Q1 2021 Broadridge Financial Solutions Inc Earnings Call
[music].
Good morning, and welcome to the Broadridge financial solutions first quarter 2021 earnings Conference call.
All participants will be any listen only mode should you need assistance. Please signal a conference specialist.
Hi, Mark you call it by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I'd now like to turn the conference over to adding Tivo had it and Investor Relations. Please go ahead.
Thank you Melissa good morning, everyone and welcome to <unk> first quarter fiscal year 2021 earnings call.
Our earnings release and 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 kept gokey, our CEO and interim CFO Ms. Connor.
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 these risks can be found on the second page of the slides and a more complete description on our annual report on form 10-K, we.
We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding a broader just underlying operating results and.
An explanation of these non-GAAP measures and reconciliations to their comparable GAAP measures can be found in the earnings release and presentation.
Let me now turn the call over to Tim Gokey Tim.
Thank you Andy and good morning.
I'll begin with the headlights.
Broadridge is off to a strong start to fiscal year 2021.
We reported 8% recurring revenue growth.
A record first quarter earnings.
Our performance in the face of the ongoing pandemic highlights the resilience of our recurring revenue business model.
The power of the long term trends propelling our result.
I'm, especially proud of our cost efforts.
Which helped drive strong margin expansion and record earnings.
These cost realignment initiatives helped slow our overall expense growth.
Additionally to make important investments in our people products and technology.
Our strong first quarter results give us more confidence going forward. Despite the many headwinds.
We are adjusting our full year guidance to reflect that more positive outlook.
The investments, we're making will further drive long term growth.
By enabling us to better meet our client's accelerating need for next generation Mutualization.
So you can see and digital transformation.
As I said, it's a strong start to the year.
In my remarks. This morning, I'll provide you with a brief overview of the results for each of our businesses.
Give you my thoughts on the factors driving our growth.
And discuss how our first quarter start impact our approach to the full year and leaves us better positioned to take advantage of the post pandemic environment to drive long term sustainable growth.
Matt will then review the financial highlights provide.
Provide additional insight into the measures, we're taking to reduce controllable expenses and increased investment.
And walk you through our guidance update.
As always we'll close with your questions.
Let's get started on slide three.
Broadridge reported strong first quarter results.
Recurring revenues rose, 8% to 671 million.
Driven by balanced growth across both their ice, yes, and GTB segment.
We continued to benefit from strong sales onboarding driven by our record sales results of the past few years.
We also benefited from strong stock and interim record growth.
And higher trading volumes, which offset the cyclical drag from lower interest rates.
Tough cop posed by a large license sale in the first quarter of fiscal 20.
I was pleased to see event driven revenues rebound to more normalized levels. After a period of lower activity in the first three quarters of fiscal 20.
At $46 million event, driven revenues were right back in line with the six year average.
Adjusted EPS rose, 44% to a first quarter record of 98 cents.
Brought it benefited from strong recurring revenue growth.
The modest her bound in event driven revenues.
And the impact of the cost alignment initiatives that began last year.
These cost initiatives, which include shrinking our real estate footprint.
Shifting to a private cloud.
Selectively restructuring certain businesses.
And other measures help keep our costs in check and drove margin expansion in the quarter.
Our success in implementing these initiatives puts us in a great position to say.
Step up our level of investment in our associates.
Products and.
And technology platforms going forward.
One last point on results Steve.
Strong sales.
We continue to see good sales momentum in the marketplace building on the strong results in last years fourth quarter.
First quarter close sales or 33 million were the second highest on record and ahead of our forecast.
In setting our full year guidance, a few months ago, we highlighted a wider range of uncertainty as a result of the coated pandemic.
Now after a strong start to the year.
We feel more confident about our outlook for both recurring revenue and earnings.
And are raising the low end never guidance expectations for both measures.
We are reiterating our guidance for margin expansion and close sales.
Now, let's turn our attention to the performance of our IC EPS and GTF segments.
Both performed well in the first quarter.
We'll start on slide four.
An overview of our IC segment.
I see EPS reported another quarter of strong recurring revenue growth.
Recurring revenues were powered by new sales continued strong stock record growth and by a nice pickup in mutual funds and EPS record growth.
Well the first quarter represents only a small percentage of proxy activity.
Position growth was 16% and.
And remain in the double digits for the second consecutive quarter.
We're seeing especially strong position growth at the online brokers. Many <unk> are seeing 20% growth on the back of their shift to zero Commission trading and a healthy equity market.
Mutual fund any do you have tradition growth also picked up to 6%.
With travel still limited.
Demand for our virtual shareholder meeting solution remains very strong.
On page two of the momentum we saw at the end of last year.
We provisioned well over 200 meetings and the quarter nearly five times more than in the same period a year ago.
[noise] postcode rating, we expect most of these meetings will remain virtually none of this revenue is likely to continue.
I was also pleased to see that controversy on occasions, and fulfillment revenues rose, 2% on the back of new caster communication client wins in 2020.
Data and intelligence solutions also contributed nicely to growth.
These drivers were partially offset by the impact of lower interest rates on the cash balances we hold in our mutual fund processing in Soc transfer business, which fell by 6 million.
The headwind from lower rates will continue to weigh on results in the second quarter before moderating in the third.
As I mentioned event driven activity returned to more normalized levels in Q1, increasing 13% from a weaker period a year ago ahead of our expectations.
These revenues remain inherently volatile but.
But it's nice to see two solid quarters in a row after a weak 2020.
Looking ahead, we see continued strong record growth grew at least our fiscal third quarter.
One of the drivers of increased confidence in our outlook is that we now expect full year stock record growth to be in the mid to high single digits.
From our initial plan up low single digits.
Turning on slide five for a detailed business, which continues to perform well.
Each year revenues rose, 8% to 296 million.
Driven by the Onboarding of new clients.
Our platform also continued to process elevated levels of equity trading volumes during the quarter.
Well volumes declined from the peak levels in the fruit and third and fourth quarters of last fiscal year.
They remained well above the levels of the first half of fiscal 20.
Much of that growth, however was offset by the tough comp created by and large and strategically important software license sales a year ago.
As we look ahead, we see continued healthy growth in the second quarter.
Driven by higher equity trading volumes.
In the second half, we'll start Comping, new record volatility we experienced last spring.
Actual way at Gtlds growth in the third and fourth quarters.
So across the ice, yes, and GTL drives.
Broadridge is delivering a new client additions and benefiting from strong stock record growth in trading volumes.
Which helped our business overcome some of the cyclical and other headwinds.
Enabling us to deliver strong recurring revenue growth.
Before I finish I would like to step back and share some overall perspective.
With record earnings Broadridge is clearly off to a strong start to fiscal 21.
I believe this start anyway.
And the overall environment have at least three important implications.
The first is that we're more confident in our outlook and full year guidance.
As you recall from last quarter, we saw an unusual level of uncertainty and therefore, a wider guidance range than normal.
Now after the strong start and with more forward visibility we're narrowing these ranges.
Matt will walk into the detail of our updated guidance in a few moments.
But I want to call out the primary drivers behind our improved outlook.
Our first quarter benefited from strong equity position growth and a pickup and mutual fund and ETF position growth.
We see both these trends continuing in fiscal 21.
Position growth across both funds individual stocks as an increasing at a mid to high single digit rate over the past decade.
Recent innovations.
Improving including improved user interfaces and the move to zero emission trading will only sustain these trends and may well accelerate them.
For fiscal 21.
Our testing shows that recent equity and mutual fund position growth trends are likely to remain in the double digits to the second quarter and.
And remain in the mid to high single digits in our second half.
Next our GTS business continues to benefit from elevated trading levels, which is an important assumption in our full year plan.
Well equity volatility has come down significantly from the levels at March and April.
Remains well above last summer and fall.
The longer these levels remain high.
Less downside risk to our base Alba.
We're also executing well on our cost realignment.
Going into the year, we knew our growth will be impacted by cyclical headwinds, including lower interest rates are already having an impact.
By lower trading volumes, which we expect to reduce our second half growth.
In order to offset these headwinds.
Deliver bottom line growth.
And make critical growth investments in our business, we targeted more than 80 million and cost reduction initiatives for the year.
Our ability to execute on these initiatives helped drive record profit growth in the first quarter and gives us additional confidence in our fiscal 21 outlook.
Finally closed sales continue to track, our expectations, which reinforces our conviction in the value proposition to our clients and.
And the ability of our sales team to negotiate and deliver a new client opportunities.
While headwinds remain and the economic outlook and course depend demick clear.
Clearly continues to be uncertain.
These factors are combination of incremental revenues in both GTN is yes.
Expense measures and continued sales traction.
Give us additional confidence that we are on track and therefore to remove the lower range of potential outcomes.
The second indication of our strong start is.
Is it gives us added confidence to ramp up our planned investments.
And we expect to increase our investment in our people products and technology beginning in the second quarter.
We're making targeted product development investments to position us for future growth.
And we're investing in our technology platforms to integrate new capabilities enhance scalability.
You will hear more about these initiatives and our cost program from Matt in a few moments.
Our first quarter results.
I have also increased our conviction.
Looking beyond fiscal 21.
The covert pandemic is accelerating the long term trends of Mutualization resiliency and digital transformation that drive our growth.
The investments, we're making will strengthen broadridges ability to serve clients in a post dynamic world.
As we move forward Broadridge will go to market with greater platform reach an even stronger product development organization.
New digital capabilities with enhanced technology and operational resilience.
In other words better position for long term sustainable growth.
Third.
And finally, I want to take a moment to focus on that last phrase sustainable growth.
I am proud.
As a result of our FC efforts Broadridge was recognized by Barron's as one of America's 100, most sustainable companies.
At Broadridge, we enable better financial lives by powering investing governance communications.
We focus on doing well I doing good.
If not feel good slogan, it's a core value that weve adhere to since our founding.
And especially during 2020 in the face of unprecedented challenges.
Our approach is grounded in the service profit chain.
The idea that success is neutral with highly engaged associates, providing world class service to satisfy clients, which in turn creates growth and attractive returns for shareholders.
We're proud to have been recognized as a great place to work in the U.S. candidate in India.
Today as part of that focus and associate engagement, we're investing in next generation diversity equity and inclusion.
I'm pleased to note, we promoted one of our senior business leaders to become our Chief diversity Officer.
With a mandate to ensure that broadridge remains a great place to work for all of our talented associates.
Any focus on doing Greg has to come with an awareness of the environment and climate change.
According to the EPA papers still accounts for the largest source of U.S. municipal solid waste.
We are proud to have eliminated more than 80% of the paper from our clients Fund nature Communications.
And we're determined to drive increased digitization going forward.
In addition, we've eliminated almost a quarter of our own scope, what scope to greenhouse gas emissions since 2013.
And are committed to reducing these additions by another 15% by 2025.
I urge you all to read our 2020 sustainability report, which is available on our website.
Understand how we integrate sustainable SD practices into our business.
As LNG and bet, yes, see investing continues to grow these measures ensure that broadridge remains well aligned with that trend.
And our another reason to believe in our long term sustainable growth.
Before I turn it over to Matt I want to remind all of you of our upcoming Investor Day on December 10.
We're looking forward to showcasing the depth of our management team.
Providing more insight about our growth strategy across governance capital markets and wealth and investment management.
And sharing our updated FY your growth objectives.
Let me close by thanking our associates.
There are two nations focused on serving our clients.
And their ability to adapt to the new work environment continues to impress and underpins all our operational.
Client infinite.
Financial success.
Matt.
Thanks, Tim.
I'll begin my comments with several call outs on slide seven.
First the strong quarter. This was an exceptional first quarter of top and bottom line growth highlight.
Highlighted by a record adjusted EPS.
Second.
Event, driven revenue came in right at our six your average first quarter number.
This result was ahead of our expectations and 30% of what the weaker first quarter last year.
Third cost alignment initiatives.
Our record earnings this quarter, coupled with strong cost discipline drove an impressive 390 basis points of adjusted operating income margin improvement.
Sure.
Vestments that strong focus on cost controls and record earnings enabled us to begin deploy dollars against our plan for fiscal year 2021 investments.
While we took a cautious approach to funding these investments in the first quarter, we expect our investing activity to pick up meaningfully over the remainder of the year.
And fifth in the final call out our full year guidance.
We are updating our fiscal 2021 guidance to reflect our strong results in increased confidence in our outlook for the full year we.
We remain well on track to deliver another year of top and bottom line growth even in the face of the pandemic.
While making meaningful investments to ensure we are well prepared for the recovered the continued long term growth.
Let's turn to slide eight to review our revenue growth drivers.
Total recurring revenue grew 8%.
The biggest driver of this what's growth from Onboarding, new business, which contributed five points of growth.
And the carryover impact of acquisitions, which contributed three points of growth.
Internal growth growth was neutral so we did see an uptick in our GTL segment, which Tim walked you through earlier.
Offset by marginally negative internal growth in our IC EPS segment, which as a reminder was the impact of lower interest rates.
Let's turn to slide nine for a closer look at have been trading revenues.
We saw the unexpected yes, welcome rebound in event driven activity this quarter.
Bend Tribune revenues grew 13%.
Putting this quarter right at the average Q1 based on our recent history.
The increase this quarter was primarily due to mutual fund proxy activity offset by comparative low levels of equity contest especial meetings.
Looking ahead, we are holding our outlook for a bit trip revenues flat with last year.
While recent quarterly trends have been encouraging it's still early in the year and we have no visibility into a proxy campaign by a major mutual fund complex.
Given the quarterly ebbs and flows of these revenues. We think this is the most prudent approach.
Let's move to slide.
Strong revenue performance for the quarter was a big contributor to 45% growth in adjusted operating income and 44% and adjusted EPS, Our strongest Q1 earnings ever.
The other big driver of our upside with the progress we are making in executing on the cost alignment initiatives, we mentioned last quarter as.
As you May recall these cost measures were put in place in order to allow us to deliver continued growth in fiscal 21, while making investments to position us for future growth.
You can see the impact these expenses measures are having on our operating expense growth.
Excluding the non-GAAP charges operating expenses were up only 3% with most of that coming from acquisitions.
As you would expect we benefited from lower spending on travel and entertainment.
The biggest impact came from a cost realignment initiatives that we undertook at the end of fiscal 2000 and beginning of fiscal 21, let.
Let me walk through some of the measures we are taking.
A key part of these initiatives was our focus on realigning our real estate footprint all.
All told we are closing or shrinking over 40 offices impacting more than 40% of our total number of office locations around the world, which accounts for approximately 10% number total real estate footprint by square foot.
As a result, we incurred a $29 billion charge in the first quarter related to these actions and expect another 5 billion or so in the second.
We expect to realize meaningful annualized savings as a result of these measures.
I believe that what we have learned through the pandemic wealth continued influence on how we utilize our real estate and offices.
Another example of our cost initiatives was our move to the private cloud.
In addition, we also took proactive measures to streamline expenses and reduced headcount in underperforming product lines.
In total.
We expect these cost realignment initiatives to result in savings of more than $80 million.
The progress we have made with our heightened focus on cost controls coupled with record earnings this quarter enable us to accelerate the $40 against their targeted fiscal to your 2021 investments.
Our investing activity should pick up meaningfully for the remainder of the year.
We have now green lit most of our planned investments for this fiscal year, which are focused around our people platforms and technology.
Some of these investments I'd like to call out specifically include expanding and broadening our virtual shareholder meeting capabilities provide.
Providing additional enhancements and developing new digital products.
Our LTX corporate bond trading platform and additional wealth capabilities.
Lower taxes also contributed to our earnings per share growth.
Our effective tax rate was about 2% lower than the prior year period.
Driven by ATP of $9 million.
Our revised guidance includes a full year total benefit from share lead compensation of $16 million up from $12 million.
However, we continue to expect our full year overall tax rate to remain at 21%.
I'll now touch briefly on our capital allocation and our balance sheet on slide 11.
Free cash flow is typically negative in the first quarter and that was again the case this quarter as we generated free cash flow of negative $50 million.
The difference between this and the same quarter last year is primarily due to our higher net earnings strong working capital management, and an 18 million dollar gain from the planned sale hardware assets. The idea as a result of the private cloud agreement, we announced last year.
We also seamlessly paid off $400 million of senior notes that mature to September.
Our uses of cash highlight our commitment to balance capital allocation.
First capex remained relatively consistent at second dividends paid thus far represent our commitment to provide returns to our shareholders in the form of dividends and buybacks.
That commitment was underscored by our board's decision last quarter to raise our annual dividend by 6%.
The 14th consecutive year with an increase.
As a as we've mentioned on previous calls we continue to ramp up our platform development and new client conversions.
A significant portion of this increase remains attributable to you'd be EPS and the continued development of our clinical post Street technology platform.
Linking these product development efforts to long term client contracts gives.
Just the confidence and ability to accelerate our product development efforts in conjunction with a revenue backlog. We view this spend as a positive sign of our growth future cash flow and it will continue through this year.
And just as a reminder, you should expect no change to our capital allocation strategy or leverage targets going forward.
And now I'd like to sum it all up what you've heard here today I'll review, our updated fiscal 21 guidance turning to slide 12.
Based on the strong performance. We've discussed today, we are updating our guidance as shown on slide 12 I.
I think you all know the first quarter is our smallest of the year and we typically will not make any adjustments to our outlook at this time.
That said as we went into this year, we saw an unusual level of uncertainty and therefore gave guidance that was wider than typical.
Now after a strong start to the year with more forward visibility we are much more confident in our outlook for both revenue and earnings.
As a result, we now see recurring revenue growth of 3% to 6% for the full year and adjusted EPS growth of 6% to 10%.
We're also updating total revenue guidance to 1% to 4%.
Our guidance for approximately 100 basis points of margin expansion in closed sales of $190 million to $235 million remains unchanged.
These changes remove some of the more negative potential scenarios from our outlook.
So our confidence in delivering a more typical broadridge here ill.
Albeit with more investments to take advantage of accelerating trends that benefit our business model.
And like Tim said, we also now expect full year stock record growth to be in the mid to high single digits up from our initial plan of low single digits.
We remain confident in our ability to grow through the headwinds, we discussed last quarter, which still remain.
Especially the tough second half comps on both the GTL and I see us side.
And a continued drag on our mutual fund retirement business from lower interest rates.
We do expect second quarter earnings to be lower than in the first quarter and more in line with historical averages of 12% to 14% of our full year earnings.
Embedded in that view, our expectations for event driven revenues of approximately $40 million, a more normalized tax rate and the impact of the increased investment spend I noted.
So let me close where I began.
We delivered strong first quarter results with record earnings power by higher revenues, including higher event, driven revenues and strong execution of our cost alignment initiatives.
Those strong results put us in a position to begin to ramp our planned investment spend last.
Last we are updating our full year guidance to reflect our increased confidence in the outlook for EPS by 21.
All in all we are well on track to deliver another year of top and bottom line growth.
This is all while making meaningful investments embedded in our guidance to ensure we are well prepared for the recovery and continued long term growth.
With that we'll turn it back to our operator to begin the Q and a portion of the call I'll listen.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
If you are using a speakerphone please pick up your handset before pressing the keys.
Joel Your question. Please press Star then too.
As a reminder, we ask that you. Please limit yourself to two questions. If you have additional questions. You may reenter. The question queue. At this time, we will pause momentarily to assemble the roster.
The first question today comes from Darrin Peller of Wolfe Research. Please go ahead.
Hey, Thanks, guys, Yeah, it's good to see these trends and the the flow through to guidance confidence when we when we risk weight. This guidance can you just touch on what you think you need to see to come through to reach the maybe the low end versus the high end of the range is maybe.
Maybe on the underlying drivers of the business and so and perhaps touch on what you guys have control over as well.
Thanks.
Hi, sure Tim I will start and then I will let Matt comment a little bit more.
Jose I first of all just in terms of guidance we are rapidly.
We're actually pleased with the strong start of the year and as we said it really confirms our confidence in the full year we are.
As I said, we're seeing strong strong stock record growth.
And we are seeing seeing good good.
Good trading volatility as well.
Hi.
When we think about what it would take for the the top and bottom end of that it really.
It really comes down to.
Continuing to see the growth that we are seeing guaran in in physician growth and in what we're seeing around around equity and fixed income trading volume. So let me just I hand, it to Matt to comment a little bit more on the details of that and had and I can finish up sure. So dire we had.
Forecast it in the first half of the year that volatility in the equity trade volumes to stay high.
I am kind of moderate a bit in the second half and going against our higher comp. So I think seeing these next few months coming that where we thought they would.
Would it would be it's really important that as Tim said that stock record growth.
Kind of the mid to the high level single digits in the second half, which is also going up against a pretty high comparable would be the two to be.
Thanks Aaron.
Aaron.
Yes, yes.
On the earnings side is is really that we we have a lot of investments planned and that we are able to execute on those items.
Yes. It is.
You know.
Well, it's all planned it is sometimes it doesn't come through all the way so making sure that we get those executed which we think that it is important for future is one of things we're working on as well.
Yes, Thanks, I was actually going to make that my next question, which is really just where.
Given the backdrop of this environment. It sounds like you really are trying to capitalize on these tailwinds with.
With investments Tim can you just give us a little bit more explanation or disclosure on where you want to put the money in terms of.
Number one what specific business lines the way, we look at it from analysts the way you report.
And then when we would expect to see returns on those investments just given that I think you're really stepping up and it's going to impact the margin. Some degree of it thanks guys.
[noise], Yeah, I think yeah. If you if you think about our investments around really making sure that we are are very well positioned post pandemic.
They fall in a couple of a couple of categories is a big category of just I'll say very foundational.
Investments in our product organization.
In our <unk>.
Technology organization and platforms to just to really make sure that we have the best foundational capability. I think you heard me talk about that before and which we believe the opportunity for us is basically.
Limited if we are we're good enough and and so making sure we well we have the ability here to make those foundational investments is as important and I think the returns on those are more long term in nature.
The third category investments are targeted product investments and whether that is in.
In accelerating what we're doing with the shareholder rights directive and accelerating what we're doing with Aboriginal shareholder meetings.
Around some of our wealth products.
With our digital cable.
Capabilities, those we have a whole roadmap of as as our technology companies do have a roadmap of things, we want to do and being able to accelerate some of those things and I think the return on those we would begin to see more near term and even even see some returns on that next year and then the last category is and go to market.
And as you know were growing rapidly international internationally, putting putting money behind that putting money behind our brand and again I think the returns on those things up.
Our probably 18 to 24 month range. So okay all.
No I think we feel we feel really good about it and we feel.
What we're seeing with the pandemic is just accelerating trends that were already out there.
But as you heard from many others on other calls I'm sure. It's it's five years.
Change in six months, and we really want to be in a position to help our clients with that.
Okay. That's really helpful guys. Thank you very much.
The next question comes from David Togut of Evercore ISI. Please go ahead.
Thank you good to see the first quarter outperformance and the upgraded guidance for fiscal 2021.
Just starting off on bookings up close sales were down 13% year over year, although that was after a 55% increase in in June can you dig into the new business pipeline, a little bit Tim and where you think you might land in that closed sales range for this year 190 to 235 million.
Yes, absolutely and I.
One thing I'd point out when we talk about the comparison to last year is that last year's first quarter had an important strategic sale in it and so it was by far a record. So this is this is our second highest ever I first quarter and Andrew take out the strategic sale from a year ago, we really.
We like the way the comparable lines up I think generally we.
We are seeing the pandemic as as I mentioned, a moment ago is accelerating the trends that benefit our business model and as we look at what's happening on the sales side.
Certainly we're seeing a.
Continued ability to close sales. So so that's good I think the other pieces just what are we seeing in terms of pipeline generation and.
We feel pretty good about that we are.
We generated pipeline in the first quarter. If you look at our core deals taking out the strategic ones above last year and above our three year average and hot longer term probably not for this year, but there are some longer term more speculative conversations that are very promising. So I think overall, we feel good about sales for the year were holding guidance at this.
Point, but I think I think we will feel that they'll come in very solidly.
Understood and just as a follow up can.
Can you update us on.
The timeline to onboard the big UBI EPS contract is that still on track for.
Call. It July of next year and then.
Our ability to build on that and bring in other big customers on that platform.
I sure and it was that it was.
Great to hear US talk about this on their recent earnings call and it's great to hear their their comments.
Reinforcing the positive impact that add that this is already happening they've they've introduced a change in advisory building, which I believe is going to be very positive.
And.
Just to be a fully aligned with what they said.
They talked about next summer so I'll just leave it leave it at that because I want to be aligned with that with what they said.
I think a lot more broadly that wealth remains a key focus area, we are continuing to invest in our capabilities.
As you know we've been pretty active in M&A in that arena.
Those recent acquisitions RPM and Rockall are really really performing well as we look in the at the interest in specifically in the wealth platform and Bill.
Building on you'd be asked we're seeing very strong interest from our existing clients that want to upgrade and evolve into this new weakest ecosystem.
Say that significant platform sales to new clients at this stage are unlikely before we complete the EPS go live but there are definitely positive conversations.
Understood. Thanks, so much.
The next question comes from Peter Heckmann of D.A. Davidson. Please go ahead.
Hey, good morning, Tim could you talk a little bit about how you're thinking about M&A right now and capital allocation the.
It's kind of weighing stock buybacks against M&A, but as well you're what you're seeing in the marketplace in terms of.
Lesions and seller expectations.
Yes and.
I will that add Matt comment on this as well let me just say a couple of things and have him comment but certainly.
P. tuck in M&A is an important part of our balanced capital allocation framework and and we've been pretty active over the past few years.
I think you know that our strategy is very very tightly aligned with our franchises, which I think is given us attractive returns.
At the same time.
What we're seeing right now is pretty high valuation levels.
And so while we continue to look at lots of things.
The the levels are high.
And and so were being very cautious I think if you do see EPS transact on the M&A side.
Yes, yes.
No that is something we have real conviction in and that we think really aligns well aligns well strategically.
Let me just let Matt comment a little bit more on overall.
Overall capital allocation and that balance sheet sure sure. So we're still at a very very strong place in terms of our balance sheet.
Two 2.0 ratio at this point it.
As Tim said.
Valuations are very high right now, but we are in the midst of talking around a number of different opportunities. So we'll manage ourselves too.
What's the right thing to do from an acquisition versus buyback and we're always committed to the dividend.
Delivering that so I don't think you'll see much of a change in terms of where we have been over the last several years.
It's always been a little bit been EBITDA flow in terms of where we are from a buyback versus acquisition. So.
We'll be in that same spot.
Got it Thats Fair and then just you know that the the equity proxy.
Revenue growth number just really was very impressive and it definitely heard you call out the.
Physician growth record growth anything else that might account for some of that strength within the revenue number itself or or or just primarily driven by.
Original budget holding more positions.
It's generally individual investors holding more positions and as you look at kind of those internet.
Advisers the activity that's happening on the retail investors is significantly higher in the first half than what we had expected we expect that to continue through the first half.
When we get it up against some tougher comps in the second half from the growth that we saw at the end of White 20.
So that will moderate itself down into the.
Kind of mid to high single digits at that point.
Got it got it okay.
And I'd just add one thing that the first quarter, it's a small quarter, there's no sort of loss small numbers. So.
While the.
While the revenue grew 35% I Safra could go for 16 and there are always a few one off sort of in the previous year or this year. They can make the percentage changes in revenue look I'm sort of unusual in such a small quarter, but I think getting off that sort of.
Hot no greater than double digit for the first half is that is the right way to think about it.
And then there was a little bit of shifting from.
Last quarter to this quarter in terms of some of the.
Handful of some of the large cap companies in terms of pushing out got.
Got it okay Thats all helpful commentary thanks much.
The next question comes from Chris Donat of Piper Sandler. Please go ahead.
Good morning, Thanks for taking my questions I just wanted to follow up on Pete's question on position growth.
I'm just trying to understand if it's more on the online brokers and I'll use the name Robin Hood, driving a lot of activity or if it's more robo advisors or call. It like a better mineral wealth front, which have the direct indexing that might be causing.
[noise] more position growth as people directly owned stocks rather than the index.
And that's something we've talked about before 10, but just want to make sure I'm understanding that dynamics of what's what's driving the equity position growth.
Yes, I would I would say first of all it has been now and I'll, let Matt add on to this but it's been.
Strong.
Across the board.
It has been.
Certainly strong at the large online brokers.
And the Sunday.
And the other ones you mentioned are while they had very good growth. They are they're small enough that it doesn't really affect us.
And.
Robin It is certainly a phenomena, it's not that's not a driver for broadridge, but really if you look at.
Specifically, the large online brokers big Big changes, there 20 plus percent and.
But that really good strength across the board to get this number.
But I would let you know that the direct and actually is really not a major driver for us at this point.
Maybe.
Just to remind the also we don't get paid.
For less than a single share. So those fractional shares are going to drive anything for us and some of those smaller holdings. So.
It's really more on those long lines.
Trades that are happening from the direct consumer.
Okay. That's very helpful and then thinking about on the the mutual fund side it positions.
October we had the announcements of Morgan Stanley with Eaton Vance and then some activist involvement.
Potentially pushing for Janus Henderson Invesco merger can you just remind us how a mutual fund mergers have worked out for you in the past it seems like thats been a driver of of campaigns for kind of Repapering.
Mutual fund.
Positions, but anyway, just help us understand how.
Mutual fund industry consolidation might it might affect you on the.
On the physician side, and maybe anywhere else it could happen.
Yeah, I think on that for mutual fund consolidation. We certainly are seeing consolidation I think we would expect there to be ongoing consolidation in the asset management industry.
I think we have to disentangle, the long term impacts and the near term impact. So let me just start with the long term impacts which is odd.
Yep.
We get paid as you know by physician and typically add to positions don't go away. So when two companies come together.
Really it doesn't necessarily affect us one way or the other from a long term perspective.
On the near term perspective. It is it's definitely true that typically they have to go to a vote for the shareholders and that can create some near term event driven activity.
Got it thanks very much.
Your next question comes from Puneet Jain of Jpmorgan. Please go ahead.
Hey, Thanks for taking my question and good quarter.
So I understand that this is like a small businesses, but can you comment on a piece of activity in pipeline.
And also on implementations given uncertainty uncertainty from rising gold kisses and upcoming elections.
Yes, absolutely.
So on the on the sales pipeline side.
And it's definitely something that.
We have been monitoring to understand.
Because he had clearly had a very strong Q4 mini dose had already been originating run the one yard line. So we know what we definitely learned is we can close.
And I said, we are monitoring around whether we can originate new opportunities and so on.
Now I think the larger opportunities are a bit lumpy. If you look at our sort of core opportunities outside of the CJ sales. What we're seeing is a nice growth in those.
Year on year, and a nice multiyear trend of growth in this this this quarter being really a continuation of that trend. So I'd say on track. If you turn it to the implementation side I think that one of the things that has been surprising to us.
Although we hear it from others. So its not not unique to us it is being experienced by the industry is that our productivity in our remote environment has been.
Really has not been affected that it is I think the thing, it's it's slightly better and and in particular.
Our and our ability to engage our more remote teams.
Where we have maybe have skills that are that are geographically separate.
Our India team all of that is working extremely well and so we really.
I've not seen any slowdown in the pace of client implementations and odd.
And similarly in terms of clients' ability when things we've been worried about is would they be able to focus on working with us and we haven't seen that the effects of either so our productivity and their productivity really has has continued to be solid.
Understood. Okay. That's good to know and how should we think about a cold winter led to cost. So it's a good some of those.
Cost actions like facility footprint, you talked about a be like a permanent lets says like more like a temporary reduction and as people start to come into office you invest a game in facilities.
Yes, great question Funny, we are.
Really.
Using this opportunity let me just talk about AD.
That's sort of the future of work for a second and I'll come back to the broader cost initiative I, we're really using this opportunity to lean into the future of work and as we talk to our associates around the globe, but what most of them are saying is.
They are looking forward to coming back to the office, but not every day and I think we have all learned from being on video conferences. All day long that it can be very very effective, particularly as I mentioned for engaging people from from our more more remote offices. So when we look at our how are thinking about real estate and a few.
Sure, we're thinking about it as sort of hub not home and and again when he under that whole theme of accelerating things that probably needed to happen anyway.
As we have done acquisitions, we have accumulated a smaller offices out worth more difficult to have the scale for associates to have everything they need to to operate effectively and so being able to trim.
We haven't to actually fare fairly significant number of offices I only about 10% of our square feet, but trimming that moving to hoteling.
Moving to other things that we think are really the future of how people interact we think will I will set us up well for the future and those those changes will be permanent as we look at the cost changes that we've made there certainly some of them like travel and things that are that are this year, but there is there's a lot of it that is structural and that we expect.
Continue in the future and just see if at my Metalized, adding on to that no. I think you got in that have an idea think about.
In a city, where we had three sites before were going down the one site, we're consolidating into one.
So there some of them are pretty pretty simple kind of actions, but it's not going to change in terms of when folks start to come back to work are we going to do more.
And then we.
You talked about what we've done with IBM on our private cloud that is something that will be permanent in terms of savings that we're going to get from that so as Tim said there is a mix in terms of some of which is this year and.
Any for example, theres definitely a bigger benefit this year, but I do think that we will have a whole new way in terms of how we took a look at TV across in terms of how we travel when they interact with the video that's become so easy to do and for us to get in contact with our clients.
Yes, Sir thank you.
The next question comes from Patrick O'shaughnessy of Raymond James. Please go ahead.
Hey, good morning, so a handful of major broker dealers sent the NCCN letter during the quarter recommending that electronic delivery of regulatory documents becomes the default or the opt in where do you think this proposal might head and what would be the impact on broadridge, if it didnt back to implement it.
Yes. Thank you. Thank you Patrick that is we worked with my on creating that letter we.
We do think that digital.
Digital delivery is the future is as as we certainly have have have talked about and so we are.
We're supportive of this direction.
The in terms of its hot near term.
Likelihood of any change I think is going to be a.
You know, it's going to be hard to getting through the FCC.
In this administration and.
Irrespective of the outcome of the election.
Jay Clayton has said that he stepping down and there's already sort of change at the top there. So I think there will be a slow down and things are going through the SEC, but.
But longer term.
This is something that.
We believe can be more.
More engaging for out for investors.
Safety industry safety industry money now you know the key is to.
Make the delivery those documents.
If what you're getting is a link to.
Go someplace in light again, you get a big drop off if you send a send the document directly.
Okay is there any visibility long and complicated document summary version is much better so making what people receive engaging as possible, making interactive, making clickable thats really some of the investments that we talked about that we're doing to really help our clients with what is truly a digital transformation, we think about.
The amount that large wealth management firms and fund companies spend on outbound communications really making sure that they're getting a strong return on that and that they are using it to really engage their clients. We think is a big opportunity.
Got it thank you.
And then now that the trade sale to Morgan Stanley has closed are you in a position to provide an update regarding the status of your you trade relationship.
Yeah, what I would say on that Patrick is it.
It is the very complex integration and it's something that Morgan Stanley continues to to study in terms of what they want the they're sort.
Sort of long term.
Approach to be in terms of how and whether they combine those platforms.
And I got irrespective, we expect that that once they do decide that it will be.
At or whatever it is it will be a multiyear transition. So I think it's still still a ways out.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tim Gokey for any closing remarks.
Well I would like to just thank everyone for joining this morning, we are pleased with the strong start to the year that really increases our confidence in delivering in fiscal 21, and our confidence in the long term trends that are propelling our growth and helping us helping us.
Healthy industry.
We look forward to updating further at our virtual Investor day on December 10th.
And we look forward to seeing all of you then thank you.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.