing market opportunity. I want to close by thanking our associates around the world. The market for what we do continues to evolve, and Broadridge is evolving as well. We're seizing the opportunities in front of us, And your focus on serving our clients, as shown by our strong accomplishments this quarter and over a long period, continues to set us apart. Thank you. And with that, let me turn it over to Edmund.