Q3 2021 Broadridge Financial Solutions Inc Earnings Call
Good morning, and welcome Judy Broadridge third quarter 2021 earnings conference call all participants will be in listen only mode.
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Thank you Andrea.
Everybody and welcome to Broadridge is third quarter fiscal year 2021 earnings conference call our earnings release and the slides that accompany this call may be found on the Investor Relations section from Broadridge Dot com.
Turning me on the call today are Tim Gokey, our CEO and our CFO Edmund Reese.
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 and third 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 cartridges underlying operating results and explanation of these non-GAAP measures and reconciliations to comparable GAAP measures can be found on the earnings release and presentation.
Let me now turn the call over to Tim Tim.
Thanks, Eddie and good morning.
I'll begin with an overview of our key messages and an update on our third quarter results, including our performance against our strategic objectives.
And then we will review our financial results.
And then we will take your questions.
It's an exciting time to be at Broadridge, and we have a lot to cover so let's get started.
I'm pleased to share that Broadridge delivered strong third quarter results.
Recurring revenues and adjusted operating income both of those 8%.
Our results in both Ics and GTO are being propelled by long term trends, including increasing digitization.
Mutualization and the democratization of investing.
These trends are driving strong new business growth.
Our record growth in the number of shareholders and higher trading volumes.
We're also executing well against our strategic growth plan.
Governance capital markets and wealth and investment management.
I'll highlight some of those initiatives in a few minutes.
The combination of those strong results and continued execution against our growth plans is giving us the confidence to continue to invest in our business.
We've continued to find attractive investments in our products platforms and people, including the pending acquisition of activity.
We also substantially increasing our guidance for fiscal year 2021 on both the top and bottom line.
We now expect recurring revenue growth of 8% to 10%.
And adjusted EPS growth of 11% to 13%.
While our new guidance reflects the impact of activity. The bulk of this race is organic is edman will discuss.
The net result of all these points.
Our strong third quarter results.
Our continued internal and M&A investment in.
And our outlook for fiscal 2021.
Is it broadridge is executing well and is on track to deliver at the higher end of our three year financial objectives, including 8% to 12% adjusted EPS growth.
We remain focused on delivering long term growth driven by secular trends and consistent investment across our governance wealth and capital markets businesses.
In turn generate consistent sustainable top quartile shareholder returns.
Broadridge has ability to generate those attractive returns is driven by executing on our clear long term growth plan.
So let me update you on some highlights of our recent progress on slide five.
I'll start with Ics.
Recurring revenues rose, 11% to $586 million driven by revenue from new sales and very strong equity record growth.
The biggest driver of Ics as strong growth with revenue from new sales.
And I'm pleased to see the impact of recent investments on our result.
Let me share two examples of our focus on product investment and strong execution are translating directly into increased revenue growth.
The first is the shareholder rights directive too.
Over the past two years, we've created shareholder communications hub linking millions of investors across the EU with hundreds of wealth managers.
Almost 300, new clients along the way.
Now as we enter proxy season, we're starting to see those efforts translate into new revenues, helping to drive 80 plus percent growth in our international proxy business.
Virtual shareholder meetings continue to be a great example of a product investment translating into new revenues.
Over the past year, we've upgraded our BSM capabilities to include the latest in virtual meeting capabilities, including state of the art video and audio technology.
Improved Q&A functionality.
One click shareholder authentication.
Seamless proxy voting.
Those upgrades have helped retain our existing clients and have driven additional growth.
We are now on pace to serve almost 1900 virtual shareholder meetings is proxy season.
From 1400 last spring.
The second factor driving Ics with very strong equity record growth, which was 20% for the quarter.
It's clear the move to reducing trading commissions has triggered a significant expansion in the number of market participants, which contributed to the increase in equity record growth.
That strong growth has been broad based across our broker clients.
But it's been most pronounced at the online brokers.
It has also been broad based across issuers with 20% growth across both widely held stock.
And those with more medium sized shareholder basis.
We did see large increases at a handful of names, including so called mean stocks stocks like Gamestop.
But those increases only contributed one point of the overall growth.
Commission free trading is the latest step in our long term trend includes the rise of Etfs.
Lower trading costs across all participants and changes investor interfaces.
That has propelled high single digit equity and fund record growth over the past decade.
Broadridge has invested to scale its capabilities to meet that rising demand Inc.
Kris the Digitization of critical regulatory communications and ensure that both new and existing investors get the information they need.
To stand the risks and participate in the governance of their investments.
Looking forward, we expect strong record growth to expense extend into the fourth quarter with our testing, indicating 25% stock record growth for Q4.
To close off on governance, let me touch briefly on regulatory.
I want to congratulate commissioner gensler on his confirmation as SEC chairman.
As we have with average share and administration of both parties over the past 40 years.
We look forward to assisting by investing in the next generation of technology to help the SEC achieved its mandate to better inform and protect investors.
All while reducing costs for registered and creating a fair return for our shareholders.
Let's turn now to our capital markets franchise.
Capital markets recurring revenues slipped by 1% as steady international growth was offset as expected by lower license revenue.
We anticipate this period a flattish revenue to continue through the fourth quarter before picking up again in fiscal 'twenty. Two is the on board a very healthy backlog.
On the strategic front, our planned acquisition of activity represents a significant enhancement our ability to drive value to our clients.
For those who may have missed our call a few weeks ago. Let me remind you why we think this transaction is such an exciting step forward for our global capital markets franchise.
As a leading provider of order management and trade execution technology and connectivity solutions for financial institutions.
Activity gives broadridge and compelling opportunity to extend our capital market service offering.
The combination of activities front office trading solutions.
With Broadridge is leading post trade back office capabilities.
Well allow us to serve our clients' entire trade lifecycle from order to settlement.
With increasing high frequency and algo driven trading is increasingly important to serve clients across traditional boundaries.
This combination will bring critical data from the back to the front office to improve trading decisions.
And it will enable our clients to simplify and improve their front to back technology stack and operating model.
The combination also strengthens our joint capabilities across equities exchange traded derivatives and fixed income.
And substantially extend our global reach creating significant cross selling opportunities and enhancing our relationships with blue chip clients.
The acquisition virtually doubles, our business on APAC and further expands our reach in Europe.
That expanded footprint and scale positions us to take advantage of growing mutualization trends in both EMEA and Asia.
Activity at more than $6 billion to broader just total addressable market and will drive stronger growth.
Margins in her Inc is edman, who will discuss in his remarks.
Early feedback from our clients has been overwhelmingly positive, giving us added confidence that our front to back thesis.
And our near term medium growth outlook are sound.
Also of note in our capital markets franchise is the continued development of our LTE ex fixed income trading platform.
<unk> recently completed the first ever multi by our digital block trade.
Enabling a single salary to simultaneously access the aggregated liquidity from multiple buyers is a milestone for the fixed income market.
And I hope one of the many steps towards creating a more liquid corporate bond market.
To date 10 dealers and over 40 asset managers have joined the LTE ex platform and.
And in an additional 14 institutions are signed in the Onboarding process, including one of the worlds largest fixed income managers.
Let's turn next to our wealth and investment management business.
Revenues grew by 7% driven by new client additions and higher equity trading volumes.
A key part of our growth strategy is to expand our sales of component solutions. So it's terrific to see new client on boarding is across a full range of our wealth and investment management products.
We also continue to make progress on building our industry, leading wealth management platform.
Which will help clients with the digital transformation of the wealth business.
We're already life, where their average daily balance billing solutions and industry milestone.
We're currently in active testing of our front office workstation with select advisors setting.
Setting the stage for a period of extensive testing of the broader platform before going live.
Our sales and marketing efforts with several new clients. This platform are advancing well.
Clients see that using the broadridge wealth platform to drive Digitization.
Seamlessly connecting the back office functions, we already provide us with additional select front and middle office capabilities will drive a stronger top and bottom line.
By bringing new capabilities to advisors and clients.
Digitizing financial adviser branch and back office interactions.
Another important part of our wealth strategy is developing a robust partner network to ensure that we can integrate cutting edge capabilities from innovative partners.
Recent partnerships include Blue from predictive analytics and core bank for Securities based lending and the Houston group of.
Wealth management Fintech accelerator.
These partnerships on others represent ongoing steps in building a network that will enable our clients to rapidly adopt new technologies.
Before I turn the call over to Edmund.
I wanted to step back from them and reflect on how far we've come over the past year.
When I spoke to you at the close of our fiscal third quarter a year ago.
Economic outlook was deeply uncertain.
And from the New York area and much of the World was locked down.
My remarks at the time were focused on the steps we were taking to keep our associates safe.
And to meet the needs of our client.
On an precedented time.
Today.
After 12 long months, there remains significant challenges.
And I'm thinking in particular, I've heard more than 3000 associates in India and their families and friends.
The global outlook is unquestionably brighter with.
With increasing economic growth, Washington hand in hand, with rising vaccination rates.
The pandemic has also accelerated many long term trends, including Digitization Mutualization and next generation resiliency.
And the lower cost and friction for investing is bringing in millions of new investors.
These changes are clearly, having a significant impact across wealth management governance and capital markets.
They are causing financial services leaders to rapidly adopt next generation technologies.
And Broadridge is building a suite of capabilities that will help them navigate and win this period of change.
We do so from a position of strength.
We started the fiscal year last July expecting 2% to 6% recurring revenue growth and 4% to 10% adjusted EPS growth.
Our focus was on driving enough expense savings to assure that we could continue to fund critical growth investments.
Fast forward nine months.
And we are poised to deliver.
8% to 10% recurring revenue growth driven by a combination of strong new sales and healthy financial markets.
After achieving our expense targets, we're now investing heavily in new product capabilities.
<unk> on global post trade platform and building next generation capabilities across digital communications wealth management and fixed income trading among other investments.
We're also adding talent and investing in our people to make broadridge the best place for the most talented associates in our industry.
Last but not least we're on the brink of closing on two and a half billion dollar acquisition of activity expanding our capital markets franchise and further strengthening our global footprint.
And yet even after those investments in the near term dilution from activity we're.
We're positioned to deliver 11% to 13% adjusted EPS growth.
Broadridge is out of Frankfurt and leaning into the opportunities we see ahead.
It has been a remarkable year.
Looking further ahead, we're on track to achieve the higher end of our three year growth objectives, driving strong recurring revenue and double digit adjusted EPS growth.
We see long term trends continuing to drive demand for our services and our investments are creating new avenues for growth long beyond our current two year objectives.
The future of Broadridge is brighter than ever.
In my 10 years at Broadridge.
Never been as confident about our long term outlook as I am on this call today.
Before I turn it over.
I want to thank our associates.
We've asked a lot of our team over the past 12 months and they are delivering.
They stayed focused on clients.
And through them on helping to build better financial lives for millions.
Let me now turn the call over to Edmund for more detailed financial review.
And then.
Thanks, Tim and good morning, everyone. As you can see on from the Q3 financial summary on slide seven Broadridge delivered another strong quarter.
Recurring revenue grew 8% to $900 million.
Adjusted operating income also grew 8% to $284 million.
Margins declined 60 basis points to 24% as we successfully made the investments that we discussed last quarter in our technology platforms and our products our people.
Our operating income was partially offset by a higher tax rate in Q3 dollars 21.
As we grew over discrete tax benefits in Q3 'twenty.
So our adjusted EPS grew to $1 76 in the quarter up 5% over Q3 'twenty.
Now, let's turn to slide and get into the details of the quarter, starting with recurring revenue growth.
As I said recurring revenue grew 8% in the quarter.
Powered by 7% organic growth and cash.
Comfortably within our historic mid to high single digit growth performance day.
<unk> the strength of our sustainable recurring revenue growth model.
As a result of that strong organic growth.
And an increase in our outlook for the fourth quarter, we're raising our guidance for recurring revenue growth to 8% to 10% for the full year up from our prior guidance of growth at the higher end of 3% to 6%.
Now, let's look at this quarter's recurring revenue growth by business on slide nine.
I'll start with our Ics segment.
Where revenues grew by 11% to $586 million.
Regulatory revenues rose, 20% to $290 million driven by the 20% equity record growth higher.
Higher mutual fund and ETF communications volumes, and net new sales, including from our shareholder rights directive too solution that Tim highlighted earlier.
We expect strong regulatory revenue growth to continue in the fourth quarter with our current testing, indicating 25% equity record growth.
Our issuer business also contributed to our overall growth rate. Thanks to continued growth in <unk> and increased issue or communications.
After a strong 12 months, we now have significant penetration of our BSM solution across the S&P 500, and we expect issuer revenue growth to ease going forward as we start to lap the increase of DSM activity that began in Q4 'twenty.
Fund solutions revenue was flat as.
Is double digit growth in data and analytics was offset by lower interest income from custody of accounts in our funds processing business.
Customer communications revenues were also flat with double digit growth in our high margin digital products offset by lower print volumes due in part to the pandemic depressed activity levels.
We expect growth in both our data driven solutions and customer communications business to pick up in the fourth quarter as these headwinds ease.
Turning to GTO Wilson, the invest management revenues rose, 7% driven by the Onboarding of new component sales and higher retail trading.
Capital markets revenues fell 1% as strong growth from international sales was offset by $6 million and lower license revenue, which declined as expected.
As we said last quarter. This flat revenue growth will continue in the Q4 'twenty one before picking up in fiscal year 'twenty two.
Let's turn to page 10, where we show more detail on volume trends.
Broadridge has recurring revenue growth benefits from underlying volume growth trends.
<unk> stock record growth.
Over the past decade record growth across equity mutual funds and ETF has grown 6% to 8%.
Recently equity record growth has accelerated to 11% in Q4 'twenty.
On continued to increase through the year to 20% in Q3 dollars 21, surpassing the estimates from our January testing.
As I said, we expect these growth trends to continue and reached 25% in Q4 'twenty one.
Mutual fund and ETF record growth picked up as well to 7%.
More in line with our historical growth rates.
We are modeling a return to more moderate mid single digit growth across both equity mutual fund ETF records from fiscal year 'twenty two.
With stronger growth in the seasonally smaller first half and.
And more moderate growth in the second half.
Touching briefly on trade volumes, which youll see on the bottom of this slide.
This is the fifth consecutive quarter of aggregate double digit volume growth.
This growth reflects the increase in volatility in retail investor engagement over the past year.
Which continued to be quite strong well into the third quarter.
Certainly trading volatility subsided during the second half of March and we expect tougher trading volume comps in Q4.
Let's move to slide 11 for a closer look at the drivers of our recurring revenue.
Organic growth at a very healthy 7% continues to be the largest component of our recurring revenue growth.
In new sales remains the biggest driver with strong growth contribution from both Ics and GTO.
We also continued our long track record of revenue retention above 97%.
Internal growth contributed another three points of growth in Ics regulatory volumes more than offset the decline in GTO license revenue.
And finally acquisitions.
We've now fully lapped all of our fiscal year 2020 acquisitions.
Looking ahead to the fourth quarter, we expect <unk> to add three points to fourth quarter recurring revenue growth.
Now, we'll turn to slide 12 to briefly touch on our total revenue performance.
Total revenue growth this quarter was stronger than usual, reaching 11%.
With distribution revenue contributing three points due to the increased mailings that correspond with the high record growth and the increased event driven activity this quarter.
Moving forward, we continue to expect a low to no margin distribution revenue to decline overtime as.
As we focus on increasing higher margin digital revenue across our governance business.
Event, driven communications remain an integral part of our client offering.
Event, driven revenues have climbed over the past four quarters to be more in line with our historical norms of about $50 million a quarter.
And reached $74 million in the third quarter, well above last year's unusually low $39 million.
Broadridge benefited from an increase in mutual fund proxy activity as well as a rebound in proxy contest volume's in capital markets transactions.
We expect fiscal 'twenty, one event driven revenue to be more in line with the average that we've seen over the past seven years.
For modeling purposes, we're assuming $50 to $60 million of event driven revenues in the fourth quarter.
Turning to slide 13, adjusted operating income grew by 8%.
Our adjusted operating income margin declined by 60 basis points, reflecting the continued investments that we're making in our technology platforms and product capabilities that we highlighted on our last quarterly call.
These investments, which support our long term growth.
Have a short term impact on margin expansion, but we remain on track.
To deliver approximately 50 basis points of margin expansion for the full year right in line with our fiscal year 'twenty, one guidance and three year growth objectives.
This formula foregoing near term margin expansion.
And consistently investing in our technology platforms and products to drive long term sustainable recurring revenue growth.
Continue to be an important part of how we manage our business.
As the CFO focused on long term growth, it's encouraging to see us, making these types of investments across all of our product lines.
Giving us momentum towards future growth.
Before I turn to capital allocation, let's turn to slide 14 and spend a moment on another key operating metric closed sales.
Which as I mentioned earlier is the most consistent driver of our long term recurring revenue growth.
Our $124 million closed sales year to date are in line with our performance over the same period last year.
We continue to see strong demand for our Ics solutions, including regulatory and issue our communications and data solutions.
We remain on track to achieve our full year guidance of $190 million to $235 million for closed sales.
Which implies a fourth quarter range of <unk> $66 million to $111 million.
Historically the closed sales performance in the last quarter of the year has been impacted by the timing of larger deals.
A handful of larger signings could propel us to the top end of our guidance range and Conversely delays could put us at the lower end.
And I'll also note that we continue to feel good about our recurring revenue backlog.
Which was 12% of our fiscal 'twenty recurring revenues as of Q4 'twenty Inc.
US great visibility into our topline growth.
Moving to capital allocation on the following slide.
We generated 136 million of free cash flow year to date.
Up $54 million over the first nine months of fiscal year, 'twenty, driven by higher earnings and strong working capital management.
During the first nine months of the fiscal year, we invested $205 million and building out our industry platforms and.
Another $71 million in Capex and software spending.
Our M&A investment through the first nine months of the year was zero, but that will change with our announced $2 5 billion acquisition of activity, which I'll touch on in a moment.
Even after completing the activity acquisition broader.
Broadridge will remain commit.
Committed to a balanced capital allocation policy.
Which prioritizes internal investment.
Growing our dividend.
M&A and returning excess capital to shareholders.
Importantly, we are also committed to maintaining an investment grade credit rating.
Which means we will prioritize debt pay down over share repurchases and expect to limit ourselves to smaller tuck in M&A opportunities over the next several quarters.
Given our strong free cash flow.
We believe that we can comfortably achieve our new two five times leverage target by the end of fiscal year 'twenty three.
Turning to capital returns on the right hand side of the slide our dividend has grown that remains in line with our historical 45% payout ratio.
On slide 16, we are on track to close the activity acquisition in the coming weeks. So let me take a moment to give you. Some additional clarity about the expected impact that activity will have on our financial performance.
I'll start with fiscal year 'twenty one.
We expect activity to add $25 billion to $30 billion or one point to our full year recurring revenue growth.
Which equates to three points to our fourth quarter growth.
And the acquisition is expected to be modestly dilutive to our adjusted EPS growth.
In fiscal year 'twenty, two we expect activity to add approximately $250 million or about eight points to our recurring revenue growth.
And we expect the acquisition to be accretive by approximately two to three points or roughly 10 to 15 cents to adjusted EPS growth.
Please note that activities results in both fiscal year, 'twenty, one and fiscal year 'twenty two will be negatively impacted by the accounting treatment of acquired revenue, which will reduce revenue recognition by approximately $30 million in total with two thirds of that impact in fiscal 'twenty to.
This revenue haircut is incorporated in the numbers that I just shared with you.
Finally, I want to reiterate the commentary that I gave you when we announced the deal.
About the impact on our three year growth objectives.
We expect activity to add 2.53 points to our three year recurring revenue growth CAGR and after interest more than two points to our three year adjusted EPS CAGR.
Now turning to guidance on slide 17.
We are raising our outlook for fiscal 'twenty, one recurring revenue growth to 8% to 10%.
From the higher end of 3% to 6% and.
And that includes one point of growth from activity.
We are raising our guidance for total revenue growth to 8% to 10% from the higher end of one 4%.
We continue to expect our adjusted operating income margin to expand to approximately 18%.
From 17, 5% in fiscal year 'twenty as we balance near term returns with continued investments to sustain long term growth.
We expect adjusted EPS growth of 11% to 13%.
From the higher end of 6% to 10% and that includes a one point drag from my type activity.
Finally, as I noted earlier, we continue to expect closed sales in the range of 190 million to $235 million.
And before we begin to take your questions, Let me share some final thoughts.
The Broadridge financial model is working.
We are on track to deliver strong 8% to 10% recurring revenue growth.
That growth is fueling our ability to both invest and expand margins.
At the same time, our strong free cash flow business model enables us to pursue balance capital allocation.
Commit to a rising dividend fund.
On the investments in our platform of products.
Step up and make a significant M&A investment to grow our capital markets franchise.
And finally, thanks to our consistent investment in our capabilities. We are on track to deliver another year of $190 million plus of new closed sales, which combined with our strong backlog.
Positions us well for additional recurring revenue growth.
The end result is that we're on track to deliver at the higher end of our three year financial objectives of 7% to 9% recurring revenue growth and 8% to 12% adjusted EPS growth. Its a great example of how we manage our business to drive sustainable revenue growth.
Steady and consistent adjusted EPS growth and historically top quartile CSR.
Let me now hand, the call back to Andrea to take your questions.
Adria.
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At this time, we will pause momentarily to assemble our roster.
[laughter].
And our first question comes from David Tobin of Evercore ISI. Please go ahead.
Hi, Thank you for taking the question. This is mainly will flow David Toga zone.
My question is.
Event, driven business continues to shift back to strong growth. After several years of decline how sustainable is the reason turnaround.
Then driven business and how high would the incremental margins this quarter.
So many thanks for the questions are event driven revenue as you know is about 4% of our recurring revenue, it's a bit more cyclical, but it's an important part of our total offering its high quality revenue at.
It's a strong margin in that business and as you mentioned Q3 has continued to increase and go back to our historical norms. We've done about on average about $50 million a quarter, you've seen pickup in mutual fund proxy business and contests in capital markets. It's not unusual to see us have an unusually high.
Quarter, or an unusually low quarter, but over the long term I do expect event driven revenue the pick up and grow in line with stock record growth. So.
During the Investor Day, I came out and said that we've seen 14 years ago event, driven revenues average for the first seven years of $180 million over the last seven years, it's been above $200 million and I feel comfortable that we should anchor in the full year number for event driven revenue and we expect it to be at that.
As we look throughout our objectives in the 'twenty, two and 'twenty three and again at a reasonably strong margins in that business.
Okay. Thank you so much.
The next question comes from Michael Young of Truest. Please go ahead.
Hey, Thank you for taking the question.
I appreciate the guidance on the activity.
Growth.
Contribution for fiscal 'twenty, one would.
Would you hazard, a guess or any guidance as to how much you expect that to contribute to kind of the long term three year growth guidance.
Yes, Michael let me jump in there and Tim you might have some some commentary on the business itself. When we were thinking well, we're bringing activity on first of all we're looking for a very strong assets in the capital market space. After deploying most of our M&A to wealth management and governance over the past.
Three years and the thing that looks great from a financial standpoint for our activity is the strong growth outlook. The core business by itself is mid single digit growth from a revenue standpoint, I talked earlier that we committed to about 20 billion in synergies by two.
2025, and that business. So you should see high single digit growth in that business. The recurring revenue models are predictable.
They are subscription like revenues healthy operating margins in that business and I think it was a great time to finance it in this low interest rate environment.
I also said that we expect because of that profile to get to double digit IRR is in this business. So I think you know well.
<unk> focus on integrating it but if I do expect it to have that high.
Single digit revenue growth at 30% margin. So a strong return over a very long time for us and that business. Tim I don't know if you want to add some comments to the profile, yes, Michael just I.
Remember at the time that we are that we announced this we said we were we felt confident that we'd be at the high end of our three year guidance. So in terms of what the impact would be beyond 'twenty. Two I think that also gives.
Gives a bit of a flavor and just to add on to what Edmond.
About talked about strategically we are really pleased with the way this strengthens our capital markets franchise, and and really allows us to drive on to back that has been really emphasized in some of the client conversations that we've had.
Since the acquisition was announced.
Announced.
We've talked to our cash.
50 clients and half.
Yes.
Half of them wanted to have a conversation about.
<unk> and <unk>.
And so it's really gratifying to see that level of interest, but specifically in innovation of front to back end and the vision of having.
On a an alternative in the market with with someone like Broadridge that is investing in this business. So we feel really good about that piece on nickel on the capital markets and we also have really good about how it adds to our to our global scale and reach and really deepens our relationship with some of our most important clients. So we're excited.
And we.
Do you think it's going to add.
Add to our growth and.
Our ongoing organic growth in terms of the rate that specifically I bring us to the top end of the three year guidance.
Okay, great and maybe just a bit of a departure from that question, but just as we look to kind of post pandemic and reopening and sales trends are you seeing any increased conversations or willingness of clients to take on new products, new conversions et cetera is that of <unk>.
Aylwin that all for the business at this point.
Yes, I would say on the on the sales side.
We are.
You know it's interesting because we've been this past year really in the situation, where I have talked about this before in terms of.
Of originating new opportunities and then working on to the long sort of cycle of business case on requirements and things like that and doing that all remotely and that's been a very very interesting evolution over this past year I think the productivity has been remarkably good I E.
Is that we'll see as we get to the end of the year here in terms of timing of some of the larger larger transactions, but what.
What we're seeing certainly on that as people look out is this.
Real pressure for.
Next generation technology. The Digitization that is happening has just accelerated where people want to be and Youll talk to client after client about who will say you know what they expected to happen over three years. It happened in 12 months for over five years that happened.
18 months.
And so they're really looking to make change. It also means a very busy and so it's a matter of getting on their agenda, but we feel we.
We feel very good about about our ability to continue to drive our business through two net new sales.
Okay. Thank you.
Yeah.
The next question comes from Chris <unk>.
Piper Sandler. Please go ahead.
Hi, Thanks, and good morning, everyone.
One question I, just wanted to check in as we're thinking about.
As we refine our 2022 physical models.
With the UBS wealth management platform can you just remind us on on where we stand with that and once it goes live how that starts to affect revenues and expenses.
Yeah, Chris It's Tim.
Just on on UBS, we continue to have a great partnership with UBS.
We continue to.
Support there, they're ongoing technology and digital transformation.
There are parts of this debt R. R.
<unk> already live in creating benefits for UBS and its.
And as financial advisors.
Continuing to invest for both for UBS and for clients at 234.
And.
And we're having very good conversations with clients to before and I think our results show the momentum we have in our in our components.
When you get into the timing of our specifically when this is going to happen.
It is that's really ubs's announcement to make and and when we get to August and we're really talking more specifically about 'twenty. Two we'll have a further update that but right now I can't I can't comment more on it.
Okay understood and then.
And then with activity I'm not sure I caught the comments fully on the impact for fiscal 2022.
Well I guess first did you say that.
And was it $230 million on revenue and did that include purchase accounting adjustments and then if we start thinking about.
Fiscal 2023, as the impact of purchase accounting adjustments fade would we expect maybe.
Optically to you'll have higher revenue growth just without the purchase accounting adjustments.
So think of it yes.
Yep understood Chris Thanks for the question.
So just specifically on fiscal 'twenty two for a moment, we said we expect it to add approximately $250 million in revenue and that does include the purchase accounting of about $30 million I mentioned that about two thirds of that is in fiscal 'twenty. Two the other third is this year in fiscal 'twenty one.
Impacting the revenues that we expect over the next two months that will be about eight points to the recurring revenue growth in fiscal year 'twenty, two and as I mentioned about two to three points to the.
The adjusted EPS growth and so you can expect growth on that revenue fully in the fiscal year 'twenty three without any further impact from the accounting adjustment that I thought I was just talking about so we feel good about the contribution that will make as we go into 'twenty three as Tim said, a moment ago, helping propel us to the top end of our <unk>.
I'll also add Chris you know when we gave the three year objectives, we talked about 5% to 7% organic recurring revenue growth that we talked about one to two points from M&A and acquisition and activity makes it I think that's what makes us feel good about the objectives as that activity comes on.
At this type of contribution putting us at the higher end of those three year objectives.
Got it thanks Ed.
The next question comes from John Rodriguez of D. A Davidson. Please go ahead.
Hi, This is John coming on from Pete Heckmann now that you gave additional time to dig into debt activity business on where do you see what are the main solutions do you guys see that are best placed from cross selling.
Yes, John It is Tim and.
We are we haven't closed yet so that will be that will be we will be taking it I think on the cross selling opportunities. There are several they have a strong position on on continental Europe, a stronger position than than we do and so the ability to bring our.
<unk> to their clients in Continental Europe, and Asia for that matter, you know that sort of opportunity one.
Opportunity to we are a much stronger position in North America, and so the opportunity to help them better penetrate North America is opportunity too.
And so those are sort of the geographic opportunities and then we have the heart the assay class opportunities and they have a very strong position in exchange traded derivatives and that's a more nascent area for us and so we expect that combined offer to be.
It can be very interesting.
And.
We have a very strong position in fixed income and they have a building position in fixed income and so that's another another attractive area. So we think debt.
The day geographic cross sell.
And the asset class cross sell that there's a really nice degree of revenue synergies built into built into this and that as you know most of the things that we do we do really for revenue growth or.
Not a a.
By his flow growing thing and cut costs and then go on to the next one that sort of not not our model. So we think this will add nicely to our organic growth for a long time to come.
Yeah.
The next question comes from Patrick O'shaughnessy of Raymond James. Please go ahead.
Hey, good morning, guys on LTE ex can you speak to what sort of participation you have at this point from some of the largest fixed income dealers.
Yeah, Patrick Thanks, as Tim and I'm.
I'm glad you asked that question actually because it was sort of in the script there, but we have.
Just in this last quarter signed on.
I'm not sure if it's the largest one of the one of the top three in terms of fixed income.
Managers and so that is not on board, yet, but it will be coming on board in the next day.
Next few months that that was a real milestone for us. So I think the milestones that we were excited about on L. T X and why we continue to talk about it.
Sure.
And we received.
On the on the.
The debt execution protocol.
Which really allows aggregation across our buyers and sellers. The first execution of an aggregated trade, which are which is a real milestone and so important because the electrons vacation trading as you know has been a little slower in fixed income and it really hasn't penetrated the larger trades, which are that the <unk>.
And London, so that aggregation capability, we think really will help unlock the digitization of our fixed income and then the third milestone.
Was was really the deciding of of what are the top one of the very top of fixed income managers and so we think that's just another side and why we're confident as we go through this year, we're going to continue to see momentum pick up.
Got it I appreciate that Tim and certainly I think on a interesting aspects of <unk> is that it's kind of a dealer centric solutions. So I. Appreciate that you guys have got it aligns did that big trade you signed up on the biggest buy side firms, but on the sell side are you working with the biggest sell side.
Good dealers at this point with LTE ex.
Okay.
At the moment I would say we are working at tier below the very largest ones.
And which is a great first mover opportunity for for those firms are working very closely with them.
Including a Raymond James as you know.
And so we're excited about that we are in conversations with with two of the debt.
Tier one firms.
And we'll see how those go I think what's interesting is.
When we put.
And as you say its dealer centric. So it really enables them to grow their business and that is so much about the AI and about enabling them to serve their clients really well and and when you when you get a trade in as it as the sales person has the trader.
Net likely counterparties to top one or two were sort of obvious that number 25, you might not think of and what are those firms are seeing and they're testing our AI side by side with their AI and they're seeing that adds real value in terms of well who's a number 25 person I might not otherwise call until it really increased the efficiency for the sales person that allows them to serve their.
Clients a lot better so that aip's, even independent of the marketplace has real value and so I think it's you know it really makes for some very interesting conversations.
Yes very interesting.
And then switching gears to an expense question here to what extent does your updated fiscal year 'twenty, one guidance reflect incremental organic investment relative to your prior outlook and assuming there is some incremental organic investment where you're directing those dollars.
So Patrick I think we've.
Obviously signaled during the Q2 call that we would continue to invest in the business and I'll talk a little bit and Tim you should jump in on where those investments were going but again I'll reiterate that we remain committed.
To being able to drive adjusted operating margin to the tune of 50 basis points for the year and then I think we'll still be able to do that.
But it does include organic investments I think about them across our technology platforms. Tim mentioned in his earlier remarks across post trade across wealth management and our infrastructure as you think about the network resiliency that we've had over the past few quarters, where we've seen record trade volume growth I would say that organic investment into our infrastructure.
And technology platforms are starting to pay dividends you see it in our products as well Tim earlier talked about the <unk> solutions and the srd solutions within that regulatory business growth you saw 28% growth.
Benefiting from the investments that we've been making in those solutions that I always added onto his comments about LTE ex where we have continued investments there and as we think about our three year outlooks no revenue associated with that so that's an opportunity for us as well and then the final thing I would say Patrick is.
Estimates and are on our go to market and sales organizations, particularly as we think about expanding internationally focusing on our premium accounts. These are investments that are really as I mentioned think drive.
Recurring revenue growth. So we will continue we have been and will continue to be committed to these investments while producing margin expansion and delivering the high return that we want to drive.
And I, just can't help but add on because it's a topic. We're all passionate about so it is Patrick I think you know well from following us over a long time debt is a key part of our growth model and that we do reinvest when we get the opportunity and I'm just pleased to be sitting here talking this morning talking about increased guidance.
Increased margin Inc.
<unk> investment in our products and our associates and.
When I look at.
The investments, we're making in digital in LTE ex in wealth.
In multiple areas and governance, including increased investments in data analytics and now with activity.
We've never had so many paths that are not just the next 18 months, but well beyond that and so it really gives us the confidence to be talking about the upper end of our three year objectives, but also really what happens after that and that's why we feel really feel good this morning.
All right very helpful. Thank you.
Yeah.
Our next question comes from Puneet Jain of Jpmorgan. Please go ahead.
Hi, Thanks for taking my question.
Can you reconfirm on strong.
Volume growth in capital markets with flattish revenue, even if you adjust for <unk> 6 million in license sales.
It looks like.
Growth was much higher than revenue growth.
Yes. So when you think thanks for the question from me when you think about our GTO business. We showed that chart that breaks up between capital markets and wealth management in the first thing I'd say is as we were coming into Q2 remember we're coming in Q3 off of record trading volume comps.
6% combined equity and fixed income and 28% for equity and that was primarily you saw that benefit come through in the capital markets business. So we said that would be a tough comp as we came into this quarter. So in the capital markets business, you had a harder comp on trading volume and the license revenue impact there.
Brought it to flattish revenue the trading volumes that you saw the continued growth I mentioned the fifth consecutive quarter of growth was primarily retail trading and you saw the 7% growth in the wealth management business is the item that was benefiting from that so you have this tale of two cities on our GTO business right now with capital markets coming over.
Our higher comps facing the lower.
License revenue that I'll remind you was a grow over issue.
Tick in Q3, 'twenty revenues, but wealth management seeing the benefit of the the trade volumes that we saw this quarter.
Got too.
On.
Juan it's Mike.
And then thirdly, but do you expect any changes in regulatory focus under the new administration to treatment.
Yeah.
Yeah.
Yeah.
Tony This is Tim.
First of all.
<unk>.
Let me just restate, what I said before which is we always work to support the SEC's mission to inform and protect investors in and we've done that for a long time and we expect to continue to do that.
When when we.
Hi here about the focus of our of the next session.
Certainly one of the things at the top of the list that we hear about in the market is around ESG and related disclosures offer ESG and how that may be an early focus and we certainly stand ready to assist them to play the role that we play I think it's too soon to tell if that's a business opportunity, but it is certainly strong.
There appears to be an area of focus.
I think the other questions are really around the initiatives from the previous administration and the extent to which they will continue or not.
We there's a lot of conversation conversation about end to end vote confirmation.
We're hearing that could remain an area of focus and and that's certainly something that we've been a supporter of we'll share with the SEC.
A result of a successful pilot we've done with the top 100 issuers showing how that can work on.
On virtual shareholder meetings are different discussions about making the beneficial devoting available to to all providers, which we have done this season via Apis.
Universal proxy.
It's an area, we support and we stand ready to to help you as a working group that recommended changes there.
There were discussions about oboe novo and a working group that really isn't making a recommendation.
And then there's a whole conversation around streamline communications in funds, which we're focused with the previous FCC. It's unclear if that's going to be a focus for the new leadership, but how we support the recommendations and we will we'll continue to work to strengthen the industry for the long term so lots of different things that were on the agenda.
That are a little less clear in terms of what their forward momentum is certainly the new things, we hear about how it relates to ESG.
Got you. Thank you.
The next question comes from Andrew Baum of Wolfe Research. Please go ahead.
Hey, guys. This is Andrew on behalf of Darren Thanks for taking my question.
Tim you mentioned in your prepared remarks that you're expecting 25% stock record growth in the fourth quarter could you unpack this a little bit I mean, obviously, that's an impressive acceleration considering the level of growth you're at today and if I'm not mistaken I believe the comps get harder in that regard.
Yeah.
Andrew It's a great question and it's a it's definitely an interesting time and.
Sure.
More broadly we're seeing this as I talked about in my prepared remarks, just as part of a long term trend of the backwardation of of investing.
And you know.
What we're looking at as we look into the fourth quarter is high and we do have a fair bit of visibility at this stage into and do what's going to happen in the fourth quarter, because there's a lag between when the records come together and when when they go out. So we are testing, but we have we have.
Good visibility.
What I'd say is just.
What we're seeing is very very broad based growth we're seeing it across.
All different types of issuers.
We're seeing it across all the different types of broker dealers, although stronger and online broker dealers, we're seeing it across industries and we're seeing it across both managed accounts and other accounts.
And it's not just focused on I mean stock so like a lot of the things that you've been reading.
In other places in the past this this ah.
On a rise in equity holdings and ryzen participation in the market is it's very significant.
Also seeing to a lesser degree, but good good interim record growth, which is driven by stronger inflows and healthy markets. So we're seeing very strong.
Very strong Q4.
We often get asked about.
When the market changes or if the market changes what would be the impact of that and we have we've done a lot of work going back over over the last 25 years of history and.
Events, like 90, 909, and even last spring and and.
What that would really tell us is debt growth flattens could be slightly negative, but debt equity investors tend to stay invested in and it is.
Total reaches a new plateau. So we do think that these are these levels of holdership are are sustainable or not modeling the same level of growth in the future I, clearly, but but we see a return to sort of more more sort of normalized growth in the future.
This concludes our question and answer session I would like to turn the conference back over to Tim Gokey for any closing remarks.
Thank you and thank you all for joining us this morning.
And I think you can tell this is this is just an exciting time to be at Broadridge. Our business is strong we're on our front foot, we're investing for growth and.
And we're on track to deliver at the higher end of our three year objectives.
We appreciate your interest and ownership and we look forward to speaking you again in three months to tell you about our fourth quarter results and to share our guidance for fiscal year 'twenty two.
Thanks again.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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