Q4 2020 Broadridge Financial Solutions Inc Earnings Call
[music].
Good day and welcome to the Broadridge fourth quarter in fiscal year 2020 earnings Conference call.
All participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
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Please note today's event is being recorded.
I would now like to turn the conference over to Edinstvo head of Investor Relations and corporate S.P. anyway. Please go ahead Sir.
Thank you Rocco.
Good morning, all and welcome to Broadridge. This fiscal year 2020 earnings call. Our earnings release in the slides that accompany this call may be found on the Investor Relations section of Broadridge Dot com.
Joining me on the call. This morning are Tim Gokey, our CEO or CFO, Jim Young and Mac Conner, our incoming interim CFO 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 the stress can be found on the second page of the slides and 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 broadridges 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.
Now I'll turn the call over to Tim Gokey, Tim.
[noise], Thank you adding.
Three months ago I spoke to you about the twin challenges other global health and economic crises.
And in particular about the impact co that has had on some any greater New York area.
Since then.
While the environment is better in many respects.
The outlook remains highly uncertain and now includes an increased focus.
I will cost us.
And this complex environment I remain incredibly proud of how provider just more than 12000 associates are continuing to step up.
Supporting our clients.
Coworkers and families.
While staying engaged in our communities.
As covert continues our first priority remains health and safety of our associates.
We continue to deploy extensive safety protocols for essential workforce.
Which include temperature checks, social dispensing and use a personal protective equipment.
Our nonproduction offices have remained closed.
And no associates will be required to return before January.
A date, we continue to assess.
Despite those challenges Broadridge has not missed a beat in serving clients.
In closing sales.
And developing new products.
We've continued to process high trade volumes and in record numbers a shareholder communications.
As a result, broadridge delivered a very strong quarter that drove strong fiscal year 2020 results.
Including 10% recurring revenue growth.
8% EPS growth.
In record closed sales.
Our outlook for fiscal 2001 call for continued top and bottom line growth.
2% to 6% recurring revenue growth.
And for the 10% adjusted EPS growth.
As well as increased investment and our people platforms and technology.
More importantly.
I'm confident broadridge is meeting the moment posed by these times.
Including the near term challenges at a pandemic.
And the longer term opportunities created by the acceleration of the key trends driving our growth.
Turning now to the quarter broad reported an exceptional fourth quarter.
Performance is driven by strong sacrificing growth.
Increased demand for virtual shareholder meetings.
Elevated trading volumes.
Strong recurring revenue growth was coupled with a rebound in event driven activity.
Leading to 250 basis points of margin expansion.
And 25% adjusted EPS growth.
Couple that with near record fourth quarter sales.
All in all an excellent performance in our seasonally largest quarter.
Broadridges performance since the onset of the pandemic highlights the strength of our business model.
Importance of what we do across governance.
Capital markets and wealth and investment management.
In governance, we have ensured the annual meetings could take place and shareholder governments continue by keeping open the lines of communication and facilitating 1500 virtual shareholder meetings.
In GTL, our scalable and resilient technology platforms flawlessly processed record trading volumes during periods of peak volatility in March and April.
Enabling markets to settle.
And investors.
In the impact of a worldwide shutdown of economic activity.
Broadridge.
Our associates and our technology.
Played a critical part and keeping our markets open.
And every broadridge associate.
And shareholder can be proud.
Moving to the year.
Our full year recurring revenues rose, 10% to $3 billion.
Driven by organic growth and strong performance from recent acquisitions.
Event, driven revenues declined to five year low.
And our low to no margin distribution revenues slipped 1%.
Adjusted EPS rose, 8% as a strong growth in recurring revenues was offset by event driven declines.
Close sales of 239 million, where new record due to our second strongest sales quarter ever.
Keep in mind, there 2019 close sales were buoyed by a hallmark wealth platform deal yes.
Excluding that result, close sales this year rose more than 25%.
All in all strong year, especially considering the impact of a sharp fall event driven revenues.
The impact the covert pandemic.
Thanks to the strong results our board approved an increase in our annual dividend to $2.30 per cent per share.
Broadridge has now increased its annual dividend for 14 consecutive years.
Every year, we've been a public company.
Let's move to review of our IC Es business on slide four.
I see as recurring revenue rose, 6% in fiscal 2000.
Driven by strong growth in our core governance products and aided by a recent acquisitions.
We benefited from 10% full year stock record growth and strong demand for virtual shareholder meeting solutions.
We also continued to benefit from strong demand for fun data and analytics.
We made two meaningful acquisitions in fiscal 2000, which also contributed to growth.
Broadridge Fi Threesixty, which leverages, our strong relationships across the mutual fund and retirement ecosystem.
Adds to our data and analytics suite.
In funds library, which represents another step toward creating a leading European fund reporting business.
I'm pleased with the integration of both expect them to contribute to organic growth next year.
After two exceptional years event, driven revenues declined by $66 million.
Activity levels over the first three quarters of the year, where historically low levels before rebounding in the fourth quarter.
Looking ahead, we expect event driven activity in 21 will remain at muted fiscal 20 levels.
Fiscal Tony was also a strong year for our GTR segment.
DTR revenues rose 18%.
Driven by a combination of strong organic growth.
And very strong performance from our 2019 acquisitions.
The story of Gtlds growth was really a tale of two half.
In the first half we saw strong onboarding growth offset by lower trading volumes and a decline in consulting revenues.
Which held organic growth to 3%.
In the second half we continue to make very good progress and on boarding client centric and trading volumes grew dramatically to unprecedented due to unprecedented market volatility.
Second half organic growth was 10%.
Not captured and organic growth was very strong performance from our recent wealth management acquisitions, RPM and Rocco.
Both delivered results well ahead of our acquisition case as clients have been willing to expand the scope and linked contracts because their confidence in broadridges ability to support their needs.
I couldn't be more pleased with the traction we're seeing in the marketplace.
Let's turn our focus to close sales on slide five.
Broadridge, we've already close sales of $239 million up 2% firmer Fynineteen record.
I'm really pleased by the breadth of sales across our major growth opportunities.
We're seeing a lot of demand for a next generation governance products with strong sales of virtual shareholder meetings and a shareholder rights directive solutions.
We're also especially active on the capital markets front.
With recent client additions, including a mid size European bank, the sale of a derivative solution to a major futures brokerage and earlier in the year a sale of our global postpaid platform to another major European Bank.
Another highlight was the first sale of our block chain based wipo solution.
I was also pleased to see strong sales momentum in the RCC, which bodes well for returned to growth.
Our record sales highlight the breadth of our product portfolio and deep client relationships.
Also a testament to our ability to close on our sales pipeline. Despite the challenges our clients faced.
And the challenges of working remotely.
Looking forward, we're taking a slightly cautious view a sales growth in flight 21.
That reflects the uncertainty faced by our clients as result of the global recession and the challenges that may emerge in building, a pipeline of new opportunities and world, which client outreach as more limited.
Importantly, we don't need to grow sales to grow revenue and 21.
Our strong $355 million backlog gives us enormous confidence in our ability to grow our top and Bottomline and continue to invest in fiscal 21, despite macroeconomic uncertainty.
Frankly, it's a great security blanket for a CEO.
Let's turn to slide six to review our performance against the through your objectives, we laid out at a 2017 investor day.
I'm proud to report we achieved our objective against all the most meaningful metrics, including recurring revenue growth organic revenue growth.
Adjusted operating income and adjusted EPS.
Our adjusted EPS has grown as 17% CAGR, putting us at the high end of our 14% to 18% objective.
One target and which we fell short was total revenue growth.
Which was impacted by a decline in low to no margin distribution revenues.
Since our strategy is to drive distribution revenue down overtime to Digitization I'm not at all concerned that distribution was lower than expected.
These targets were anchored and our strategy of growing our governance and capital markets franchises.
And building a wealth management franchise.
Both in North America.
And internationally.
They are also grounded in a strong conviction that our growth is being propelled by long term trends around mutualization.
Digitization in the importance of unique data and analytics.
I will talk more about our outlook in a moment.
That our success and meeting our through your objectives. Despite the pandemic and lowering net revenue is a clear indicator that our strategy is on track and that the long term trends driving our growth.
Our very much impact.
Before I turn to our outlook for fiscal 2001 and beyond I want to provide an update on a modernization of regulatory reporting for the fund industry slide seven.
Last week, the FTC voted for zero to propose a new world for 98 B.
Mandate the distribution of summary annual in semi annual reports in place of the current long form version of those documents.
The rule provides guidelines for the proposed summary documents and also encourages interactive clickable content.
Retains the paradigm of two communications per year directly to investors, who the channel of their choice and meaningfully simplifies the information fund and EPS shareholders received by creating summary documents and by eliminating the annual prospectus, which has high overlap with the annual report.
If enacted as supposed the new wells that have an impact on the roughly $60 million recurring fee revenue. We received today for distribution of annual fund prospectuses.
At the same time he will also create a significant opportunity for broadridge to help our funded ETF clients comply with a new rules.
We believe that opportunity is as large or larger and will create stronger and deeper relationship with the fund industry.
We view this proposal as a positive step for the industry investors and Broadridge.
We know investors are more engaged by concise summaries that contain the key information they need.
Our research, which was cited extensively by the SEC has shown that providing mutual fund and as investors with easily digested some information.
Keep them better informed and more engaged.
It also creates a format that works well digitally on a smartphone or tablet.
Broadridge has already eliminated more than 70% of fund paper communications.
Providing easily digested summary information to those digital investors will both keep them informed and will also lead to even more investors going digital in the future further lowering costs for the fund industry.
The proposal aligned budget with its clients and create a sustainable long term paradigm for these important disclosures with better informed investors and more cost efficient communications.
No one is better positioned than broadridge to make decision to reality, given our ability to reach all investors and our investment and digital capabilities.
It's important to keep in mind that will proposals like this historically take years not months to implement.
It's a significant change which means final passages uncertain, even marceau with new administration at the SEC irrespective of the election.
It's a proposal does go forward, we anticipate the process would take two to three years to finalize and implement.
So for 98 be represents an important potential step in modernizing fund communications.
Final form and timing remains uncertainty that is an important affirmation of the importance of what we do for the industry and retail investors.
And it's an exciting opportunity for us to work more closely with funds and EPS to help them better engage with and educate to investors.
Turning now to our outlook on slide eight.
We're seeing that the trends driving our growth are being accelerated by the pandemic.
The pressure on financial services firms to simplify their operations and reduce cost and Mutualization has only grown.
Our extra time at home has been a crash course in digital for us all.
And the need to adopt new technologies and incorporate additional data continues to grow.
This urgency around next generation resiliency Mutualization Digitization is already starting to show up in our discussions with clients.
Clients use to worry about losing a facility.
Now they need to worry about losing a country for the globe.
The investment required to build the needed resiliency across their entire technology estate significantly increases the logic for Mutualization.
Digitization and next generation technology are also increased demand.
Therefore, as we move into fiscal 21, we're upping our investment in our people platforms and technology to be ready to further support our clients.
As Jim will describe we're taking a careful view on cost, enabling us to free up resources to invest in our own resiliency product and technology.
Our strong fiscal 20 results were doing significant part to our track record of investing in our business overtime.
We traded the virtual shareholder meeting 11 years ago and scale that this year from 300 meetings to 1500 meetings.
Some of our more recent investments are just beginning to bear fruit.
Like our AI enabled fixed income trading platform, which launched with this fall.
And our investment in block chain.
Which is starting to drive the sales of.
The LTE enabled products like our repo and shareholder rights director solutions.
I am confident these investments will leave broadridge better positioned than ever to take advantage in the post pandemic recovery for the long term.
So while we're cautious about the uncertain outlook in the near term.
I can say that the long term growth opportunities for Broadridge have never been better.
We look forward to sharing more details about these trends and our investments when we host our next Investor day in December.
Looking closer had to fiscal 21.
Roger is physician for continued top and bottom line growth.
Underlying our forecast is our assumption that the pandemic will continue to weigh on economic growth for the balance of calendar year, 20, and well into calendar 21.
Despite that headwind, we expect continued organic growth and a modest contribution from acquisitions, we made in if I 20.
As I just mentioned our outlook for fiscal 21 also calls for increased levels of investment in key areas, including improved resiliency through technology and bolstering product development.
We're also continuing to invest in our digital capabilities.
Our LTX fixed income trading platform, and our wealth and global post trade technology platforms.
Our ability to fund these growth investments.
Even in a challenging year is a testament to the strength of our business model.
We will emerge from the pandemic with greater platform reach an even stronger product development organization, and with new digital capabilities and enhanced technology and operational resilience.
We will also emerge with a stronger culture.
A core part of our long term competitive advantage is our focus on the service profit chain that emphasizes highly engaged associates, providing excellent service to our clients, which in turn creates additional growth opportunities and returns for shareholders.
As we look ahead at the future of work.
We're focused on making broadridge a great place for the most talented associates.
We are making our work more flexible and engaging.
And we're investing in the next generation diversity and inclusion that will engage our associates and clients alike.
All of this is good for shareholders.
As a close my prepared remarks.
I want to take time out to address my fellow associates.
Even in a normal year.
Is your commitment and passion for serving our clients that sets us apart.
This is not going in normal year by any stretch the imagination.
So I want to say especial word of thanks.
It has not been easy.
For all of you engaging and social distancing and getting you can't produce schachter income to work.
For all of you balancing parenting family responsibilities.
While still providing world class service to our clients.
Thank you for everything you're doing.
Finally.
Before I turn the call over to Jim Young.
I want to thank him for his contribution to Broadridge the past six years.
Since he joined US on visa and 2014, he has been a strong partner in helping run the business.
And equally good friend.
And sorry to see him go.
But excited for him to make an equally meaningful mark in his new role.
Jim is leaving Broadridge in good hands.
I've worked with Matt Conor closely the past 10 years.
As he served important operating and financial roles and played an important part in the reinvigoration of our GTL segment.
His hands on ability to balanced business financial and long term strategic goals has been exceptional.
I know, we will continue to be a strong voice in his new role.
Jim.
Thanks, Tim.
And thank you for the kind words, and your Mentorship and partnership.
It has been an honor and pleasure to work so closely with you over the past six years. It has bittersweet to be on my last earnings call as broader just CFO.
I'll begin my comments with several call outs on slide nine first the strong finish this was an exceptional fourth quarter highlighted by year record sales and 10% organic growth translating into 6% organic growth for the all important second half a year and 4.5% organic for the full year.
Second event driven revenue. This is the highest event has been all year, but even with a 33% increase this quarter, we still close fiscal 20 with well below average event driven revenues.
Third closed sales our sales teams stood and delivered impressive quarter and another full year record performance demonstrating the strength and resilience of the Broadridge business model. This leads to the fourth Paulo backlog recurring revenue backlog stands at 355 million or 12% of fiscal 20 recur.
During revenue, which gives us fantastic visibility into future growth.
Our strong balance sheet, we exited the year righted, our long term target leverage ratio and with ample liquidity as we think about uncertain macroeconomic climate. We're in it is great to be in such a strong position.
I will call out guidance, our fiscal 21 guidance calls for another year of top and bottom line growth even in the face of a pandemic and global recession importantly, embedded in our guidance as meaningful investments to ensure we were well prepared for the recovery and continued long term growth.
Let's turn to slide tend to review our revenue growth drivers.
Total revenue grew 14% the biggest driver of this was 10% organic growth and in particular revenue from close sales, which contributed seven points for our growth.
We saw continued strong onboarding activity and meaningful sales of our virtual shareholder meeting solution.
We also benefited from strong internal growth driven by strong proxy volumes in equity trades. The quarter was also boosted by the shift of some the volumes from the third quarter, the fourth quarter, which added two points to our growth looking through the impact of those delays on both the third in the fourth quarter, we saw an overall, 6% organic growth.
In the more significant second half of our year.
All in for the full year organic growth was 4.5%.
Let's turn to slide 11 for a closer look at I see us revenue growth.
I see EPS recurring revenues rose, 12% in the quarter on organic basis recurring growth was 10% or 6%, excluding the impact of the covered related timing shift.
After a slower start I see us as organic growth picked up nicely in the second half of the year to greater than 4%, which highlights the importance of proxy season and strong record growth.
Overall economic impact on of the pandemic on IC EPS was mixed on the positive side, we saw strong demand for hurtful shareholder meetings and market volatility boosted demand proposed sell prospectuses as mutual fund investors rebalanced portfolios on the other side of the ledger were negatively impacted by lower interest rates on cash balances we hold for.
Retirement accounts and by lower overall asset values of those accounts mutual fund interim communications also slowed likely as a result of the record withdrawals from funds and EPS in March.
Turning to slide 12, our governance business also benefited from a welcome rebound in event driven activity event, driven revenues would have lagged all year grew 33% in the fourth quarter.
The key takeaway here is we're not seeing any structural issues event activity is cyclical looking ahead, we have no visibility into our proxy campaign by major mutual fund complex and expect another below average year with overall event driven revenues essentially flat the fiscal 2000.
Let's turn to slide 13 for review of our GTL segment, which also reported strong fourth quarter results.
GTL revenues rose, 19%, driven by a balance of organic growth and acquisitions.
While volatility declined from March peaks, it remain elevated throughout the quarter driving a 27% increase in equity trades.
Similar to the third quarter and contributing meaningfully to our organic growth.
I'm also pleased to report that we were able to continue to onboard new clients with no delays, even with our associates working from home.
We also saw strong performance from our recent acquisitions, which have outperformed their acquisition cases, and even with a modest growth the headwind from Comping high license activity in fiscal 20. These businesses are expected to continued to outperform their acquisition cases in fiscal 21.
Let's move to slide 14.
Strong revenue performance in the third quarter led to 25% growth in both adjusted operating income and adjusted EPS higher revenues from both segments were only partially offset by covered related expenses and our commitments to support coated response and social justice initiatives.
Overall, the earnings result exceeded the guidance, we provided in May and the 8% adjusted EPS growth for the full year matched the low end of the guidance range. We provided at the beginning of the year.
Moving to capital allocation and our balance sheet on slide 15.
Broadens generated approximately $500 million of free cash flow in fiscal 20 down from $544 million in fiscal 19. This was driven by a notable step up in net conversion costs related to several significant platform builds we are executing simultaneously.
Our uses of cash highlight our commitment to balanced capital allocation first between Capex and client platforms and conversion work, we deployed over $250 million in fiscal 2000 to support our organic growth.
Over the last couple of years, we've ramped up our platform development and new client conversions a significant portion of this increase is attributable to yes, and the continued development of our global post trade technology platform.
Linking these product development efforts to long term client contracts gives us the confidence and ability to accelerate our product development effort.
In conjunction with our revenue backlog, we view this spend as a positive sign of our growth and future cash flows. We expect this area of investment to rise modestly in fiscal 21.
Our capex of $99 million represents another year span at around 2% of revenue and capture some early savings from our private cloud initiative.
We expect to stay its similarly low levels next year.
The biggest use of cash was for M&A, we're invested approximately $339 million. This year alone, we made acquisitions across our governance capital markets wealth and investment management businesses broadening our product line, adding new capabilities and extending our global footprint.
Lastly, we returned $269 million to our shareholders in the form of dividends and buybacks.
Commitment with underscored by our decision to raise our annual dividends, 6% the 14th consecutive year with an increase.
We closed fiscal 20 with an adjusted gross debt leverage ratio of two times right in our long term target.
Our free cash flow balance sheet and over 1.6 billion in liquidity position broadridge well for a seamless repayment of our 400 million dollar September maturity and continued balanced capital allocation in fiscal 21 and beyond.
Let's turn to slide 16 to look ahead into fiscal 21, and our last call out of the day.
One of the great strengths of the Broadridge business model as its recurring revenue backed by strong backlog.
Our revenue backlog, which represents an estimate of first year revenue from closed sales that has not yet been recognized sits at $355 million equivalent to 12% of fiscal 20 recurring revenue.
The visibility that gives us is a key reason we are confident and projecting continued revenue growth. Despite the uncertain macroeconomic outlook.
Our planning for fiscal 2001 assumes that we are in a challenging recession tough macroeconomic conditions extending through the fiscal year.
We view this is the right approach right way to approach.
The year, while continuing to invest in the still significant opportunities ahead of us you'll notice that we have also modestly widen our range to reflect an increased level of macro uncertainty.
All that said broader just position for another year of top and bottom line growth in fiscal 2001, despite the recession.
Me walk there are key guidance points, we expect a recurring revenue growth will be in the range of 2% to 6%, which includes about a point of growth from the annualization of fiscal 20 acquisitions.
We expect both excesses in Gtlds recurring growth to be at similar levels, driven by strong new client onboardings offset by the tough trading and post sale Comparables, we face in the second half of fiscal 21.
And I see yes, we expect low single digit full year position growth continued demand for our data analytics products and customer communications to contribute to organic growth.
These are expected to be partially offset by lower revenues from our mutual fund retirement business as a result of lower interest rates.
Regulatory post sale volumes are also expected to be a drag.
Our GTL business should continue to benefit from strong new client additions and increased trading volatility over the first half of the year.
The benefits of higher volumes are expected to turn negative in the second half the fiscal year as we start to lap the volume spikes from the peak the pandemic in March and April.
As I mentioned earlier lower license activity. Following a strong fiscal 20 will result in a drag on growth also.
Next we expect total revenue growth to be in the range of zero to 4% as recurring fee revenue growth is offset by other items. As a reminder, total revenue is now, particularly meaning metric meaningful metric for us given the long term shift more digital delivery and we expect that low to no margin distribution revenues will be flat to down again.
We also expect event fees to be roughly flat, even accounting for what we believe was a near cyclical low point this past year.
FX expected to be at one point drag.
Third we expect our adjusted operating income margin to increase about 100 basis points from fiscal 20 level of 17.5%.
Given the uncertain economic outlook. This year, we have kept a tight rein on expense growth, enabling us to planned higher margins and simultaneously increase investments as part of our expense reduction initiatives in response to the work new work environment, We plan to rationalize our real estate footprint by closing some offices around the world, while we're still in the planning phase.
We expect these lease termination costs along with other related actions to result in a charge of approximately $20 million to $40 million in Q1, we expect to exclude this expense from our adjusted results.
On the investment side and as Tim noted, we're increasing our spending in building out our product development team and our technology infrastructure. We have also set aside money to increase our diversity efforts I am proud that as a company we're committed to investing in the long term year end and year out no matter the environment.
Moving down the income statement, our overall tax rate should tick up slightly to 21% and our core tax rate, which excludes the excess tax benefit should remain at about 23%. We're projecting MTB of 12 million in fiscal 2001, a 4 million dollar decrease from fiscal 20 as a result, we expect adjusted EPS growth to be.
Before to 10%.
We expect closed sales to be in the range of $190 million to $235 million, reflecting both caution in the some challenging environment and continued confidence in our value proposition.
Finally, as you think about Quarterization our earnings growth will once again be very uneven caused in part by small earnings quarters in the first half the unpredictability of event fee timing and this year tougher recurring revenue comps in the second.
Half specifically for Q1.
Our forecast assumes event fees will be around $30 million down roughly 20% from last year.
That should push our adjusted EPS to the low end of 11% to 14% of annual EPS, we typically record in Q1.
Before I turn the call to Matt. Please allow me to share a couple of quick thoughts.
There's been a privilege working with such an exceptional team here at Broadridge the decision to step away from my role during this exciting and dynamic dynamic time of growth for the company has not been an easy one however, I take the step knowing the Broadridge led by Tim and the team will continue to be successful for years to come we're well positioned in the longer term opportunity for Broadridge has never been stronger norm work.
Here.
I want to thank all of our shareholders for their support over the years and say especial. Thank you to our research analysts who have kept our terrific IR team and you all know how good at exists and me on our toes.
And now over to Matt and his capable hands I'll leave you having worked really closely with Matt I know first hand, what a strong and talented steward, Matt is a broadridges business financial strength and strategy over to you Matt.
Thank you Jim Thanks for your leadership and friendship over the past few years and best of luck in your new role I know, you'll do great things at Indigo AG.
I'm excited for this new interim role and looking forward to meeting all of you.
Broadridge is exiting fiscal 20 in a strong position employees for additional growth.
We have a strong plan to drive growth and my goal is to maintain our focus on disciplined cost management to fund additional investments.
We have a lot of momentum and our primary goal is we continue to put ourselves in position to continue that momentum across each of our major verticals.
We look forward to sharing what that will lead not just for fiscal 21, but for our next set of through your objectives that we will share with you at our Investor Day. This December.
Rocco what's going to June.
Absolutely Sir we will now begin the question answer session.
The us asking questions move slower than one on insights from.
If you're using the speaker phone, we as you. Please pick up your handset in full pressing the keys to withdraw your question. Please press Star then too.
Todays first question cultural Darrin Peller with Wolfe Research. Please go ahead.
All right Hey, Thanks, guys. Jim first of all just want to say congrats to you were going to.
This year, but all the best view.
Guys. When we think about the structural opportunities you're seeing from this environment in and what we saw last quarter was obviously strong position growth in a very real demand for your Gitto business, given just demand from financial institutions that bank.
And volumes, obviously help but when we look at your guidance.
So you are still suggesting low two to 2% to 6%.
Which is a diesel from now and I know, there's tough comps, but I guess I'm trying to figure out is whats already done by bookings, what's already where you already know about.
And then when we consider what could be sustainable couldn't position growth being strong be sustainable, Maryland, the environment or and given how many more retail investors fractional shares breach rating.
Let me just are there if you can.
Yes sure at Darrin, It's it's Tim Thank you.
Thank you very much.
So we.
Uh huh.
We feel very good about let me just step back for a second we feel very good about the the long term trends supporting our business and supporting our our organic growth and our overall growth strategy and I will talk about that in December.
And definitely as we were looking at.
Pre crisis at our preliminary plans we had.
A growth rate that was more on the 6% range.
And as we have.
Evaluated things and and.
Looked at where we are now.
We see a few different factors knocking a couple of points off of that one is a more cautious view on stock record growth that is is definitely baked into our plan and come back talked about in the second the other is interest rates, which affect our matrix unit and on the third is a little bit lower.
Revenue from sales not because we don't think our sales will be strong, but just focus a little bit on the pace of client implementation and so those three factors I've just about equally weighted account for about two points relative to what we would have thought was was our initial plan and we think that is.
Is prudent and that.
We will be in a very good position I think that positions us well too to invest and it positions us well too I really.
Undertake any variety of scenarios I think also.
On the of inside we're being are being at the same thats flat to up to this year, which is pretty muted and so I think that takes a lot of risk out of this plan at but it really enabled us to to focus on the investment.
[music].
Hey, I mean, just to quickly follow on Tonight, I mean, the position growth or the record growth itself I mean, it looks like we're in this environment, where retail investors or both or obviously more involved.
I think just it's easier to buy whether it's through treating our fractional shares. So I guess I'd be curious why you're assuming a low single digit growth rate. There and then just broadly I guess, what I was really looking for is structurally speaking given the environment. We're in now with more digital transformation. What are you point to as where Broadridge is benefiting from this environment now.
They can provide the needs for clients, whether its banks or customer communications.
Yes, absolutely. So so first of all on the stock record growth, we don't have a crystal ball. What we saw was I certainly good Soc record growth. This year lower interim record growth don't you average those two together this year. It was it was about 5% under and we're going into next year looking at something Thats, a little bit lower than that.
[music].
On the how we benefit from the increased digital demand, we see it really both on on the communication side.
We're seeing good growth in our digital communications were seeing it on the data analytic side.
We're seeing it.
We're very excited about the launch of our.
Additionally, based.
Fixed income trading platform. So we're seeing it really across lots of different arenas Darren.
The.
Obviously, the strong growth in virtual shareholder meetings, which which we expect to continue this year that was a real nice pickup for us and so it's really across the breadth of our product areas.
It's great to see thanks, guys appreciate it.
Our next question is good it comes from David Togut with Evercore ISI. Please go ahead.
Thank you good morning, and all the best few Jim in the next chapter.
Thanks, David.
Good to see the 55% new sales growth in the quarter and you did call out.
Strong sales in particular in capital markets can you talk about the propensity of big banks to outsource in this environment.
Given some of the headwinds and tailwinds that they face.
Sure David we are.
We're seeing.
Hey.
Matt.
I think it's really interesting tension there because.
Their need is higher than ever.
And and then at the same time.
Because of all the complexity of everything's going on there's a question about undertaking transparent transformational projects and so I think one of the things that we really saw at the end of this year was.
A significantly higher demand for lots of smaller projects that can add that can make a big impact and so we saw a lot of those and then and then some good medium sized projects and we were pleased that the derivatives deal that I spoke about very transformational project for opt for that institution.
And that's something they want to carry forward and move ahead with even given despite.
The complexity of the pandemic and the complexity of doing everything remotely. So we're seeing some institutions.
It really moving forward strongly and taking advantage of this and investing.
Seeing other institutions hang back.
We think the net net of that though is going to be continued very positive sales. We did see really strong pickup and in our international sales. So our sales outside the U.S.
We're up.
By the 50% and.
We we see a continued strong pipeline outside the U.S. as well so really.
Really nice progress across the board.
Appreciate that and then as a follow up can you update us on the Onboarding and development process around the big Qbs wealth management contract and.
To what extend his could that serve as a.
Lets say a launch pad in the business given demand you might be seeing from other wealth managers currently.
Yes, absolutely so that project remains really well on track.
We are very very pleased with the progress there were continuing to strengthen our wealth capability.
Not just with that project, but also with the M&A that we've done and with that with some of the smaller component sales so hot.
And I'll come back to us in the second but just to reiterate the the recent acquisition of the RPM acquisition, the Rockall acquisition performing really really strongly.
I think as we look at you'd be at what follows on from it.
I think what we're seeing from the largest clients now is.
Interest and seeing that go live so were lots of discussions but.
But very very much wanting to see that go live, which which is on track to do.
But what it is doing is it is increasing.
Our credibility overall and the wealth space and so we're seeing hot significant increase in demand across the rest of our wealth portfolio.
As you know, we appointed Mike Alexander President and the third quarter, that's on a key step in and making US a standalone business under his leadership is really helping as well so across our wealth strategy. We feel really good that you'd be ESP is one component to that.
Our our component solutions is another piece of it and the strength of 70, new acquisitions is a third piece.
Okay.
Our next question today comes from Peter Heckmann with D.A. Davidson. Please go ahead.
Hi, guys digital expertise on therapy today, thanks for taking our question.
So you mentioned the distribution revenue would be flat to down in fiscal 21, and I'm wondering if you can help us, but the AWC net impact to that that comes specifically from 33.
Hi.
I will take a crack at that but I'm I'm.
Looking also at our CFO to see if he has a comment which he may not so it is.
I think it is.
Broadly are relatively small and this this coming year so.
And as you know, we said 33 is.
Yes, very mild positive for us so so not.
We really think about it since the distribution piece is really low to no margin, we really focus on the recurring piece so from an overall recurring revenue and profitability.
We see it as as neutral to a slight positive specifically on the distribution revenue side, it's a mild negative but not something that is is really materially changing the numbers.
Okay that makes sense.
I think I heard you mentioned, 1% in recurring revenue, but could you help us would be at partners acquired revenue carried into fiscal 2001 from prior deal.
Yes. This is Jim we yes, thats correct about a point of growth is embedded in our.
Guidance and or if you recall, we had a couple of deals come a little bit later in the year like up by 360 and funds library, which will carry through so I'll be about a point of growth in in 21.
And just as a reminder, so thats the carryover impact and our guidance I never anticipates any M&A that might occur in the coming here.
Our next question today comes from kind of zoo with Rosenblat. Please go ahead.
Hey, good morning.
The question on data analytics, you guys had highlighted here in the slide deck that is doing really good growth. There I was wondering just given the covert environment, we see more and more peers really make greater investment in that area. How you guys are thinking about some initiatives here.
Over the course of the next fiscal year to really kind of ramp up the offering there.
Yes. So there are a couple of of of.
Areas at Cantor I think this is interesting so.
Most of our investment over the past few years in data analytics has been in serving the fund industry, we have a suite.
Yes.
Yeah.
Solutions that gives the fund industry.
Transparency into.
Fund flows their sales their share performance.
And one of the key things that we've really done in terms of investment is pulled together datasets.
At that used to be disparate and that fund companies used to have to acquire from different places a knit together and I was very complex for them and with our global distribution product taken that have retail and institutional North America, Europe Asia and pull all that into one dataset and that is something that is.
Really help especially for the largest global asset manager. So that continues to be a real growth area for us and in this period of uncertainty and volatility, they're looking for even more transparency and than ever.
The other one I would just mention has not it's not we don't usually talk about it relative to sit data analytics. So when you talk about leveraging data we have.
We've been working for Africa quite a while in terms of how do we leverage the fixed income data that we have and we've been making some some odd significant investments in that the past past few years and the the AI enabled fixed income platform that we're about to ultra launch. This fall is something that is going to really.
Leverage that fixed income data in a way at intuition by institution that will bring bring AI to fixing them traders allow them to figure out at national Counterparties for complex trades and enable them to carry out those trades and that's one of the things probably in the whole company that we're most excited about.
Got it Thats really helpful.
One other question I had you guys historically broken out a bit of alive not live yet recurring revenue backlog any color on the 355, how that looks now.
Yes, hi, so kind about two thirds of that is not yet lives at all so we've got.
Obviously really good visibility and a whole bunch of a bunch of this is sort of pure growth as we onboarded recognizing there'll be a really large piece associated with the you've yes deal.
Which really won't have any impact in 21 more of a 22 of them.
Another question today comes from two New June with JP Morgan. Please go ahead.
Hey, Thanks for taking my question and Jim older Benson Hope our costs again.
Thank you bidding.
So.
One question, Tim on pipeline like pose your pipeline converting into revenue.
Any impact.
At to an impact do you have seen on implementations summed up on the make and also in the sales cycle.
Just wanted to make sure like doesn't impact on scenes guidance have you started seeing slowdown in the first flowed months. So the last four to five months, let's is being conservative given the uncertainty.
Yeah. Thank you for at for that question. So.
We.
Got.
Broadly the impact has been.
Surprisingly low and I will talk about each of the different pieces. So so first of all in terms of of completing sales. Obviously, we just had a terrific sales quarter and to be fair a lot of the sales were on the one yard line at the beginning of the pandemic and we certainly saw institutions carrying on.
And finishing those.
In terms of.
The sales cycle, you know obviously, we measure at each of the different stages in terms of pipeline creation and moving things through the pipeline.
And.
We have seen modestly lower pipeline creation.
In the last 12 weeks and I'll say it it has its a modest delta is not a huge delta.
Part of it planning and previously we can't really be sure because given the amount of focus that we had on closing that degree of business. There are hard for us to discern weather lower pipeline creation is just our own capacity or our anything that's going on out there in the world. So that will develop that is one of the reasons were being slightly more slightly more cautious.
But again, it's that it's a marginal difference.
On the on the implementation side, we just finished the year of of record revenue from new sales in terms of Onboarding out we did see a few delays in some projects, but at a at nothing cancel just pushed out a few months and we have built that.
Into our plans for this year and that is one of the things.
That was contributing a little bit too to a bit of a detriment a little bit more caution around our revenue outlook.
That said, yes. This next year is going to be another record in terms of.
Revenue from newly onboard and sales and as we think about our Onboarded I certainly our ongoing.
Growth of the company you know that revenue from new sales is that is a key driver for us in that it continues to accelerate and we just we see that except continue to celebrate and the future. So that is a remains a very very positive solid long term trend. This year will be another record. We're just just took our for it a little bit off the gas in terms of.
Making sure that we are counting for any potential delays it might arise.
Got it okay.
And Jim I know you'd see good luck mode in full.
Dan This day, but 100 basis points in margin expansion, how should we think about long term margin.
Beyond that.
Specifically given like.
The.
Margin drivers that you talked about like.
How should we think about like are they like the long term goods versus more being like a near term cuts and getting also talk about drivers for long term margin expansion.
Yes funny.
Jim highlighted.
But the some context, we just finished three years, we averaged 83 basis points per year of margin expansion that includes ending on.
Very low event driven year, so I think our ability to generate margin expansion.
It's pretty good and our and clearly as we look at this year on what is relatively modest recurring growth too.
Sign up for another 100 basis points of margin expansion.
As an indicator that we constantly have abilities to.
Improve our margins, obviously, we've got a pickup with more digital and less distribution over time.
But we think some of the changes that we're making our long term sustainable if you think about private cloud initiatives. If you talk about real estate. Some of those things are very durable. It doesn't mean that we're going to change our longer term outlook. The team will go through that in December but.
But obviously, we continue to feel really good about levers available to us and our ongoing ability to make this business even more more efficient.
Our next question comes from Patrick O'shaughnessy, New with Raymond James. Please go ahead.
Okay.
Yes.
And I get some more detail on the sales momentum that you guys spoke to in the be RCC business, what type of mandates did you win during the quarter.
It is that as Tim Patrick Good morning.
We had a lot.
Really good sales year for BRC to be RCC.
This year.
Certainly the strongest sales at leasing since essence became part of Broadridge and.
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Lots of solutions across.
Both financial services, but other industry as well in the fourth quarter in particular.
There were two at really chunky deals not not a make not megadeals, but to quite chunky deals one from a large global bank and at a piece of their business not to hold business and and one from a from a large health insurer, which was a very significant part of their bill.
Yes, and so we.
We like that as we have so they talk about the RCC as as you know one of our one of our theses was really around.
Using it to add more deeply penetrate some of our largest clients.
Two being active in digital sales and.
As well as to two to drive drive bottom line and if we look at be RCC. This year, we feel really really pleased with the performance at a very very strong bottom line performance this year.
Very good sales stable revenue off boarding of that major client that we've always talked about complete so.
When you look at the different strategic into indicators for this business. It is at positive traction on a number fronts not too early to declare mission accomplished but I've been very positive developments.
Yes, thank you for the color Tim.
And then I appreciate some of your commentary on the modernization of bumped medications, but.
But we want to press you a little bit how do you monetize kind of the notion of driving more engaging in lower cost content for funds to the extent that it could offset the revenue.
Our revenue hit.
From knutsen that those prospectuses anymore.
Yes, well thanks for that question.
Look I just add before I get that just stepping back for a second obviously you know based on what we do were for investors disclosure and and and Italy.
Reinforces that and we do well.
When the communications at clients receive are relevant and the costs that whole ecosystem is getting better and as we think this change if that if it is bad if I didn't go through well create more engaged and communications that'll create a better digital experience at lower cost of the industry and so it's really.
When when we in the known is better positioned than Broadridge.
So.
If you just get into a tangible tangible example, the first of all.
We did want to size for everyone sort of what is the amount of revenue that sort of in these annual prospectuses, that's not all going to go away there are.
Chunks of funds that.
We will not this its optional thoughtful for funds is optional for broker dealers out there closed end funds.
There is to funds for some funds at Mont elected to it to some brokers at one Electra do it.
And and also because of the fact that people still need to let people know about changes. We think this will lead to higher supplemental. So so that whole 60 is not going away.
But it does create.
New opportunity because this will as complex to implement there's a complexity of creating new summaries.
A lot of that stuff you know the big tick documents day are offset front a lot of these will be more pronounced demand and then there's digitally hosting clickable layer content and I just want to give an example, so in January we are going live with our 33 solution.
And this is something we're doing at for the industry as a whole and it's it's it's it's really because we send people notice.
On the notice as a QR code.
The point your phone at the QR code and it brings up the document tailored to you.
Directly on your phone and Oliver introduce a net in January across the industry. The finance, we love loves it and one thing Thats really done is it sort of introduce the idea of how broadridge can help clients with these are implementing complex new agitation regulations and it really has started the digital conversation in a very soon.
This way so it's been been very positive.
Now you project that forward.
Three years from now funds are going to have real complexity to deal with they have to create these new summaries.
They have to.
Host clickable layered content and if you think about a solution where.
Got it.
In the future, where they father long form documents, we capture all those data points anyway.
Within a couple of days, we present them back here's a summary in your color with your logo.
Imposing ready to go you approve it and.
And is ready to be.
Distributed through to whatever channel.
With a hosted hosted solution for for for Clickable solution. So you can sort of really envision Patrick the kind of energy solution, it's going to solve a a big problem for the find industry and so I only broadridge is positioned to do that and I'm excited for the way that it is going to help our clients' money.
Deeply engage with their clients.
And ladies and gentlemen, this includes or question answer session today.
Now turning to go on his broker to Tim Gokey for these little worse.
Thanks Rocco.
And thank all of you on the call for joining us today.
Trying to take a moment to reiterate our key messages.
Our strong results highlight the importance of what we do and the strength of our business model.
The pandemic has and will continue to accelerate the long term trends driving our growth.
Looking into 21, we see continued revenue and adjusted EPS growth backed by a record revenue backlog.
This outlook includes increased investments in products platforms and people.
And finally.
Got it remains well positioned for continued growth.
We look forward to sharing more on our outlook at our virtual Investor day on December eight.
Thank you again for tuning in today.
And it look forward to seeing you then.
Thank you Sir This concludes todays conference call. We thank you all for attending today's presentation.
You may now disconnect your lines, rather wonderful day.
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