Q4 2021 Broadridge Financial Solutions Inc Earnings Call
Since we will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions to.
To ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Eddings Tivo head of Investor Relations. Please go ahead.
Thank you Eileen good morning, and welcome to Broadridge is fourth quarter and 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 Tim Gokey, our CEO and our CFO Edmund Reese before.
Before I turn the call over to Tim a few standard reminders.
We will be making forward looking statements regarding broadridge on today's call 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 will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of broadridge as underlying operating results and 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 Alex.
Good morning, everyone and thank you for joining us today.
I'll begin with our key messages and then provide an overview of our performance against our strategic objectives across governance capital markets and wealth and investment management.
And I'll close with some thoughts about our future before Edmund reviews the financials.
Let's get started.
I have four headlines.
First broadridge delivered a strong fiscal year 'twenty one.
Recurring revenues rose 10%.
Adjusted EPS rose 13%.
And our sales teams delivered a 10th consecutive year of record sales.
Our results demonstrate how well positioned broadridge is to take advantage of increasing investor participation in.
And the growing need to digitize and Mutualized financial services.
Second we are executing against the strategic growth plan, we laid out at our Investor day in December.
We're building the next generation of governance products.
Growing the scope of our capital markets business across the trade lifecycle and building our wealth management franchise.
Third we remain committed to balanced capital allocation.
In fiscal 'twenty, one we increased our level of investment on our internal platforms.
Completed the largest acquisition in our history.
And returned nearly $250 million in capital to shareholders.
Yesterday, our board approved an 11% increase in our annual dividend per share.
Broadridge has now increased its annual dividend every year since becoming a public company.
With double digit increases in eight of the last nine years.
Fourth and last we expect another strong year in fiscal 'twenty two.
Our guidance calls for 12% to 15% recurring revenue growth.
Further margin expansion.
11% to 15% adjusted EPS growth.
And another year of record sales.
A combination of strong fiscal year 'twenty one results.
And our guidance for fiscal 'twenty, two leaves broadridge extremely well positioned to achieve the higher end of our three year growth objectives.
As we close out the first year of our current three year cycle I want to give you an update on our progress against our strategic growth plans for each of our three franchise businesses, starting with governance or Ics on slide four.
Ics recurring revenue rose, 11% in fiscal 'twenty, one to $2.1 billion driven.
Driven by both new sales and internal growth.
Strength of our governance franchise comes from its position at the heart of a network linking broker dealers.
Corporate issuers.
Asset managers and.
And tens of millions of individual and institutional investors.
Our fiscal 'twenty, one results highlight how our strategy of innovating at the core while providing incremental value to all network participants drive eight drives incremental in <unk>.
Sustainable growth for Broadridge.
I'll start with our core regulatory business.
The Big story here is the very strong position growth, we're seeing across equities.
Equity stock record growth, which is our measure of the number of positions held by shareholders.
<unk> grew 26% in fiscal 'twenty one.
Including 33% in the seasonally strongest fourth quarter.
We continue to be struck by the broad based nature of this growth.
We're seeing growth across large and small issuers not simply a handful of mega cap CAC or means docs.
Looking at industry sectors Tech and consumer cyclical stocks are leading the growth of 42 and 37% growth respectively.
We're also seeing double digit growth across virtually other sector, including 33% growth in health care names, and 20% plus and basic materials and industrials.
This broad based participation is a key reason why we believe that fiscal year 'twenty one's strong growth is an extension of the long term trend, it's been driving higher equity and fund position growth over the past decade.
And why we are forecasting continued growth in fiscal 'twenty two.
And Broadridge, we're able to meet this increased demand because we've invested in scaling our capacity.
After the initial coverage surge last spring, we invested in new distribution capacity to build incremental flexibility across our network.
Enabling us to seamlessly ensure that holders of more than 500 million physicians got the communications they needed to participate in corporate governance.
We've also invested in new digital capabilities, including QR codes and make voting on your mobile device easier than ever.
Our governance franchise is also increasingly global with gains from a shareholder rights directive too solution and continued expansion of our European Fund Communications business.
We're also expanding the suite of data driven solutions, we provide for our fund clients.
And in part by another year of double digit growth across our data and intelligence products.
We're growing our relationships with corporate issuers.
We conducted almost 2400 virtual shareholder meetings in fiscal 'twenty one.
From 1500, a year ago.
We become the clear choice for America's leading companies.
With more than three quarters of S&P 100 companies using broadridge to host the annual meetings in 2021.
In turn increased demand for Rvs M capabilities has enabled us to deepen our client relationships.
Leading to strong growth in our suite of other annual meeting services and disclosure solutions products.
Finally in customer communications.
Our strategy is focused on using our print capability as a door opener for growing our digital business.
It was encouraging to see strong double digit growth in digital revenues.
Which offset lower print revenues and helped to drive higher earnings.
All in all it was a very strong year for our governance franchise.
Now, let's turn to capital markets on slide five.
In capital markets, we're driving trading innovation across the front office.
Enabling our clients to simplify and improve their global post trade technology.
Providing strong enterprise and data components solutions.
And building New network enabled solutions, using AI digital ledger and other innovative technologies.
Okay.
Capital markets revenue grew 8% to $701 million, driven by new client additions and acquisition activity.
Which has given us a new capability to drive innovation across the trade lifecycle.
While the activity integration is only just beginning I'm excited by the progress we've made.
Activity recently closed its largest ever sale.
And we're on track to leverage Broadridge has relationships drive more meaningful sales in the quarters ahead.
Client feedback has continued to be positive and the sales pipeline, especially in EMEA and APAC strong.
A key driver of our revenue growth is our continued success at bringing clients under our global platforms, enabling them to simplify their global technology.
We're also enhancing those platform capabilities.
A great example is the exchange traded derivatives platform onto which we're Onboarding R. J O'brien.
I'm also tremendously excited by the continued progress in developing new capabilities based on Nexgen, AI and DLT technology.
Our L T X fixed income platform continues to progress well.
We have more than 70 buy and sell side users on the platform and we're adding more every week.
And the average initiated trade is north of $3.5 million.
Indicating demand for increased liquidity and fixed income markets.
We also recently launched our digital ledger repo platform and are averaging 35 billion worth $1 billion worth of transactions daily.
A number which will grow as more clients.
<unk> UBS come onto the platform.
While both of these products are small today.
<unk> is bringing an innovative and differentiated solution to a multibillion dollar market.
Now, let's turn to our wealth and investment management franchise on slide six.
In wealth, we're extending our services around our core back office capabilities.
Growing our suite of components solutions and.
And building a modular platform that will link our individual capabilities across a modern technology architecture.
The biggest driver behind our 6% growth in wealth and investment management revenues with revenue from new sales.
During the year, we added new clients to both our core back office platform and saw strong demand for digital solutions suite.
Our work with UBS on the digital transformation of the wealth management industry remains one of our most exciting initiatives.
Broadridge, the Broadridge wealth management platform.
Is an important part of Ubs's own multi year transformation plan for its north American wealth business.
As we align around ubs's goals in a sequencing we've already rolled out select components and we expect to rollout the additional platform components over the next 18 to 24 months.
Based on the terms of our contract will begin recognizing revenue when you complete the delivery of the full suite.
Meanwhile, this platform continues to draw attention from other clients.
We were pleased to announce last month that RBC wealth management will become our second client on the brothers golf platform.
RBC is pursuing its own digital transformation journey, and our platform will accelerate their ability to enhance the client experience optum.
Optimize advisor productivity.
And digitize as back office.
We're excited to be a key technology partner in that journey.
Beyond our work on the wealth platform, we continue to make progress in expanding our digital solutions with the advisor stream tuck in acquisition and by extending our partner network.
Lastly, I was pleased to see strong growth or investment management technology revenues.
Grew by 12%.
Strong revenue from sales of existing solutions.
Continued platform development and new product conditions.
We're making solid progress on our wealth and investment management growth strategy.
As I wrap up my strategy update I want to highlight the common denominator behind our execution across governance capital markets and wealth and investment management.
Broadridge is investing in driving near medium and long term growth.
We've invested to process higher position counts.
More virtual shareholder meetings.
And handle surges in trading volumes, which are critical in fiscal 'twenty one.
And will remain important in fiscal 'twenty, two and 'twenty three.
At the same time, we're investing in initiatives that will carry our growth momentum forward, including data intelligence products, the emergence of a European governance hub activity and our wealth platform.
And finally.
I see tangible signs of products that have the potential to extend our growth runway well into the next decade liked.
Digital communications.
Digital ledger repo.
In fixed income AI.
These are solutions that our clients value as evidenced by the traction that we're gaining in the market for each of them.
This mix of near medium.
And long term growth businesses across the company are exciting.
What does that mean for Broadridge.
Let's turn to slide seven.
As we enter fiscal 'twenty to.
I've never been more optimistic about broader just long term growth prospects.
When I look across our company I see a leadership team is stronger than ever focused on how we engage our associates.
Better serve our clients and create value for our shareholders.
That team is executing against our growth plans across governance capital markets and wealth and investment management.
We're finding ways to help our clients accelerate digitization draw.
Drive Mutualization benefits and.
And enable the increasing democratization of investing.
Even more tangibly we.
We are on track to deliver another strong year.
Our strong backlog gives us visibility into new revenue over the next 12 to 24 months and.
And we see continued position growth as new investors into the market.
Current investors continue to diversify their portfolios.
In short we see another year ahead of low teens revenue and adjusted EPS growth.
Yeah.
The net result of strong fiscal year 'twenty one results.
Continued execution against our growth strategy.
And our outlook for continued growth in 'twenty two means.
It means that Broadridge is well positioned to deliver at the higher end of our three year growth objectives, including 79% recurring revenue growth and 8% to 12% adjusted EPS growth.
Before I conclude I want.
Want to thank all <unk> associates for their work over the past year.
Little in the past 12 months has been easy.
But they have found a way to adapt to the new virtual environment.
They stayed focused on our clients.
And they are helping drive the transformation of the financial services industry.
That is enabling better financial lives familiar.
Thank you.
Let me now turn it over to Edmund.
You, Tim and good morning, everyone.
As you can see from the financial summary on slide eight Broadridge delivered strong fiscal 'twenty, one results capped off by a strong fourth quarter and demonstrating significant progress towards our three year objectives.
Fiscal 'twenty, one recurring revenues increased 10% to $3.3 billion driven by strong growth in both Ics and GTO.
That strong growth enabled us to make the near medium and long term investments in our technology platforms, and our digital products, while driving 60 basis points of Oi margin expansion for the year.
Higher revenues and higher margins drove 13% adjusted EPS growth to $5.66.
In the fourth quarter revenues rose, 15% year over year to $1.1 billion driven by growth in Ics and the acquisition of activity.
Adjusted operating income rose, 4% as we continued our ongoing investments and adjusted EPS grew 2% to $2.19 sets.
Our results came in at the high end of our latest full year guidance range and above our three year recurring revenue and adjusted EPS growth objectives.
As Tim has highlighted our sales team closed the year on a high note.
It pushed us modestly above our closed sales guidance range.
So let's get into the details of those results starting with recurring revenue on slide nine.
The momentum in our business driven by the trends and increased investor participation in digital solutions continued into the fourth quarter and help broadridge posted another year of 10% recurring revenue growth.
Our recurring revenue growth was powered by 8% organic growth, which came in well above our 5% to 7% three year growth objectives.
The combination of organic growth.
Coupled with two points of growth from our acquisition of funds library in FY <unk> 60 in fiscal year 'twenty and then activity in May.
Pushed our fiscal year 'twenty, one recurring revenue growth above our 7% to 9% objective as well.
So a strong start toward our three year recurring revenue growth objectives.
Now, let's look at this quarter's recurring revenue growth by business, beginning with Ics on slide 10.
Ics revenues grew by 17% to $719 million in the fourth quarter all of that growth organic.
The biggest driver of that growth was in our regulatory business, which grew 27% to $381 million.
Fourth quarter stock record growth was 33% in.
And mutual fund record growth was 11% both key drivers of growth and regulatory.
We also benefited from strong growth in international.
And our investment in the shareholder rights directive too solution is paying back in contributing to recurring revenue growth.
For the full year regulatory revenues rose 20%.
Issuer revenue also contributed to growth rising 20% in the fourth quarter to $106 million and 21% growth for the full year.
Tim noted our continued success in providing virtual shareholder meeting services has helped drive revenue growth of our other annual meeting services and document disclosure products.
Fund solutions lap the drag from lower interest income and recurring revenue grew 7% in the fourth quarter.
Full year revenues rose, 5% driven by the fiscal year 'twenty acquisitions mentioned earlier and revenue from net new business.
Customer communications revenues was down 1% in the quarter as declines in our low margin print revenue offset digital growth.
For the full year customer communications revenue growth was slightly positive, but more importantly.
Higher margin digital revenues within customer communications grew by 15%.
Turning to GTO on slide 11.
GTO recurring revenues rose, 10% to $346 million in the quarter, driven by 18% growth in our capital markets business and 1% growth in wealth and investment management.
Across both capital markets and wealth solid revenue growth from new business was offset by $7 million of lower license revenue, which declined as expected and modestly lower trading volume.
Our acquisition of activity closed in mid May and contributed 29 million to revenue growth in the capital markets franchise.
For the full year GTO revenues rose, 7% to $1.3 billion driven by four points of organic growth and three points from acquisitions.
Organic growth was driven by new sales.
Internal growth was essentially flat as the benefit of higher full year trading volumes was offset by lower license revenue, which declined relative to an unusually high fiscal year 'twenty level.
We expect modest growth in license revenues in fiscal year 'twenty two.
So broadridge as recurring revenue growth benefited from strong volume growth both in Ics and GTO business segments. So, let's turn to slide 12 for a closer look at volume trends.
Equity stock record growth rose to a record 26% in fiscal 'twenty, one well above the 6% to 8% trend of the past decade.
Fourth quarter proxy volumes, which accounted for 55% of full year distributions benefited from 33% stock record growth.
Also saw strength in mutual fund and ETF regulatory communications driven by strong fund inflows.
As we lap last spring's Covid driven withdrawals.
Looking ahead to fiscal 'twenty two.
We continue to model stock record growth growing at a healthy low teens pace.
Though the seasonally light first half before reverting to more trend line mid to high single digit growth in the much more meaningful seasonal second half.
We're also expecting mid to high single digit fund record growth.
Turning to trading volumes in the bottom of this slide.
Fourth quarter volumes slipped, 1% driven by a combination of tough year over year comps.
The lower overall market volatility.
Fourth quarter volumes also declined on a sequential basis as elevated levels in Q3, 'twenty, one driven by market volatility subsided.
Trading volumes rose, 12% for the full year.
As we look ahead to fiscal 'twenty, two we expect trading volumes to be essentially flat for the year with modestly higher volumes in the first half of the year offset by lower volumes in the third quarter.
Shifting to a view of growth drivers of recurring revenue on slide 13.
Organic growth rose to 11% in the fourth quarter, driven by a combination of new sales and the seasonal impact of higher proxy volumes.
New sales contributed six points to growth with balanced contributions from both Ics and GTO.
Internal growth up seven points was primarily driven by proxy volumes as is typically the case in our fourth quarter.
Acquisitions contributed three points almost all of that came from activity with only a modest contribution from our mid June acquisition of advisor stream.
Client losses subtracted two points of growth in both the fourth quarter and for the full year, marking a another year of 98% client revenue retention rates.
High retention rates reflect the value of the services, we offer our commitment to client services.
And are a tangible outcome of our service profit chain culture.
I'll round out our revenue drivers discussion on slide 14, with a look at total revenue.
Total revenues rose a healthy 12% in the fourth quarter.
Recurring revenue was the primary contributor to that growth and Broadridge received a further boost from an uptick in event driven revenues as well as two points of growth from higher distribution revenue.
While higher distribution revenues contributed to our overall growth.
Their share of the full year total revenues declined to 31% down.
Down from 32% in fiscal year, 'twenty, and 38% five years ago.
We expect that the share of low to no margin distribution revenues will continue to decline as we remain focused on growing recurring revenues.
FX was a modest positive reflecting the weakening of the U S dollar.
Looking down the slide.
Event, driven revenues rose $5 million year over year in the fourth quarter to $73 million driven by higher proxy contest activity.
For the full year event, driven revenues rebounded from a cyclical load to a healthy $237 million.
That rebound was broad based across the full range of event driven activities.
Higher mutual fund communications contributed roughly a quarter of the growth as did higher revenues from proxy contest as well as higher revenues from capital markets activity and other communications.
Going forward, we're not forecasting to the major fund complex goes the proxy.
And while there might be some quarterly cyclicality, we expect full year fiscal 'twenty two event driven revenues to be approximately $220 million in.
In line with the fiscal year 15 to fiscal year 'twenty, one long term average.
Turning to slide 15.
For the full year adjusted operating income margin expanded 60 basis points to 18, 1%.
Slightly ahead of our latest guidance and multiyear objectives.
Our margin declined 180 basis points to 22, 8% in the fourth quarter on the back of our planned fiscal year 'twenty one investment spend.
We have a strong track record and high confidence in our ability to make growth accretive investments, while still expanding margins and delivering near term profit growth in line with our adjusted EPS three year growth objectives.
Before I move to our uses of cash in our balance sheet, Let me touch on closed sales and our revenue backlog on slide 16.
Thanks to our strong fourth quarter Broadridge recorded another year of strong closed sales with.
With balanced growth across both our Ics and GTO segments.
I was especially pleased to see strong growth in our smaller sales those under $2 million in annualized values, which rose 11%.
The small sales represent the bread and butter of our long term growth.
And reflect the broad demand we are seeing across our businesses.
Our sales performance pushed our overall backlog a measure of pass sales that have not yet been recognized into revenue to 400 million up from $355 million last year.
Steady at 12% of recurring revenue.
As the CFO I appreciate the added visibility into our future revenues that our backlog gives me.
Moving to capital allocation on the next slide.
Broadridge remains committed to a capital allocation policy that balances internal investment.
M&A and capital returned to shareholders in fiscal year 'twenty, one we generated $557 million of free cash flow up $58 million from fiscal year 'twenty.
Given the size of the market opportunity, we see in front of US, we're continuing to prioritize making investments in our business, both internal and external.
The biggest use of our cash was the $2.6 billion acquisition of activity, which was completed in the fourth quarter.
Late in the fourth quarter. We also completed the additional tuck in acquisition of advisor stream.
Since the close of the quarter, we made two more very small tuck in acquisitions for the assets of Jordan, Jordan and the remaining share of Alpha Omega.
We invested almost $300 million and continued platform build outs as we add to our capabilities across wealth management and capital markets and another $100 million in Capex and software development.
Total capital return to shareholders was $248 million.
The 11% increase in our annual dividend approved by our board was in line with our long term, 45% payout ratio policy.
It will increase capital returns in fiscal year 'twenty two.
As a result of the activity acquisition, our total debt rose to $3.9 billion up from $1.8 billion at the end of fiscal year 'twenty.
Our leverage ratio at year end was three five times.
We remained focused on an investment grade credit rating and target of two five times leverage ratio by the end of fiscal 'twenty three.
I'll close my prepared remarks. This morning, with some comments on our fiscal year 'twenty two guidance, which is on slide 18.
Our guidance for fiscal 'twenty, two calls for low teen recurring revenue growth.
Healthy margin expansion and another year of strong adjusted EPS growth.
Let's take each point in turn starting with recurring revenues.
We expect to grow recurring revenues by 12% to 15% in fiscal year 'twenty two.
That includes organic revenue growth of five 7% with growth balanced across both Ics and GTO.
Not modeling in any revenue contribution from the UBS contract in fiscal 'twenty two as Tim noted, we expect to complete the rollout of the full wealth management platform suite over the next 18 to 24 months and we'll begin to recognize revenues at that time.
We expect the contribution from acquisitions to add an additional seven to eight points with most of that coming from activity.
Our more recent acquisitions of advisor stream J&J and outflow of Mega should contribute less than $10 million combined to fiscal 'twenty. Two recurring revenues is always we do not forecast the impact of any future tuck in acquisitions that we might make.
In addition to recurring revenue, we expect mid single digit distribution revenue growth driven in part by a postal rate increase.
Event, driven revenues should as I indicated earlier be more in line with our fiscal 15 to 21 seven year average level of approximately $220 million.
For modeling purposes.
Recurring revenue distribution and event driven revenues total revenue growth should be in the range of 9% to 13%.
We are expecting our adjusted operating income margin of approximately 19% up from 18, 1% in fiscal year 'twenty, one driven by a combination of incremental scale digital and efficiency gains as well as the addition of the higher margin activity business.
Finally, we expect adjusted EPS growth to be in the range of 11% to 15%.
Included in our EPS outlook is an expectation that the tax rate will essentially be flat at approximately 21% and that we'll see a modest increase in our overall share count.
On our last guidance point, we expect a another year of record closed sales.
Our outlook calls for closed sales in the range of $240 million to $280 million.
This guidance emphasize the strength of our financial model.
And our ability to drive sustainable revenue growth.
Expanding our margins, while maintaining a balanced capital allocation policy and delivering steady and consistent adjusted EPS growth.
That concludes my remarks on our fiscal year 'twenty two guidance, but before I turn the call over for your questions I have one more final administrative note.
Beginning with our first quarter results, we will be updating how we report foreign exchange.
As you know, we've historically used the fixed exchange rate for our segment revenues and for recurring revenue.
The difference between the fixed internal rate and the actual rate.
Recorded in our FX revenue line, which was negative $132 million in fiscal year 'twenty one.
With the continued growth in our international revenues, especially after the acquisition of activity. The time is right to adjust our reporting.
Going forward, we will be changing our internal rate to one that is much closer to the actual rate.
This will have the impact of shrinking our reported negative FX revenue to a much smaller number and lowering our segment of recurring revenue numbers by the same amount.
These changes will have no significant impact on our reported recurring revenue growth rate nor.
Nor will they have any impact on our reported total revenue or profitability metrics.
We intend to publish our historical revenue results at a restated rate ahead of our first quarter earnings. So that you have a chance to adjust your models.
Again. This is a change that will begin with our first quarter earnings report it will lower our reported recurring revenue with little if any change to growth rates and will have no impact on total revenue operating profit for adjusted EPS.
With that administrative note other weightless open up the call for your questions.
Operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up the handset before pressing the key to it.
Your question. Please press star one.
Our first question today comes from David <unk>.
Evercore Earl.
Thank you good morning, your fiscal 'twenty two guidance could you discuss some of the potential tailwind that take you to the high end of the 12% to 15% recurring revenue and 11% to 15% EPS growth range and the headwinds that might land you toward the lower end of that range.
Yeah. Thanks, Hi, David Thanks for joining this morning look first I'd start off by saying that the fiscal 'twenty to.
Growth was strong across both our organic business and the contribution from acquisitions and I think positions us well for the three year against.
Against the three year objectives that we have positions us well to be towards the high end of that we still need to execute on sales converting our sales to revenue and the <unk> integration, we feel very confident with that and I think that will actually position us well I think as we think about some of the areas you Ya.
Heard us say earlier that we're positioning volume growth to return to mid single digit levels.
That obviously can be a tailwind, but we feel confident based on our view into the first next the next few quarters that that is.
So that we can expect that level of event driven revenues. I think is also something that on a quarterly level has been quite cyclical we've returned to more historical levels. This year in fiscal year 'twenty, one and I think that growth was broad based so we feel confident about that as we go into.
As we go into fiscal year, 'twenty, two as well and I'll tell you that we feel good about the margin expansion that helps us get to a strong point from an adjusted EPS growth standpoint, as well that's driven both by <unk> and the continued scale and efficiency gains that we get in our core business as well. So as you think about the <unk>.
The ability at our motto going into fiscal year 'twenty. Two I think we will continue to focus on executing on sales converting that sales to revenue driving the activity integration I think event driven revenues more in line with what we've historically seen in volumes are back to mid single digit levels and I think that's what drives the range for us and Tim might want to add a point.
Just yesterday.
Just to add into I guess, how Edmonds started which is as we are looking at the strong year, we're having are having this year.
I have to say I was initially thinking.
We will be able to keep that momentum going in as a as we saw the trends coming together in the second half of the year and putting together our plans for next year, just became apparent and the strong underlying momentum in the business and so.
So.
We're definitely benefiting from activity, but you peel activity out in the organic growth is underneath there is is right right in line with our with our three year metrics. So we feel really really good about our about the guide for this year and about what it says for a momentum as a as an overall company.
Appreciate that and just as a follow up Tim in your prepared remarks, you underscored.
Your focus on near intermediate and long term growth, that's a bit of a shift for broad, which is which historically is focused more on intermediate and longer term growth is it just the strength in the underlying metrics that you referenced or are there. Other factors that give you more conviction in the near term growth prospects of the company.
Yes, Thanks, David I didn't mean for that to sound like the shift that it might have sounded to you I just think that with the volume increases that we've been seeing that making sure that we have everything in place in our in all of our facilities.
With all of our technology to support those those really the organic numbers that we're saying that was really what we're referring to and so really now.
<unk> and.
And you know you're very familiar we take a long term view, we invest for the future that's what we're doing and.
But there are some some near term tailwind and we need to make sure we provide great service to our clients.
Understood. Thanks, so much.
Our next question comes from Michael Young with TD Securities.
Hey, good morning, Thanks for taking the question.
Yeah.
I wanted to.
I wanted to maybe just start kind of high level.
Things last year, where we're ahead of schedule I think this year will be the.
The outlook is there will be the same so maybe just big picture Tim.
What areas have you been able to invest and maybe more on a strategic basis to accelerate some of those medium term growth.
Dynamics that might sustain this kind of growth rate.
Beyond some of maybe the macro support.
Yeah, absolutely Michael and and.
We were really pleased to be able to invest in our products and platforms that this year and in our people and our and we have real money in our budget for next year. Some investments we made it we made this year. So we see these things are coming to life. I think you can almost kicked down the strategies and you see.
Investments really almost across the board because you look at the regulatory business were investing to really build that out in in Europe, when the shareholder rights Directive and our European Fund Communications business.
Look at our funds business and the investments that we're making in our data and intelligence business that continues to be a very strong growth for us and we see a lot of a lot of future future runway there.
We've been investing clearly in our V. S M capability, but also in our disclosure business for for corporate issuers.
And of course, our ongoing investments in digital communications, so right across the whole governance suite you see investments in each of those areas and when you look at the product roadmap to be able to accelerate some of those product Roadmaps and you look at the number of innovations that we have delivered over the past 18 months in things like core proxy and core distribution ready.
With her communications it's.
It is markedly up.
And then on the on the capital markets and wealth management side.
Really there.
Investments in <unk>.
Things like digital Ledger repo things like L. T X applying AI to fixed income trading.
Making a big difference and so we're just excited across the whole portfolio and and you are that's why you are seeing strength in.
The underlying growth in each of those areas and Tim I'll, just add we're able to make those investments that you're talking about and continue to expand margins in line with our three year objectives and do that while continuing to deliver this double digit EPS growth here. So it really is the right time for us to invest for growth now.
Great and my follow up is on sales the sales backlog, obviously being up 13% from where it was at the end of last year, but closed sales were pretty similar year over year. So is there an expectation that more of that is going to come to fruition in 2022 and then.
And would that be sort of.
Pull forward or additional closings as a result of maybe reopening from the pandemic versus.
And so we should expect maybe a slight reduction in the size of the sales backlog or do you think that the things are in place to continue to drive.
Growth or stability of that sales backlog into 2023.
Yeah, Michael Thank you look we are.
Really excited also about our sales guide for next year at $2.40 million to $280 million I think that really shows.
As we continue to add on new solutions like activity, we see.
And increased <unk>.
For us.
That brought to us in light of additional sales resources.
And and so we do see a higher sales for us in terms of how that will affect the backlog. It is.
When you look at the mix of sales we had a lot of sales. This year that were not strategic sales. They were there were a lot. We haven't had a lot of singles this year and as we bring on the activity sales is also tend to be a little bit smaller a little bit faster to implement so I think sometimes when you see the mix between some of those very large strategic projects.
And the singles and doubles the singles doubles come online usually sort of within a year versus within two years and so I think we may see some fluctuations in backlog I'm not sure what how they imply you know what that means for the momentum of our business. It does.
It does it does flex a little bit based on the product mix, what I will say, though is.
Seeing that backlog grow again, this year, having $400 million of revenue that we know is going to come live over the next two years. It gives us a lot of confidence in the revenue from sales portion of our growth formula and that is the largest part of our growth formula and so it is a it's a CEO and when you think about the environment that we have out there.
And all of the concerns that we have to know that that revenue is.
<unk> already been sold.
The projects are in flight is happening it gives a lot of confidence in and that and that.
It makes me sleep, just a little bit better at night.
Fair enough. Thanks.
Our next question comes from Darrin Peller with Wolfe Research.
Hey, Thanks, guys I wanted to start off with the record in the position growth, we're seeing being so dramatic.
Really the infrastructure you guys have said you've expanded and built out to handle the capacity from a physical standpoint, but then if you could also just remind us the difference in the margin profile with digital versus physical what that's going to be for you guys going forward both from a revenue yield and a margin standpoint, and then just as a quick follow up on that on that same segment. When you think about your assumptions.
For next year, I think you said that to the mid to high single digit record growth you just alluded to I think David's question also being probably conservative.
It does seem conservative when you look at the growth right now. So if you could just expand on that is that really what you think is the likely outcome or is that really just conservatism in your outlook.
Yeah, Darrin, it's a it's Tim let me just just delivered a step back and then I'm gonna, let Edmond add onto things I do think.
It was.
Really remarkable year from the standpoint of a physician growth and.
And we do see it though as part of the long term trends that are driving position growth across equities and funds and Etfs and those as you know our democratization of investing managed accounts.
More natively direct indexing and so we see we.
We see those trends continuing in the future.
The record growth this year, very broad based which which really reinforces our view that as part of these of these long term part of these long term trends in terms of the investments to support it it was really around <unk>.
Ensuring that the resiliency of the network and being able to a producer of all output from multiple places.
And.
It just is not a major thing, but it was just something that we felt we needed to do so not really almost wouldnt, even intra model, but I just had just to show the ongoing investments that we always make I always make in our business.
I'm going to let.
Edmund comment on the the margin profile and sort of our confidence about next year and sort of why we believe that and then I'll add on at the great. So let me first start with the confidence into next year.
There we look at we have some insight into stock record positions for companies that we expect a proxy in the next one to two quarters and when you look at that testing, which I would say it covers the large majority of the of distributions and maybe theres. Some movement between the time that we test and the time that we actually mail, but the information that's been.
Quite reliable and when you look at that you see what we said in my prepared remarks, low teen growth through the first half of the year and mind you that's coming off a 16% growth in Q1 last year and 24% growth in Q2 of last year, So low teen growth coming off of that and that's helpful that gives us great <unk>.
But I'll remind you that the first half is our seasonally light period of the year. If you look at 'twenty, one or look at 'twenty. The first half of the year was 13% of overall volumes. So what really is more important is the back half of the year and we are assuming and modeling more normal levels in the second half of the year that.
We return to historical levels and you combine that and that's what gets us to the mid to high single digit growth levels. So you're not I don't think I don't expect to see 33% and 26% coming out of the fourth and full year numbers that we see but we have good insight into the next six months or so and I think what we have modeled our positions as well.
First of all for fiscal year, 'twenty, two and gives us confidence in that as we think about the margins of the business clearly you know overall in our business, what we're able to drive bringing on new customers without a new business without incremental cost of scale in our business the efficiency gains that we're able to get.
<unk> helps us help helps us be able to expand margins, but specifically on print and digital you know it was good to see our customer communications business not just driving the earnings growth that we've seen there, but now to see digital which is a higher margin business. Because there is very low to no margin in the distribution.
<unk> revenue starting to grow in recurring revenue, which has a higher business worse. So you might see lower revenue in that business, but it comes at a higher margin and we feel good about the progress we're making on that.
And then sorry.
Oh Im sorry, yeah. They are just you know I think the other piece that sometimes people think about is when.
When we've seen this this very large growth is that does that tend to fluctuate does it go up and does it and then what happens when the markets, where if it goes to a different place and Hugh you really trace back to sort of previous times of high growth.
We have what we haven't seen as big fall back after that what we've seen is <unk>.
Physicians sort of consolidating at the new level, and then and then beginning to grow again at more modest pace and that's that if you look back to you now.
All of the market cycles really over the past 20 years, even almost 30 years, that's the pattern that we've seen.
That's helpful. Thanks, Mike just a quick follow up on GTO for a minute how should we think about the growth of the components of the segment win.
Looking at the current quarter, I mean, I know like I guess organically.
During the the deal it looked a little lower than we expected, but the I know the underlying trends are obviously strong the bookings are strong. So if you could just touch on that for a minute.
Darrin I don't think so.
It's a whole lot of time looking at the quarterly numbers for the GTO components. If you were to look back at Q3, you would have seen the opposite of what you saw in the fourth quarter in terms of more of the growth being in wealth management and less being in capital markets were coming off a year of 7% growth in GTO that I think is the important thing there are three points of that is <unk>.
And by the activity acquisition and four points of that was organic so.
I think as we think about the growth going forward.
Trading volumes coming off of still 12% in fiscal year 'twenty, one over tough comps and maybe less volatility going into fiscal 'twenty. One I think we expect to get back in our organic core business back into the 5% to 7% growth range across both of those business is really driven by net new <unk>.
As Tim talked about earlier in both our capital markets business and wealth management business.
Q4, we were growing over some license revenues a higher license revenues in fiscal year, 'twenty and lower trading volumes, but I think youll start to see driven by new sales, let's get back to.
The 5% to 7% a three year objectives that we have across both of our businesses.
Great Alright, well thanks, guys.
Our next question comes from Chris Donat with Piper Sandler.
Good morning, Thanks for taking my question.
Tim I wanted to ask one more question on positioning equity position growth.
And I appreciate the color you've given us on that.
Types of stocks involved and the trends like <unk>.
Democratization and managed accounts and direct indexing can you give us some color on the from the perspective of the.
Brokerage firms that are involved any general generalities, you can make there I imagine with democratization, you've seen more of a sort of a.
Startup kind of brokers or is there are a lot of activity coming out of the traditional wire houses also.
Yeah.
I'm glad I'm glad you asked we are.
Definitely seeing higher growth rates in the online brokers.
However, we are seeing very strong growth across all segments and brokerage firms in the traditional firms are also seeing double digit growth and given their exercise the absolute absolute amount of physicians that probably you know actually bigger and that channel, while the percentage might be bigger than some of the online ones.
So it is really.
It is one of the things also that that.
We think it's very interesting we did a really landmark study of.
Of investing patterns and investors based looking at across our <unk>.
$7 billion of assets and that we concluded last year and it really did show how you know.
The many millennials are here and there.
Proportionate positions and our growth is really you know it was really an interesting but Ah Ah.
Nevertheless, we are seeing really really strong growth across all.
All segments of brokerage firms.
Okay, and then just one sort of on recent news and customer concentration.
With the news that Robin Hood is acquiring say technologies, which had some sort of.
They are kind of interesting solutions on the Investor Communications side.
I don't want them I'll ask if you'll quantify robinhood is the size of the customer, but I imagine it fits in the context of what I see in your 10-K that like your I think.
Yes.
Your largest customer was 6% of revenues in the last couple of fiscal years, and your five largest where about 20% of revenues.
Do you have any way to help think about Robin Hood.
Is there.
Any risk to that business absolutely. So so first of all I say, just we view this acquisition as a positive because it really validates the importance of retail shareholder engagement.
Robin Hood, there's been a big leader in that area and and their investment and it is I think will be a wake up to two other firms and I'll come back that in a second.
So just to be very clear robinhood is at Broadridge clients, but it is not a proxy client currently so so we really don't see any impact on on our direct impacts on our business.
What we do see there Chris is we've been really leading in innovation in proxy communications are creating API as I talked about that product rollout and the acceleration of roadmap are creating opportunities for our for our clients too.
Leverage that event as an opportunity to really engage their retail clients and for corporations to engage their retail clients and and so we think this is going to create sort of a heightened.
Interest in a wide range of communications and engagement topics all of which are we we really welcome I think the thing that we bring is we had this unique role at the center of the network linking tens of millions of investors corporate issuers, a broker dealers and that network can be really powerful to to help corporations.
Engage with their retail shareholders.
Okay.
Thanks, very much Tim.
Our net.
And comes from Patrick O'shaughnessy with Raymond James.
Hey, good morning, if I recall correctly. The UBS go live was supposed to be originally completed during.
During the summer and I think you said today 18 to 24 months is what Youre looking at right now, what's driving that extended implementation timeline versus your prior expectations and how does that impact opportunities and your ability to win other wealth mandates.
Sure. Thank you Patrick.
And just as a as a step back it is.
The wealth management industry and the trends that we're seeing there is just continuing to undergo significant change with everything going on in asset management and fee compression and then how that plays into wealth management and so wealth managers are.
Continuing to evolve their strategies and their technologies to compete and so.
This digital transformation and that we're working on it as one of the most exciting initiatives.
And you know the UBS partnership is is is part of that is part of their transformation and our mandate with them has grown since our since our initial agreement so.
We are live with components were working to with them in terms of how we optimize that to to align with the pace of their broader digital transformation.
In terms of how that affects the our ability to ban others. I think you know we're excited to announce RBC and I think that really validates the need that other people other C for a similar digital transformation.
A lot of ongoing discussion with other clients and and the guidance that we've provided fully incorporates all of that it doesn't have any revenues from UBS. In this next fiscal year, but we're still it's still continuing to grow and and UBS and others will come on top of that.
Got it I appreciate that and then speaking of RBC.
Can you speak to the implementation timeline for that install.
Yes and.
One thing on RBC that I think is an important context first of all I read.
Just backing up it's a very important client for us it's a client across our businesses in U S and Canada in wealth management and capital markets is very broad and deep relationship and.
Really pleased to be able to help them with the transformation. They are engaged in the U S wealth management business.
We expect that to to go live over the next.
18 to 36 months and.
Since it's already back office client to scope of incremental services and scope of incremental investment is more limited than UBS, but but it's very exciting for us.
Patrick It's it's a.
Particularly interesting because.
Their business, it's a unique they have Ah Ah.
High net worth business with what they've done with city national they have sort of traditional.
Regional broker dealer.
And then and then their correspondent as well and so it really hits on a lot of different segments of the industry that makes it pretty interesting.
Great. Thank you.
Our next question comes from Peter Heckmann with D. A Davidson.
Hey, good morning, Thanks for taking my questions.
I missed a little bit of the call, but I believe you expect a roughly 6% decline in event driven proxy in 2022 to about $220 million would you expect about a normal level of event driven product revenue in the fiscal first quarter, maybe something in the $45 million range.
Hey, Peter Thanks for joining this morning, so you're right. We said if you look at the last seven years. The average has been about $2.20 if.
If you look at that on a quarterly basis youre going to see movement of cyclicality each quarter I think on the slide we showed that the average has been roughly $50 million to $55 million per quarter and I think that is a good range to think about your modeling on a quarterly basis. You know I think the key thing about the event driven revenue, though is that as I looked at fiscal year <unk>.
'twenty one the growth as I said in my prepared remarks was broad based so it wasn't any one particular contest that drove the growth that was cross mutual fund proxy was across contest that was across capital markets and I don't think we're looking for any big content, a big one item in fiscal year 'twenty two either so I think that <unk>.
US confidence that we'll return back to the type of average full year numbers that you see you have seen over the last seven years.
Our next question comes from Puneet Jain with JP Morgan.
Hi, Thanks for taking my question.
So my question is on margins can you breakdown expected margin expansion into Ics and GTO.
Right.
To be lot of segment specific dynamics like good growth in Ics and <unk>.
<unk>.
GTO segment.
Yeah, So maybe I'll start with one or two comments and Tim might want to jump in.
On just the business itself, but you look across our businesses.
Particularly for recurring revenue in our Ics business across regulatory that is volume driven across our data driven solutions across our issuer businesses.
Those businesses really are scale businesses as we bring on new volume as we bring on new customers. They do come on at.
Attractive and accretive margins in those business and the same thing as we think about our SaaS platforms and capital markets and wealth management as.
As well so the margins are quite high there as we think about the customer communications business you see a margin dynamic as you move from the lower no margin print business to higher margin digital.
As well, but overall I think as we think about what we expect to do in fiscal 'twenty, two and going forward. You can expect collectively will balance the growth in each of those businesses with our investments and being able to deliver margin expansion overall in that 50 basis points type range.
But Tim you might want to add that is why I was gonna add on almost that that last point, which is just.
We really do think about our margin delivery on an overall basis.
And it really can be affected, particularly in any quarter, but even in a year across businesses by where investments fall in that year and but you know both these businesses have very attractive margin characteristics and margin profiles, but also underlying characteristics are as they grow it creates additional margin.
And and that is something that.
Really does allow us to continually reinvest in the business to provide more value to our clients to provide great careers for our associates and long term growth for our shareholders.
This concludes our question and answer session I'd like to turn the call back over to management for any closing remarks.
Well I'd like to thank everyone. This morning for participating in our call.
Before we conclude I do want to highlight two directors, who recently joined our board as you know our board plays an important role in the oversight of Broadridge and I'm pleased that we have continued to add valuable insight and diverse experiences now.
Flowers brings along and valuable experience in both technology and finance.
And in that Nazareth brings deep experience at the confluence of corporate governance.
<unk> markets and regulatory matters.
<unk> ability to continue to attack this kind of talent to our board I think highlights the important role that we play.
In governance and financial markets, we're really excited too to have Melvin and Annette joining the board. We just had a meeting earlier this week and I was able to meet.
With them at least virtually so welcome Annette and Melvin.
And with that final note I just want to thank all of you for your interest in Broadridge.
Look forward to updating you again in a few months and I are really excited about what we've talked about this morning and about.
The opportunity going forward to really continue to make a difference for our industry and for millions of investors. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
[music].
[music].