Q1 2020 Earnings Call
Welcome to chorus call leasehold and operator will be with usual.
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First name David last name wrong.
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Thank you.
And then one.
It's all your questions you May press star into.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Mr. headings Tivo head of Investor Relations. Sir. Please go ahead.
Thank you Jamie good morning, and welcome to Broadridges fiscal first quarter 2020 earnings call. Our earnings release in the slides accompanying this call may be found on the Investor Relations section Roderick Dot com.
Joining me on the call. This morning are Tim Gokey, our CEO and our CFO Jim Young.
Before I turn the call over to Tim few standard reminders we.
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 will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Roger just 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 I'll turn the call over to Tim Gokey.
Thank you weddings and good morning, everyone on the call today.
Got it had a solid first quarter and is well positioned for the year.
We generated 8% recurring revenue growth.
We had record first quarter sales.
And we continue to feel good about our underlying business trends.
We also completed tuck in acquisitions across each of our franchises that will strengthen broadridge and drive long term growth.
For the largely anticipated lower event driven activity impacted our results in this seasonally small corridor.
We are well positioned to deliver strong fiscal year 2020, and we are reaffirming our full year guidance.
Moreover, ongoing industry trends continue to underline why broadridge is so well positioned for longer term growth.
This morning, I'll provide you have brief overview of our first quarter results.
And given the increased level of M&A, we seen over the past few months.
We view, how it fits together to strengthen our franchises.
Jim will then follow with an overview of our financial results, including the shift of our wealth advisory solutions from IC EPS GTL.
As always.
Closer to your question.
Let's get started on slide four.
Brides reported solid first quarter results.
As you analyze the quarter keep in mind that Q1 is our seasonally light as to the year.
Typically we generate anywhere from 12% to 14% of our full year adjusted EPS in the first quarter and Thats right, where we ended up.
With that mind, let's touch on the headline results.
Recurring revenues rose, 8% to $623 million driven in large part or the acquisitions, we made in the fourth quarter.
You are performing well.
Organic growth was light and 2%.
We expect it to accelerate through the year driven by stronger growth in both Rcs and GTL onboarding sales that have already taken place.
With a $330 million backlog, Jim mentioned last quarter, we have very good line of sight on our ability to generate revenue from sales.
As expected.
That driven revenues declined significantly relative to the first quarter of 2019.
Recall that in 2019, we benefited from a proxy campaign and a significant mutual fund complex.
The lapping of that large campaign drove most of the decline in event driven revenues and earnings and Jim will give an update on how this plays into our full year forecast.
Last point and results.
Strong sales.
Close sales rose more than 100% $38 million, a first quarter record, which speaks to the strength of our underlying business.
Our first quarter sales are especially gratifying, having our strong fourth quarter.
No indication other momentum we see in the market.
I'm pleased with the investments we've made in our business over the past few months with targeted tuck in M&A across all three of our franchise focus areas.
As I will discuss in a few minutes our investments over the past 24 months have collectively strengthened our business and improved our long term growth profile across governance capital markets and wealth and investment management.
Finally.
The key takeaway from the quarter.
That brought it remains on track to deliver another strong year on top and Bottomline growth.
We continue to expect strong close sales.
8% to 10% recurring fee revenue growth.
And 8% to 12% adjusted EPS growth in fiscal year 20.
This outlook positions us to deliver on the three year growth objectives, we shared with you had a 2017 investor day.
Including at the high end of our adjusted EPS range.
Beyond fiscal year 20 ongoing industry trends have only strengthen my confidence in our growth outlook and the potential opportunity in front of us.
The past few months, who brought increased evidence to the financial services industry is facing significant structural cost pressures.
The moves by online brokers to slash trading commissions have a global banks to realign the strategic focus has driven home the challenges the industry basis.
In addition, regulatory change remains to constant with the SEC moving rapidly to implement regulation best interest and then moves in Europe preserve shareholder rights director.
These challenges are helping drive our growth.
Financial services firms need to move rapidly to adapt their businesses and evolve how they sort of their clients.
That's causing them to embrace industry solutions to neutralize critical non differentiating functions.
Happy that more and better data.
Raise the effectiveness of their communications.
As we see playing out in our record sales in backlog.
No one is better position and broadridge to provide the solutions.
So while the challenges faced by the industry are real.
The only reinforce the underlying trends that have fueled our growth and.
And they highlight why we remain so excited about our outlook.
Now, let's turn to slide five for a review of our results.
I'll start with our IC assignment.
Recurring revenues, excluding custard communications rose 10%.
Driven by 6% organic growth and the addition of the TD Ameritrade retirement assets.
The biggest organic driver was higher mutual fund ETF revenues or recent share gains helped to drive growth.
Equity stock record growth was solid at 7%.
While funding ATM income record growth slowed to 1%.
I think early in the quarter before rebounding.
Temporary slowdowns in term record growth or not unusual.
And we expect in turn record growth to rebound over the course of fiscal 2000.
Our IC segment also benefited from strong demand for data and analytics products.
The acquisition of the TD assets added nicely to our growth.
And I'm pleased with the progress, we're making integration that business.
Customer communications revenue fell 2% driven by combination of client losses and volume attrition.
As expected event, driven revenues declined steeply year over year as we lap exceptionally strong mutual fund proxy activity in the first quarter fiscal 19 and revenue has returned to more normalized levels.
We see event driven revenue picking up in second half a year driven impart by proxy campaign at a large mutual fund complex.
I continue to be excited by the momentum NGL business, where we grew 15% for the quarter and expect mid teens growth the remainder of the year.
Organic growth of 3% with held back in the quarter and Onboarding delay, which is now complete.
And we therefore expect organic growth to pick up meaningfully in the second quarter and for the remainder of the year.
The acquisition of RFP also contributed nicely to for first quarter results driven in part by strong license sales.
While these sales for an rpms pipeline when we acquired the business we were able to expand the scope of are particularly meaningful solution for large client as a result for the broadridge relationship.
So it's good to see and early returns on our expected revenue synergies.
We also took another step toward the creation of a separate wealth management business with NRG segment.
Our transferring advisory solutions products from us to GTL.
While modest from a revenue perspective. This is a small but meaning we'll move quick point together are well solutions into a more unified home Jim will share the details.
Finally, and importantly, broadridge posted record first quarter sales.
We continue to see strong sales momentum across multiple product lines.
Notable wins included the sale of a global postpaid management technology platform for major European Bank.
As well as an increase in the government services, we provide for major asset manager.
It's early in here and we faced a tough comp in the second quarter as result of our landmark sale the last year.
We're off to a strong start.
Broadridge has been very active on the M&A front, the past few months, making multiple acquisitions to strengthen our business.
So I want to take a few minutes to review our recent deals and why they will help us achieve our strategic goals.
Let's turn to slide six to start that discussion.
Acquisitions are an integral part of our capital stewardship and investment strategy and our tightly aligned with the franchise strategy, we laid out and our last Investor day.
Since the end of fiscal 17, we've made 13 tuck in acquisitions deploying a total of almost $700 million.
These investments are tightly linked to our strategic goals.
And governance, our strategy is to build a next generation of governance communications and to extend our services across the governance network.
We invested more than $300 million in the past 24 months to help accelerate that strategy.
We significantly extended a data driven solutions, most recently with 560 and the TD Ameritrade assets.
If I Threesixty provides fiduciary focus accreditation data and analytics retirement advisory in India, Aries broadens, the Dayton and lift capabilities and strengthens our solution set for regulation next interest.
We've also added to issue a product suite.
Broadened our regulatory communications footprint.
Strengthened our digital capabilities.
And well, we're creating the open architecture solution to the future for investors advisers and operations.
Acquisitions are playing an important role in this vision and we've invested nearly $350 million since the end of fiscal 17.
The biggest acquisition was RPM, which strengthens our wealth business in Canada and extends our capabilities to integrate banking into wealth management.
We also acquired new capabilities around securities based lending and most recently advisor compensation.
And capital markets, we're driving the growth of our business globally.
Much of that growth has been organic but im pleased that we're able to acquire shadow financial in October .
And your capabilities into new asset classes, including exchange traded derivatives and cryptocurrency.
Across governance capital markets and wealth management, our M&A investments have helped accelerate our strategic objectives and strengthened our long term growth profile.
It deepens our relationships with key clients added talent got new capabilities, and giving us additional addressable market in which to invest organically.
These investments have had clear financial benefits as well.
Total they should contribute approximately $175 million for F. Why 20 exit recurring revenue run rate, adding 2.3 year revenue CAGR inline with our Investor day objectives.
Moreover, we expect them to be accretive to our organic growth with a blended growth rate well above corporate average.
The past six months have been busy on the M&A front and I'm excited about what we've been able to execute.
You've been talking to many of these prospects for some time in some cases for years.
With our strong cash loan balance sheet, we are able to act when the right opportunity comes even.
Even in multiple properties come for sale over short period of time.
As CEO , it's great to have that flexibility.
So no change to our capital allocation strategy.
If you look for attractive tuck ins.
I'll now turn the call there Jim for reviewer financials, but before I do let me summarize I key messages.
First we reported solid first quarter results with 8% recurring revenue growth and record first quarter sales.
Second ongoing industry trends underlying wide broadridge is well positioned for longer term growth.
Third.
Continue to make the investments across our business that accelerate our strategic objectives and position broadridge for that growth.
And fourth.
We're on track to deliver a strong fiscal 2008% to 10% recurring fee revenue growth in 8% to 12% growth in adjusted EPS.
It's an exciting time via Broadridge.
We're on track to delivered another strong year and energized by the opportunity to play a key will and transforming the financial services industry.
Before I turn it over to Jim I want to thank our nearly 12000 associates around the world for their hard work and dedication for clients and to the service Bobbitt chain.
The workday do strengthens our clients and enables better financial lies for all of us.
For millions of others.
Jim.
Thanks, Tim and good morning, everyone Broadridge reported a solid first quarter and we're on track to deliver a strong fiscal year 2020.
Before reviewing our results I'll make a few call outs first a reminder, on seasonality. Our first quarter is typically our smallest recurring revenue and earnings quarter of the year consistent with the outlook. We provided in August and our historical average our Q1 adjusted EPS came in at 13% from our full year.
Adjusted EPS guidance at the midpoint.
Second acquisitions fiscal year to date through early November we have invested $179 million in fourq targeted tuck in acquisitions aligned with our franchise strategy.
We expect that these acquisitions will contribute an additional point to recurring fee growth in fiscal 2000.
We also expect that these acquisitions will be earnings dilutive in fiscal 20 after accounting for financing costs.
These investments coupled with our seasonally negative free cash flow in Q1 pushed our adjusted leverage ratio up to 2.2 times at September Thirtyth slightly above our long term target of 2.0 times.
This was a temporary spike and we expect to finish the year close to our target.
Third event driven activity as expected event driven fee revenue decline, notably from record first quarter, a year ago driving a decline in first quarter earnings.
At $40 million Q1 event fees were also a bit lower than our expectations.
However, at this level of event fees inline with prior periods normalizing for significant mutual fund proxy activity or notable proxy contest.
We now expect event fees to be at the low end of our initial full year expectation of a decline of 5% to 15%.
For some modest changes to our segment reporting as part of our strategy of building a wealth management franchise, we have consolidated our advisor solutions products into Gitto from ice, yes, representing $43 million of annual revenue in fiscal 19.
All fiscal 19 segment numbers have been revised reflect this change and I'll be referring to the revised numbers in my remarks, the supplemental product revenue breakout in the appendix. This presentation shows the revised numbers for all four quarters of fiscal 19.
Fifth and most importantly guidance, we expect to deliver a strong fiscal year 2020 and are reaffirming full year guidance across all metrics.
Let's turn to slide seven for review of our first quarter revenue drivers I'll start with recurring fee revenues.
Recurring fee revenues rose, 8% in the quarter acquisitions carried the load was six points of growth coming from our fiscal fourth quarter 2019 acquisitions RPM TD in rockall.
Organic recurring fee growth in the quarter was light a 2% onboarding of new business, our clothes sales as shown here was the largest organic contributor as we continue to onboard sales across both our IC Aesynt GTL segments in chip away at our healthy revenue backlog.
Internal growth, which has been a consistent contributor organic growth was modestly negative in the first quarter driven by slower growth and mutual fund and ETF Interims lower customer communications volumes and less professional services work.
As Tim touched on we expect organic revenue growth to accelerate in the remainder of the year driven by Geo Onboardings healthy proxy volumes and a return to more normalized levels of interim record growth among other factors.
Moving down to total revenue.
Total revenues declined 2% to $949 million in the quarter.
Strong gains in recurring fee revenues were offset by the largely expected declines in event driven fee and related distribution revenues. Following record event driven levels, a year ago, and finally, the weaker British pound and the acquisitions of RPM and Rockall had a modest negative impact on our FX line.
Next I'll cover the performance of our IC Essen GTL segments on slide eight.
As I indicated earlier in my remarks. These results reflect the relocation of certain advisor solutions products from I see us to GTS for both periods.
I'll start with ice yes.
Recurring fee revenues grew 4% looking at the drivers behind the 4% increase solid net new business gains contributed three points inclusive of the impact from known client losses and customer communications.
Internal growth dipped to slightly negative largely from the impact of the slowdown in interim record growth to 1% weaker customer communication volumes and some equity proxy activity that push to later in the year.
The TD Ameritrade trade assets acquisition that closed in Q4 fiscal 19 contributed an additional two points of growth.
Going forward, we expect the acquisitions of Fivethree hundred 60, and aperture will also contribute to I see us recurring revenue growth.
We expect I see us organic growth to pickup over the balance of fiscal year 20, as we benefit from the full weight of higher proxy volumes in the second half of the year. The return of interim record growth to more more normalized levels and the continued contribution from our data and analytics products.
I see as total revenues declined 7% driven primarily the decline in event driven revenues and related distribution revenues again, we now expect full year event fees to come in at the low end of our earlier estimate of a decline of 5% to 15% from the 244 million we reported in fiscal 19.
Turning to GTL GTR revenue growth accelerated to 15% in Q1, driven by 12 points of growth from the RPM and Rockall acquisitions RPM included some strong license sales that Tim referenced in his remarks on the organic front and as Tim also noted we are back on schedule in terms.
Of major Onboarding activity, and we expect GTL to deliver mid to high single digit organic growth for the full year.
Looking forward, we expect that the revenue growth contribution from acquisitions will waned a bit even with the addition of shadow and financial database services in a stronger organic growth will fill that gap as we continue to expect recurring revenue growth in the mid teens for the year.
Let's turn to profits on slide nine.
Adjusted operating income declined $19 million or 16% in the first quarter driven by the decline in event driven fee revenues remember that event revenues carry significant levels of incremental profitability as a leverage in existing cost infrastructure. So in those revenues come down significantly as they didnt Q1.
On income drops, especially in small earnings quarters like Q1.
Below the operating income line, we benefit modestly from investment gains in our effective tax rate was 12.4%.
Included in that number our excess tax benefits for equity compensation of $5.7 million down from 7 million a year ago.
We continue to expect full year ATP benefit of $20 million.
Adjusted EPS fell 14% to 68 cents for the quarter.
Representing 13% of our full year adjusted EPS guidance at the midpoint. This result is very consistent with the outlook. We provided in August and the typical earnings contribution for the seasonally small first quarter.
Let's turn to cash flow and the balance sheet on slide 10.
Free cash flows typically negative in the first quarter and that was again the case in fiscal 20, Broadridge generated free cash flow of negative 107 million in the first quarter.
As Tim noted tuck in M&A is an important part of our capital allocation framework and as tightly aligned with our strategic objectives.
Broadridge invested $179 million in the first four months of fiscal 20, completing four acquisitions. The two largest deals chateau and Fivethree hundred 60 accounted for 39 million and 120 million, respectively and closed in the second quarter. We also made to other smaller acquisitions one in September and one in October .
We expect the fiscal 19, and 20 acquisitions combined will contribute four plus points to our recurring revenue growth in fiscal 2000.
Given our typical.
Reinvestment approach in financing costs, we expect modest EPS contribution and fiscal 20 from these combined deals.
It's been a busy few quarters and we're very pleased with our acquisitions.
In the quarter Broadridge also invested 20 million and capital expenditures and returned 55 million to shareholders in the form of the quarterly dividend.
Again, Broadridge is leverage ratio using adjusted debt to EBITDA are.
At September Thirtyth was 2.2 times, and we anticipate that it will pick up a bit again in Q2, reflecting $120 million purchase price for Fivethree hundred 60.
A temporary spike above the long term target of 2.0 times and as a result of the seasonally negative Q1 free cash flow and the timing of M&A closings Theres no change to our capital allocation strategy and leverage target.
As we benefit from the seasonally stronger free cash flows in the second half of the year, we expect to de lever and the normal course and to generate an additional flexibility to pursue attractive tuck in M&A opportunities under our repurchase shares were finishing the year inline with our 2.0 times leverage target.
Separately, you'll note that $399 million now appears as current portion of long term debt. This is because we have $400 million and senior notes coming due in September 2020.
To support our capital allocation plans and subject to market conditions, we will consider opportunistically raising additional debt capital at some point over the next couple of quarters in order to appropriately manage our upcoming maturities.
Let's turn to guidance on page 11.
Our fiscal year 2020 guidance is unchanged.
We continue to expect recurring fee revenue growth to be in the range of 8% to 10% that includes mid single digit organic growth as we expect organic growth at both isds and go to pick up through the year.
We expect total revenue growth to be in the range of 3% to 6%, including a decline in event driven fee revenues of close to 15%.
We expect our adjusted operating income margin to be approximately 18%.
We expect adjusted EPS growth to be eight 8% to 12%.
We expect closed sales to be the range of $190 million to $230 million.
Finally, as you think about Q2. Please note that we expect event driven revenues to be in line with Q1 results before strengthening in the second half of the year.
The event driven revenues at this level, we expect Q2 adjusted EPS to be level at the first quarter results and the approximately 26% or so full year adjusted EPS that the first half typically represents.
So to sum up we're off to a solid start to fiscal 2020, and we remain on track to deliver a strong fiscal 2020 in our full year guidance and importantly, we are also on track to meet our three year objectives, which concluded at the end of fiscal 2020.
Jamie will now open it up for questions.
Ladies and gentlemen at this time will begin the question answer session to ask a question you May Press Star then one of the Touchtone phone if youre using a speaker phone. We do ask you. Please pick up your handset before pressing the keys.
All your questions you May press Star ensue.
Again that is star then one to ask a question.
Our first question today comes from David Togut from Evercore ISI. Please go with your question.
Thank you good morning, Tim and Jim.
Just a quick question on organic revenue growth expectations for fiscal 2020 looks like the first quarter came in a little light at 2%.
As you look at the 8% to 10% recurring fee revenue growth, which you reiterating your 2020 guide how many percentage points of that growth comes from organic versus acquisitions.
Morning, David This is Jim as I said, we think about four points are so will come from the acquisitions, which keeps us right and target for mid single digit organic growth contribution as you point out we feel really good over the balance of the year, especially as we see these GTL onboardings ramp up over the course of the year.
Got it and I think on the June quarter call, Jim you called out three ppt of.
Growth from acquisitions for fly 20, so thats a change.
Correct, because we just added.
We just added these four acquisitions, which will will add about a point to our our revenue growth.
Understood and then just a final question.
So with the organic growth coming in about a point below expectation or else or at least looking at the eight to 10 point.
Revenue growth guide for recurring fee revenue growth is there anything changing in your expectations.
Or is it just this delay in the Onboarding ajito.
Yes, David when we look at kind of Q1 relative to the rest of the year, we definitely see a few transitory items you had.
Slightly low interim record growth, so we expect that to pick up.
We had onboarding come in.
Later in the quarter as opposed to the beginning of the quarter. So we'll get the full quarter benefit.
Next quarter on a small quarter you can have things like we have some equity proxy activity that fell in Q1 last year, but now appears to be pushing to leader in the year. So those are the types of things that.
We just to believe that the 2% organic for the quarter as light and that we pick up the pay starting in Q2 and put us on track for that mid single digit organic growth rate.
Understood. Thank you very much.
Our next question comes from Darrin Peller. Some Wolfe research. Please proceed with your question.
Hey, guys. Thanks.
Look I just want to start off I mean, it's good to see the M&A activity contributing but I mean to follow up on Daves point, a little bit about the organic side, what I guess, what first of all would growth have been if the implementations were more on time on the Geo side, and then I think more importantly, what would you say is the pro forma growth profile of GTR now.
In other words ahead, you owned all these deals a year ago and it was in your run rate what would be growth profile as you will be.
Darren Good morning, this is Jim.
Look I think as opposed to sort of looking at what Q1 would have been we come back to feeling like.
This year is going to be a mid single digit organic growth rate and thats. What we measure as you know, we can add some ups and downs and especially in a small quarter.
So again, we feel really solid Lee on track for this mid single digit organic growth rate.
Do you think about GTL show.
We look at this business actually being above that average for the year. So we're targeting GTR to be mid to high single digit organic growth.
The acquisitions as Tim mentioned generally speaking are accretive to that growth rate. So on balance as those annualize then we expect a relatively small the grand scheme of things for GTL, but on balance.
They will help the growth rate, but again targeting mid to high single digit growth for Gtx show with a really big revenue backlog behind us.
Feels like that business in a really good spot.
Yes, just to add on to that Darren.
I think is an interesting question. The ahead, we owned these businesses a year ago, we probably will be reporting higher organic now because they are.
They are experiencing very nice year on year growth within those businesses. So so we feel good about.
About the profile, especially on the GTS side, where.
Second related revenue from sales this year.
Okay, and then just on the be RCC side, I mean, I guess I guess, that's been a still a headwind some of that was still transitory from I think to your two years ago at this point of view and Africa.
Where are we on that in terms of that business do you foresee that business, turning leveling off or Inflecting at some point soon.
Yes, there and it's Tim we are expecting the RCC to to be a contributor to earnings growth in fiscal Tony but not to revenue growth and.
We're continuing to as you mentioned work through the Onboarding of a major client.
The good news is that that client is taking longer to go away, which which means that we make more revenue in the bad news as we sell talking about it.
But.
We think thats going to actually continue throughout fiscal 2000, a we had anticipated it would be done by now and the other point here is that we do continue to have discussions with large clients about their in house transactional communications that was that a key part of our our midterm investment thesis.
And and we are seeing good growth in digital products, which is part of our long term thesis not enough to offset the print volumes.
Okay. That's helpful. Just one last quick one I mean in terms of the backlog continues to look strong.
Can you talk about the flow through the three 330 million revenue backlog and terms a new bookings also how much of that was inorganic versus organic but more importantly, just the timing of the flow through of the the backlog over the next few quarters and European.
Darren so the obviously the revenue backlog.
Trust prominently in our revenue growth so in that.
Mid single digit organic growth rate that we're targeting we need.
A number of points of growth the majority of our points of growth coming from.
That backlog, so I won't give you exact a quantification of that but that is our driver every year, so, but we'll anticipate ending the year with a continued healthy backlog backlog as we add to it.
But again this is a business that always just thinking about how do we add 678 points of growth coming from that backlog and I can give you a sense of the type of revenue conversion, we have going on in any anyone period.
All right Thats helpful. Jim Thanks, guys.
Our next question comes from Peter Heckmann from D.A. Davidson. Please go ahead with your question.
Good morning, gentlemen, can you talk about some of the puts and takes of both universal proxy and end to end confirms both things that the FTC looks like they're relatively serious about pursuing.
And how Broadridge would would work to facilitate that for for the industry.
Yes, Thanks, Peter it's it's Tim and Thats, a add definitely good question and we are.
Well I'd say broadly there has been anything on the regulatory front than is is really significant since our last call. The FCC is contained to work on it.
Issues around the around proxy they made some statements around investment advisors and Theres a meeting just yesterday.
And some work on proxy plumbing and when they talk about proxy funding, what they're largely talking about something you mentioned, which is and the invoke confirmation and and potentially universal proxy card, we are well set up to deliver on on both of those.
We are introducing end to end confirmation.
For those clients where were the tablet later this year, which is a significant portion of public companies. We are working with the industry to introduce that for all public companies, we need cooperation from others is a working group. The FCC has established but we think this is a positive development for corporate governance and.
And positive positive development for us not in any particular fee.
Characteristic, but just in terms of increasing everyone's overall overall confidence.
With respect to universal proxy that something that we are.
Definitely able to support and I have prototypes around and.
Look forward to implementing whatever is is decided by the yet to see an industry.
Okay.
Our next question comes from Chris So not from Sandler O'neil. Please go ahead with your question.
Good morning, Thanks for taking my questions.
One to ask one about the.
I guess sort of this year and longer term expectations for.
F position growth and this is related to the number brokers going to zero commissions. It seems to me that part of the proliferation of EPS over the last.
Five to 10 years, so some brokers doing.
Launching their own GTF, and then having a.
Promotional pricing on commissions for that.
Now it seems like the economic rationale for those GTF is going away and I would think one outcome might be that you see the industry consolidate on a handful of the really large liquid EPS is that something you think might happen and would that potentially lead to fewer MTF positions are there even how do you think in general about what.
If the zero commission brokerage fees have any impact on F ownership.
Yes.
Hi, Chris very interesting interesting question, you know I think that Ats are a really nice vehicle to have a lot of benefits for clients in terms of their liquidity.
And and other characteristics and intraday pricing.
And so I think they're going to continue to be very popular.
No. It is too that there has been some trend around brokers introducing ones I don't know how widely held as ours I think actually the bigger trend is with more proliferation of a lot of different factor Ats and sector Ats and an hour people talking about activities. So there's a lot that is causing.
Causing change there.
Thank you know another interesting sort of analogy is that while the number of public companies has hot.
Stop growing even gone down.
Position growth has continued so I'm not sure that there's a correlation between traditional growth and the number of of choices out there.
I will just tells you mentioned zero commissions, just let me talk a little bit about that because I think people hatchery wondering a little bit about what is the impact of that and I think that is something that is.
You know the timing is hard to a hard to determine what goes into the timing may be unexpected, but it's essentially it's just a long term trends that we've seen.
The biggest impact is really clearly on the online brokers fidelity each Rob you trade Ameritrade those are not as significant part of our wealth book, we're more focused on advisor that wealth managers and but we are seeing is that the change is creating creating the the need for.
For all wealth managers to evolve their business model in terms of how they add value because it's not as much from the asset managers side and on the stock picking and trading side and so to accomplish that evolution.
They need to invest in technology for the differentiation and and I think that is really favoring us as we work with clients to create broadly into services that it helps them not only pay down costs, but also support these new new sources of differentiation. So it's it's just.
One of those clear signals that the world continues to evolve which is why technology support.
Got it and thanks for that piece on the.
The evolution of the industry.
Related to them just wondering.
And you just said that the the online berks or small piece here revenues, but.
Given lower commissions do you think your pricing.
We're really are contracts might change with.
On the Gitto side and being more fixed in less volume metric going forward or is it too soon to tell on that.
Yes, I think it's it's at its too early to tell it is that these are contacts are all pretty long term in nature.
We've had discussions with some wealth managers about the idea of.
Focusing our contracts more on a lot more physicians and a number physicians than on the number of trades because in you really look at with the cost drivers are and their revenue drivers on their side is more about positions and we we were looking for a long term contract between us and our clients that aligns.
With their revenue model and aligns with our cost model and and physicians, maybe a better way to go in that but those are those are long term discussions and I wouldn't expect to really see any impact.
In years.
Got it okay. Thanks very much.
Yeah.
And our next question guys are important to meet Jain from JP Morgan. Please your with your question.
Hey, Thanks for taking my question I.
I know you expect those savings to contribute to growth expedition to somebody is can you also to view expected trends and does not include.
Sure.
As you recall.
Couple of key drivers in there are going to be interim record growth, which comes in a fairly evenly throughout the year as we mentioned little low this quarter were expecting it to come back so that will pick up in terms of contribution and then probably the single biggest contributor to that internal growth is our equity position growth Thats. Our GE is we refer.
To it and that's really back half weighted.
Even specifically Q4, so as those come into play we expect really nice internal growth contribution.
As we get to the back half of the year other than that there are always puts and takes throughout the rest of the business little bit of professional services here and there, but there really big drivers are to keep your eye on that along with trade growth, which.
It was always a contributor.
To some degree.
In that mix, but really it's the physician growth that we keep our eye on as we think about that sort of full year number.
Okay, and I mean, it's being applied to widen since it shows the you'll be his contract.
Are you seeing any benefit from flywheel effect from closing that you'll be SB with others load on the screen clients, but is it do it looks like that.
Preneed as Tim.
First of all just we continue to make very good progress on you vs itself and I am really excited about the technology there.
It has created lots of discussions with other large wealth managers and when we talk about the pain points and this open architecture platform of the future. There's a lot of a lot of head nodding and a lot of positivity out all that said.
Pointed out these conversations are long term in nature. So there's nothing imminent to report.
What I would say is separate from from that that creation of the new platform and and the conversations about that one other wealth managers isn't we are continuing in other ways to strengthen our wealth capability and our wealth platform and you certainly saw that with its <unk> with some of the M&A are you seeing that with moving some of these.
Product lines into GTL when you look at some of our recent onboardings.
They do include significant wealth components, and we look at the underlying.
What happening in our wealth wealth business as we develop that into a third franchise. We're seeing good progress I could good progress. There. So we think the strategy is on track and we continue to be excited by the opportunity.
Okay. Thank you.
And ladies and gentlemen at this time and showing no additional questions I'd like to turn the conference call back over to management for any closing remarks.
Well. Thank you I just want to thank everyone for being here today and to summarize we feel very good about 8% as a recurring fee revenue number.
Obviously, the record sales and our underlying business trends.
As you heard we are reiterating our full year guidance and we continue to have I really good competence and the long term trend and and in the investments that we're making to support that growth. So thank you very much again and look forward to talk to you again next quarter.
Ladies and gentlemen that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.