Q1 2022 Broadridge Financial Solutions Inc Earnings Call
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Good day and welcome to the Broadridge first quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
And 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 Tebow head of Investor Relations. Please go ahead Sir.
Thank you Chuck good morning, everybody and welcome to Broadridge as first quarter fiscal year 2022 earnings conference 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 I turn the call over to Tim a few standard reminders, we will be making forward looking statements on today's call regarding broadridge that involve risks a summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K.
We 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 in the presentation.
Let me now turn the call over to Tim Gokey Tim.
Thanks Eddie.
Good morning, and thank you for joining us.
I'll begin with an overview of our key messages and some highlights from our strong first quarter.
Next I'll provide an update on execution against our growth strategy across our three franchises.
Finally, I'll close with some thoughts and how Broadridge is continuing to drive long term sustainable growth.
Let's get started.
Our first quarter results Mark a strong start to the fiscal year.
Recurring revenues rose, 16% and adjusted EPS Rose 9%.
Second our topline growth continues to be propelled by a combination of our own actions and strong underlying market trends.
The biggest driver of our 7% organic growth across all three of our businesses with the Onboarding of closed sales as we continue to convert our $385 million backlog into recurring revenue.
We also benefited from the continued tailwind a very healthy position growth and governance driven by ongoing trends.
Third we continue to execute on our long term growth plans across our governance capital markets and wealth and investment management franchises.
I'll provide an update on our execution steps in a few months.
Finally, our strong start to the year puts us in a very good position to reaffirm our full year guidance, including 12% to 15% recurring revenue growth.
11% to 15% adjusted EPS growth.
It also keeps us on track to deliver at the higher end of our three year growth objectives.
Beyond those three year objectives, we are focused on delivering sustainable long term growth driven by ongoing industry trends and investments across our governance capital markets and wealth franchises.
In turn generating consistent top quartile shareholder returns.
Generating those returns requires consistent execution.
So, let's turn to slide five for an update on our growth strategy starting with governance.
Our governance business had a very strong first quarter.
Ics recurring revenues rose, 11% to $410 million.
As I noted earlier.
The driver of that growth was revenue from closed sales.
The other key driver continued to be position growth.
Which reached 39% for equity proxies in a small quarter.
At 9% per fund and ETF.
And at least the growth continues to be broad based across all market caps in multiple industries.
In funds.
The growth is being propelled by ETF.
Over the past decade.
A number of both equity.
And fund and ETF shareholders has risen at a high single digit rate propel.
Propelled by the ongoing democratization of investing.
We're also extending our governance franchise to enable voting choice.
Many of you saw the announcement from Blackrock, a few weeks ago that they will implement pass through voting for their institutional investors.
Climate change and ESG more broadly are becoming increasingly important to investors and they are demanding to have greater transparency in voice and the actions that companies. They own are taking to address these issues.
Rogers is playing a key role in helping Blackrock implement this important change.
We have been working with him over an extended period to leverage our infrastructure to enable pass through voting.
It's a great example of how our expertise in managing preferences and voting.
And our 24 by seven SaaS platform is helping our fund industry clients.
Given the increasing importance of ESG we're.
We're hearing from others in industry seeking to offer a seamless service to their clients over time.
Moving to capital markets, we continue to make progress in growing our franchise with revenues rising 34% to $209 million.
Driven primarily by the integration of activity.
Which is going well.
Our newly combined capital markets team has hit the ground running and finding complementary product opportunities that leverage our pre and post trade expertise and client reach.
For example, we recently announced the integration of activities <unk> solution with Broadridge is buy side portfolio order and investment management system.
This will enable clients to achieve greater automation in their post trade workflows.
And is it tangible step towards integrating our solutions across the trade lifecycle.
Outside of activity, we brought live another large U S bank with a global business to our GPT M capital markets technology platform.
The first phase of this onboarding covering global fixed income is a result of over two years so platform investment.
We expect to roll out additional phases, including the expansion of equities over the coming quarters.
In wealth and investment management revenues rose, 6% to $131 million.
We continue to make steady progress in developing a broader wealth management platform, while also delivering component solutions.
For example, we were recently selected by a leading Canadian pension plan to leverage our investment management private debt and loan solution to help them manage their alternative asset portfolio.
I want to wrap up by giving you my perspective on what our continued execution means for Broadridge and our investors So let's turn to slide six.
Our strong first quarter results reflects the underlying growth trends powering our business and the execution of a clear growth plan, we laid out at our Investor day 11 months ago.
We're extending our governance capabilities to cover more investors more geographies and more issuers.
We are building the data driven solutions for the fund industry and the digital communications infrastructure that helps companies increase the effectiveness and lower the cost the client communications.
We're growing our capital markets franchise by adding new clients onto our platforms and integrated front office capabilities, we acquired in activity.
And we are building a welcome to match the management franchise by adding more can pump solutions and creating the next generation wealth management technology platform.
The critical factor underlying all of this execution has been and will continue to be investment in our technology and digital platforms.
We're pursuing a $52 billion market opportunity that's continuing to evolve.
Long term trends driving that evolution.
<unk> ongoing democratization of investing which in turn is driving and being driven by greater Digitization will only accelerated by the pandemic.
Those same trends are powering our growth and creating an imperative for investment by our clients and a next generation technology, we provide.
We're all hearing a lot these days about the quote democratization of investing.
But what we are seeing now is a continuation of a fifth year trend driven by the ongoing combination of new technology and reduce trading costs.
These forces have led to continued innovation some discount brokerage.
Online trading two for ones ETF and managed accounts.
More recently modern user interfaces Zero Commission trading and the pandemic have accelerated this long term trend.
Together. These forces have made investing consistently more cost effective and more accessible for more people.
For Broadridge. This is supported high single digit growth over the last decade, and the number of conditions we serve.
Going forward more innovations, including direct indexing will support continued growth.
So we expect that same high single digit growth for many years to come.
It's worth noting the democratization is also playing a part in the increasing importance of ESG, which further underlines the importance what drawbridge Josh.
As new investors come to the market and new innovations drive increased diversification.
It's critical that investors get to shareholder disclosures and how the communications they need to make informed decisions.
Investors are also seeking to exercise their vote and how issuers and funds should approach ESG issues.
Our 24, 7% SaaS technology platform plays a critical role in powering that system of corporate governance.
And these trends are making governance voting and disclosures and even more important part of the investment process.
We have built that platform to continuous innovation and investment to link tens of thousands of corporate issuers in funds with hundreds of banks and broker dealers and tens of millions of institutional and individual investors.
Our platform is constantly monitoring and validating positions across more than $100 million retail and 270000 institutional accounts.
Every day, we collect maintain and manage the industrial preferences that are critical to driving digital distribution.
Doing so effectively and securely requires investment and continuous monitoring to provide the highest levels of data security.
It also requires us to serve our banking broker dealer clients with co branded communications client service, an integrated billing and collections that greatly simplify the entire ecosystem.
As a result, we built a 24 seven proxy and find information infrastructure, which delivers highly accurate voting for thousands of annual meetings, and whose efficiency saves funds and corporate issuers.
Hundreds of millions of dollars each year.
Thanks to our investments in Digitization, It's also increasingly green driving down paper mail volumes and reducing greenhouse gas emissions.
So we will continue to invest in extending that network to enable expanded voting enhance shareholder communications and to better gather and share data analytics that help funds and issuers better understand changes in their investor base.
Digitization is the second trend has been accelerated by the pandemic and which is driving our growth.
It's reducing costs for our clients broadening the reach and accelerating processes from account opening to trade settlement in communications.
It's being facilitated by the rapid adoption of next generation technologies.
The move to the cloud enables a scalable variable cost computing architecture, which is changing our clients' business models.
Data analytics and AI are transforming how clients make decisions empower their investment processes.
The move to digital technology and financial services has been both a driver and beneficiary upmarket democratization.
Financial services technology and scale to compete in today's complex market and Drivage provides both.
Our SaaS technology isn't on metrics elevated digitization with next generation technology.
We're delivering blockchain solutions to the repo market.
AI driven trading in fixed income and enhanced virtual annual meeting experience among many other examples.
Bringing new technologies to our clients with mutual EIS solutions at scale is a core part of our strategy.
Past investments have put broadridge in a position to help our clients today.
With acceleration of democratization and Digitization.
Opportunity to invest for the future is as high as ever.
We're investing to build new platforms and solutions, including a broadridge wealth platform.
Consistent with our history, we'll also actively seek out M&A opportunities that meet our strategic and financial criteria.
Collectively this investment strategy has and will continue to extend our capabilities and governance, including data analytics.
Capital markets, including most recently funnel frustrating.
In wealth and investment management.
I'm confident these investments will only further strengthen our position as an innovation enabler for our clients and reinforce our long term growth.
Finally.
Any focus on sustainable long term growth.
Must be grounded in meeting the needs of all stakeholders.
And Broadridge that focus starts with our culture.
Anchored in the service profit chain that puts associate engagement at the core of our business approach.
It extends to our clients and communities as well as the shareholders.
I encourage you to read our recently released sustainability report.
Youll learn about how we're building the most engaging workplace for the most talented associates in the industry.
The efforts, we make to keep our clients data secure.
Our success in reducing greenhouse gas emissions and much more.
Before turning the call to Edmond.
To think that thousands of dedicated and talented broadridge associates that have made these results and future opportunities possible.
They are the foundation of our success.
Let me briefly sum up.
Broadridge delivered a strong quarter, driven by continued execution and powerful underlying growth trends.
We are executing on our long term growth strategy and are committed to making investments that will create additional opportunities.
And we're doing it the right way by also driving associate engagement.
Making a positive impact on our communities.
Reducing our inventory environmental footprint.
And improving the financial lives of millions.
I'm confident that <unk> is on track to achieve the higher end of our three year growth objectives.
And is well positioned to drive sustainable growth for the long term.
And now.
Let me turn to Ed for a review of our financial results.
Edwin thank.
Thank you Tim and good morning, everyone as you've just heard from Tim We are pleased with how our strategy is progressing.
It's good to be here to discuss another quarter of strong financial performance driven by new sales strong underlying volume trends in the acquisition activity.
You can see that strong performance and the financial summary on slide seven which shows that recurring revenues grew 16% to $751 million.
Adjusted operating income rose, 17% to $177 million with Oi margins flat to last year at 14, 8%.
Collecting our continued ability to find efficiencies and gain operating leverage through our scale.
Allowing us to invest in our technology and digital platforms.
That growth in operating income was partially offset by higher interest expense related to financing activity acquisition.
As a result, adjusted EPS rose, 9% to $1 seven.
Let's get into the details of those results starting with the recurring revenue on slide eight.
Recurring revenues grew from $650 million in Q1, 'twenty $1 million to $751 million in Q1 'twenty two.
Increase of 16%.
Organic recurring revenue.
Grew at 7% and came in at the high end of our 5% to 7% three year objectives.
Reflecting the continued momentum from our sales and revenue backlog.
And increased investor participation.
The contribution from acquisitions, primarily our continued success integrating activity.
There's another nine points to recurring revenue growth.
Now, let's turn to slide nine to look at the growth across our Ics and GTO businesses.
We reported double digit recurring revenue growth in both of our segments.
Ics recurring revenue grew by 11% all organic to $410 million propelled by a combination of new sales and strong volumes.
Regulatory revenues rose, 23% to 165 million.
Powered by higher mutual fund and ETF communications.
Strong equity position growth in the U S and closed sales revenue.
Growth was also strong in our international proxy business led in part by strong performance in Canada.
Our issuer business also contributed to our overall growth rate thanks to strong sales of our disclosure products.
And as expected we are also benefiting from high retention of our virtual shareholder meeting solution.
Data driven fund solutions revenue grew 5% to $83 million.
Boosted by an increase in revenue from assets under administration and revenue from new sales of our data and analytics products.
Finally customer communications revenues rose 2%.
Driven by new sales and growth in digital.
In turning the GTO.
Recurring revenues grew 21% to $341 million in 2% organic.
Wealth and investment management revenues rose, 6% driven by the Onboarding of new components sales and higher retail trading.
Capital markets revenues increased 34% as we benefited from a full quarter of activity revenue.
Excluding activity organic growth was slightly negative as lower license and consulting revenue was offset by strong revenue growth from new business, including revenues from Onboarding of the major U S Bank that Tim mentioned.
Going forward, we expect revenue from closed sales.
Fueled by our healthy revenue backlog will drive strong growth over the balance of year.
So, let's turn to slide 10 for a closer look at the volume trends.
Broadridge continued to benefit from strong volume trends in the first quarter.
The biggest driver of our internal growth was mutual fund and ETF record growth, which rose 9%.
Driven by healthy markets and strong inflows.
Equity record growth, 39% in a seasonally small quarter. So keep in mind that the first quarter. Historically represents approximately 5% of full year equity communications with more than 80% coming in the fiscal third and fourth quarters.
While mutual fund and ETF communications are more balanced through the year.
Looking ahead, our testing of record positions is showing continued strong growth trends.
In the seasonally larger second half with high single digit growth indicated for both equities and funds.
On the bottom of the slide we saw modest 2% increase in our trading volumes as higher fixed income volumes were offset by lower equity volumes.
Our outlook for the balance of the year assumes flat trading volumes.
Turning to slide 11, where we summarize the drivers of recurring revenue growth.
Recurring revenues rose, 16% powered by 7% organic growth and nine points from acquisitions.
Revenue from closed sales was the biggest driver of our organic growth. We saw strong contribution from sales across both Ics and GTO.
Our recurring revenue retention rate remained unchanged at 98%.
Internal growth contributed another two points of growth in Ics outpaced the decline in GTO.
Activity was the biggest driver of our acquisition growth contributing $54 million of growth with a much smaller contribution from the tuck in acquisitions. We made late in Q4 and in early Q1.
Now I will turn to slide 12 to review the drivers of total revenue and for some additional color on our strong event driven revenues.
Total revenue growth was 17%.
Our strong recurring revenue growth was accompanied by four points of growth from higher distribution revenue.
<unk> three points from event driven revenues.
Low to no margin distribution revenues grew 11% year over year.
Primarily resulting from higher customer communications mailings.
Higher postage rates were a small factor in the first quarter, but will be a more significant contributor to distribution revenues for the remainder of the year.
So we expect continued high levels of distribution revenue growth for the full year.
And as I have previously noted over the long term, we expect that the share of distribution revenue as a percentage of total revenue will continue to decline.
We remain focused on growing recurring revenue.
Event, driven revenues rose to $76 million in the quarter driven by higher mutual fund proxies.
Q1, 'twenty two did benefit from a large fund proxy that was originally expected in Q3 dollars 22.
Despite this timing benefit.
And given the strong start to the year. We now expect event driven revenues for the full year to be modestly ahead of our $220 million seven year average for modeling purposes. We're expecting Q2, the Q4 to be in line with our $55 million seven year quarterly average.
Rounding out revenue drivers changes in FX contributed the point to our growth as.
As previously disclosed we changed our FX reporting methodology to better align the presentation of our key metrics with current FX rates.
You can find our comparable revenue segment profitability in closed sales numbers for fiscal 2020, one and the 8-K, we filed at the end of September and in the appendix to these slides.
So, let's now move to margins on slide 13.
Adjusted operating income margin was flat at 14, 8% in the first quarter.
The positive impact of strong recurring and event driven growth was offset by growth investments and an increase in low margin distribution revenue.
We continue to expect AOE margin of approximately 19% for the full year as we benefit from the higher margin activity revenues and continued margin expansion in our organic business.
Offsetting the greater than expected higher growth in low margin distribution revenues.
Moving on the closed sales on slide 14.
Closed sales of $30 million were essentially flat year over year.
Closed sales were balanced across both our Ics and GTO segments. So we continue to see over two thirds of our sales in smaller core deals those under $2 million in annualized value.
That gives us confidence in the broad demand and long term growth of our digital products.
We remain on track to deliver $240 million to $280 million in closed sales for the full year.
And finally cash flow and capital allocation on slide 15.
Broadridge is cash flow generation is typically negative in the fiscal first quarter and strengthened throughout the year Q1, 'twenty two was no exception with negative free cash flow of $151 million.
Turning to uses of capital we continue to invest in our long term growth.
A big part of that investment is the technology platform, we're building and capital markets and wealth.
These new platforms require upfront investment to build new capabilities and convert new clients.
We invested $82 million and our platforms during the first quarter.
Our investment in our next generation wealth management platform is an important part of that but we're also investing in other platforms such as our global post trade management or <unk> solution.
All of these investments are tied to long term client contracts and strengthen our capabilities across capital markets and wealth management.
We will continue to prioritize these internal investments in our technology platforms.
As part of our capital allocation model.
And we're excited about the growth from new client revenues as we convert clients onto the new platforms.
As we integrate activity continued M&A remains a focus.
During the quarter, we had a modest minority investment and invested $13 million and the pair of tuck in acquisitions within our capital markets business.
Looking forward you can expect us to continue investing in our platforms and allocating capital to targeted M&A opportunities that meet our high strategic criteria and financial profile.
And we will continue to return capital to shareholders, primarily through our dividend as we remained focused on paying down debt and maintaining an investment grade credit rating.
I'll close my prepared remarks, with a quick review of our guidance and some final thoughts on our first quarter results.
We are reaffirming our full year guidance on all of our key financial metrics.
We continue to expect 12% to 15% recurring revenue growth.
Adjusted operating income margin of approximately 19%.
And adjusted EPS growth of 11% to 15%.
I will note that over the last five years. The first half is typically represented less than 30% of our full year adjusted EPS and I expect that trend to hold in fiscal year 'twenty two.
Finally, as I noted earlier, we expect closed sales in the range of $240 million to $280 million.
And with that let me reiterate today's key messages.
Broadridge delivered strong first quarter results with 16% recurring revenue growth driven by new sales strong underlying volume trends and the acquisition of activity we.
We're reaffirming our guidance for a strong fiscal year 2022.
And we are investing in our business as we pursue our $52 billion addressable market.
As a result, we are well positioned to deliver at the high end of our three year objectives.
And we see a long runway for continued growth.
So with that let's take your questions, Let me turn it back to the operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
I'll, let Edmond take you through sort of the broader pipeline and momentum in capital markets.
So on the wealth management side, you know and I think as we've said before this transformation of wealth management is one of our most exciting opportunities and and we continue to drive with with UBS on bringing that forward. We've had just just last week, we spent time with their senior leadership and really feeling.
Feeling good about how the partnership is working.
And making really strong progress in.
In building new capabilities and the pretty complex work of of decommissioning with a very tenured a platform. So we are as you know already live with some applications, we're working with UBS to sequencing, bringing forward. The additional solutions that will align with the pace of their broader digital transformation, we expect to implement that.
In phases over the next 18 to 24 months.
As you remember the way, we do our revenue recognition will.
We will begin recognizing revenue when that becomes fully live and and so in the meantime, the net of that goes onto our balance sheet, which will which youll see in coming quarters. So we feel good about it we think though on the on the revenue side for that particular initiative. It will be a ways out before you begin to see it but.
But we're continuing to hear validation with other clients.
Good progress with RBC and in good discussions with others. So that's that's sort of the update on the wealth management piece. Obviously, you know in the meantime, we continue to make strong progress with our component sales on the wealth management side.
For a view of where we are in capital markets and sort of the overall momentum. Let me just comment on that thanks for that and thanks for the question Derik I want to start with just saying that GTO continues to be a very healthy franchise with over $30 billion. When you look at capital markets and wealth management.
Side of that $30 billion in market opportunity, we're coming off a strong year in GTO overall at 7% in fiscal year 'twenty, one and then 21%. This year a lot of that is activity of course, but the organic business in GTO was 2% growth and Theres just to as Tim just talked about the wealth management business. If you think.
That component it grew at 6% for the quarter Thats, well within our 5% to 7% organic growth objectives, and that's coming from continued onboarding of new sales and the retail trading that we've seen the organic business in the capital markets in the first quarter was slightly negative.
I've mentioned in my remarks that lower license revenue and lower consulting revenue was the driver of that but to your question. We have a strong pipeline to onboard we mentioned earlier recurring revenue backlog of $385 million a large chunk of that is GTO. So we look to have license revenue growth in.
The back half of the year flat trading growth and continue to onboard that pipeline that puts us in a position where we expect the capital markets business to also be within our five to seven year growth objectives, and I think that's a great place to be with both of these franchises will within our organic overall growth ranges.
Okay. That's helpful guys. Thanks, So we're very quick follow up.
Obviously theres been strong position growth on the mutual fund or ETF.
Equity side in particular, but.
So without that I mean, even without that I guess, you can say you had decent growth.
And the other parts of the non regulatory side and customer communications, it's good to see it as being consistently positive now.
So what are your what are you thinking on that piece of business, the customer communications, which I know it had been a little bit of a challenge seems to have affected.
Yes, Darren thanks for for noticing that and bringing it up it is.
Obviously, we had that long story of a large client that was going away that took longer to go away and sort of created that negative headwind for what seemed like many many quarters. So we're glad to have that behind us.
The important story within communications is a little bit sort of deeper than this topline number even though it's nice to see that topline number positive it's really around the transition within that business from paper to digital and as you know no. We've gone the digital business inside that are double digits.
Last two years that continues to have nice momentum and so.
It's nice to see the overall number would probably be positive. It is pretty muted at 2%. They will continue to be muted, but inside that we really like the transition we see going on and I'll only add to tim's comment that that higher growth in digital comes on at higher margins as well the customer communications has been a strong earnings driver and now you're starting to see that translate.
And to the top line as we grow digital with higher margin business as well.
That's very helpful. Thanks, guys.
The next question will come from Michael Young with true Securities. Please go ahead.
Hey, good morning, Thank you for taking the question.
Okay.
Wanted to just start with an update on activity.
I know you guys have been working pretty hard at that and in pretty hands on there. So just kind of an update in revenue generation sales opportunity and anything on kind of the cost or the operating margin side.
Sure.
Thank you very much thank you Michael.
And you know really excited to talk about activity. It's.
A strong complement to our to what we're doing and.
As a reminder, it's strength in front office, and Europe, and Asia really complements our strength in back office and in North America, and we're really pursuing three growth opportunities there, there's an ongoing opportunity sort of.
Activity without Broadridge has just continued to take share in front office in its existing markets and solutions really based on the fact that the competitors are disinvesting.
Medium term, we think is a really nice opportunity to bring activity to broadridge clients in North America leverage our strength in fixed income and other new asset classes and then longer term.
Talked about linking front and back office and really bringing data from the back office into the front and also making the whole hunter back in a more seamless and cost effective. So we are seeing really nice signs of affirmation of that we're seeing really nice demand from clients to.
They have discussions about that and continued interest in having alternatives to our existing provider, so really high and client engagement around that long term thesis and in the meantime.
The integration is going well that combined capital markets team as I said in my remarks is making great strides in the integration. We're seeing results that are on track with your expectations, including good contributions of sales revenue and Bottomline I'll just ask if Edmond yeah. The only thing I'll add just to your question specifically Michael is on the more just size. This is largely a recurring revenue.
Business, we said that it would come in at over 30% margins and be accretive you heard in my prepared remarks, so that was accretive to our overall.
Our margin for the quarter and to Tim's point about front to back. This is something that we are investing in so the investments that we're deploying in this quarter and for the rest of the year will go towards activity as we look to to build capabilities front to back as well. So we feel good about the progress the last thing I'd say about it as I've mentioned to you that <unk>.
Acquisitions would be seven to eight points of contribution and you saw strong reaffirmation of that in the first quarter with nine points of our recurring revenue growth from acquisitions for our three year objectives I think.
Since we brought activity on we will see two points of contribution to adjusted EPS growth. So I feel good about activity in the acquisitions.
We've been making over the past few quarters.
And maybe kind of following up on that just on sales opportunities internationally.
I know this was potentially a.
A nice foothold with some clients are more international basis. It seems like that may take a little more time as you focus on the integration but.
When could we see some benefits from kind of the activity customer book and then also maybe just a more broad kind of update on what's going on internationally as maybe the pandemic subsides or are you seeing any more success there.
Sure Michael.
First of all I think we do expect a strong contribution from sales from activity this year.
As you know.
We went from from where we landed last year around $2 40, a little bit above that to.
The guidance of $2 40 to 80, this year and a significant chunk of that is some activity and we're seeing nice traction on that so I do think youll see contribution to close sales from activity. If we think specifically about about international.
We've had.
Chris anything growth international sales it is lumpy year to year, but if you look at the trend has been very consistently up with some really nice opportunities that we're in the midst of pursuing now so I expect that to be an increasingly strong contributor to our overall sales mix overtime and Michael I'll, just add one comment that Tim's, which as we said that we expect strong.
New synergies from activity as a result of those sales, we said $20 million by 2025, and we're still pursuing that.
Okay, great. Thanks.
The next question will come from Chris <unk> with Piper Sandler. Please go ahead.
Hey, good morning, everyone, It's Chris Donat.
Wanted to ask one more question on the on.
On the wealth business and just make sure I understand sort of the quarter on quarter dynamics there because.
It's the second consecutive year, we've seen a decline in revenue in your September quarter, and I'm. Just wondering does that mean you made the comment about the license revenue and consulting.
Is there a seasonal factor there is it just coincidence that we've seen sort of this happen.
Two years.
Running on a critical Ron Chris you might.
Sorry to interrupt thanks for the question you may be referencing the capital markets business and not the wealth management business.
What we saw was some big clients signed in fiscal year 'twenty that drove up license revenue, we're growing over that in fiscal year 'twenty. One we sort of have a plan that suggests flat in the first quarter and growing license revenue in the back half of the year that will.
Hope the capital markets reach sort of our normal 5% to 7% organic.
Organic levels Wolf management, that's continued to grow I think the four year CAGR on wealth management is about 8%. It grew 6% in this quarter and that is the contribution of both continuing to bring on closed sales and.
Having strong retail trading growth helped drive drive that business as well. So that's the dynamic between the two businesses I'll see if there was anything else. So the only thing I'd add Chris is first of all there's no.
Nothing seasonal about it so to the extent there's nothing you're seeing is it is.
Sort of idiosyncratic and there were a.
A couple of years ago on the license side.
Some significant business in Canada, and that created a little bit of Lumpiness.
And Ah.
You know up and then down in the next year, but.
We don't see anything of that magnitude going forward and and I wouldn't think there's any really any systematic seasonality.
Yes, Okay, yes, it was on the I appreciate that.
Comments on the capital market that just on the wealth side and it's a small piece but.
The quarter on quarter change fourth quarter 136 million.
Wealth revenue then it slipped to $1 31.
I was thinking of that business is highly recurring but.
Can you just remind us what the revenue drivers are I thought it was.
Something that whatever you know not a big percentage change from the.
June quarter, but I know I'm, just trying to make sure I understand what's going on.
In this quarter, Chris you're going to see about 6% growth of that about five points of it is on the organic component one point is from a new.
New revenue from new acquisitions that we had still showing up in that business and on the organic side very much like the other components of our business you see us being able to retain our clients at 98% of the recurring revenue that we have with them and new sales being the largest driver and recently the REIT.
<unk> trading being the uptick that we've seen on wealth management, it really does boil down to those drivers.
And Chris I would say, we can come back on any synchronous sequential comparisons, but I think if you step back and look at what is our.
What we're seeing for the full year, we're seeing that nice sort of within our range at organic growth for the full year. So I wouldn't I wouldn't take any information out of our out of that sequential quarter.
Quarter number.
Okay.
And then just just thinking about the cadence of.
Earnings for the full year.
I thought you had some comments admin about some some pieces but.
Just thinking about that.
EPS by quarter over the course of the year should we expect it to be like it has been in prior years or at least since Broadridge had a change in revenue recognition that kind of affected timing of fiscal third quarter and fourth quarter revenues.
I do.
I like to point out the comments about the.
The components of the businesses have some seasonality in it but.
Prepared remarks, I made a comment about.
The first half of the year being typically just under 30% of the full year adjusted EPS and I think.
I think fiscal year 'twenty, two is going to continue with that trend.
Okay. Thanks, very much Ed.
The next question will come from David <unk> with Evercore ISI. Please go ahead.
Thank you good morning the.
39% equity position growth is probably a record since broadridge spun out of ADP. In 2007. So my question is what are you assuming for stock record growth for the critical.
Spring proxy season.
Yeah, Dave.
As Tim I'm going to just make a couple of broad comments on that and then.
And then I'll give a little bit detail about what we're seeing in our testing right now because we do have a little bit of a forward view on that and.
It is.
Certainly.
As you correctly noted are some eye popping numbers, obviously, it's a it's a small quarter. So it's hard to really draw anything from that from that one data point I think the.
The thing I want to come back to just at that.
Broad level is that this whole trend and I talked about in my in my remarks, a democratization its a its a long term trend just.
This made investing more accessible and cost.
Cost effective and those drivers have been consistent over time.
At mid to high single digits. It certainly has elevated now.
We don't see that elevated level is something that that continues over the long run we do see return to that mid single digits. It will still be elevated a bit this year.
Feel really good about those long term drivers, including new things like direct indexing. So.
And then maybe just give us a little bit more yes, I'll give some color on the what we think about moving forward. So as Tim just said David.
Mid single digit growth over the last 10 years in both equities and funds and ETF physicians to the point that Tim just made that has elevated I'd say beginning with the fiscal 'twenty.
20, Q4 time period and ended at 26% last year up to the eye popping numbers of 39% in Q1 'twenty. Two our recent testing shows that Q2 is normalizing a bit to be closer to 20% now that's a nice uptick from the.
Low teen growth that we saw in testing just a few months ago I will mention that you should keep in mind that the first half is a much lighter component of the volumes last year I think we showed in the slide that last year. The first half was about 13%.
Over 80% of the volumes are in the back half of the year, the third and the fourth quarter and our mid October testing for that suggest high single digit growth for the second half of the year. So I think we feel good about where that positions us for 'twenty two.
More importantly, the trends that Tim mentioned earlier like a direct index that thing I think that gives us confidence that we should expect to see mid to high single digits for many years to come and as is our history. We'll come back to you in February as we get closer to the proxy season, and do more testing with an update on where we stand there.
Visibility at this stage we are at.
Pulling the.
The records of the company that will be having meetings in the second half and so at the upper single digits is what what.
What we're seeing in October, but we will redo that and that.
That obviously continues to change as the year progresses.
Understood just as a quick follow up.
On <unk> earlier question.
The incoming questions on UBS. So when you talk about 18 to 24 month timeline to complete the contract fully how much of that is driven by UBS and their own internal timelines I E. The decommissioning of their platform.
Versus your delivery on the platform itself.
Dave I think that is.
Very hard to disentangle.
It is a it's.
It's just very complex and as we get into.
Bringing components that are.
Being built and then.
Testing them and this is all being done agile so in comparison to functionality a lot of it is is.
Just because that you know remember UBS, one seven trillion assets, our ultra high net worth really the highest networth clients of of the large the large.
Competitors out there and so the complexity of what Theyre doing does lead to discovery of of <unk>.
It also does this and and so it is a it has not.
An ongoing process, but I think we feel really good about awesome things when we're doing that will be there'll be out in the first half of next year and then additional additional releases over the over the coming coming quarters.
Understood. Thank you.
Again, if you have a question. Please press Star then one our next question will come from Peter Heckmann with D. A Davidson. Please go ahead.
Hey, good morning, Thanks for taking my question I think most of my questions have been answered, but just two quick follow ups one on the customer communication in customer Reimbursable piece.
Noting the mix shift there where the decline in some of the print and postage is masking strong growth in digital over the last few quarters have we seen much impact from from that regulatory change around 33, and 498 day or do you expect that to occur over the next couple of quarters.
I would say and I'll, let admin add on but we are seeing beginning to see a positive benefit from 33 that is.
It.
It has been a modest benefit.
The.
498 piece.
I'm less certain about I think that is still are still in the I guess at 498 B is the piece that is not yet approved for 98 I think is.
We're not I'm, not saying that peak come out as a driver significantly one way or the other Tim you're exactly right. We have been seeing an uptick in recurring revenue from 38, three and I think we still have a couple more quarters in fiscal year 'twenty. Two we'll continue to see incremental benefit from that the offset is in the <unk>.
Distribution revenue, which is pass through in low to no margin. So overall, that's a benefit for us that we're picking up now and not much from the 498 B.
And remember at Pete that are I know you know this bad for forever and listening all of that appears when the regulatory line and and there is an ongoing substitution from paper to digital we then regulatory and then when I was talking to.
Earlier I was talking about within the a b or C customer communications line, where that same thing is happening.
Got it got it and then just a follow up on the within wealth management I mean is it possible for the RBC deployment to go forward why you are still finishing up some of the UBS or some of that development that you're doing with UBS gonna be required to do then.
To convert RBC.
That is a great question and we are.
And deepened discussion with both clients on that on that very topic because some.
Some of these components are.
May be ready.
And.
It may be simpler in RBC, where they're already on our back office to implement some of the components and and get them going but we really we really need to work that through with both clients at this stage. It's always been our plan that it would be after UBS, but it's I think the order of that is is.
So I think that as that continues to evolve.
Got it that's helpful. I appreciate it.
The next question will come from Patrick O'shaughnessy with Raymond James. Please go ahead.
Hey, Good morning, guys. I was wondering if you could size the potential revenue impact of that pass through boating initiative from Blackrock.
And then just kind of thinking about pass through boating is a topic in general is there ability to expand that to mutual funds and Etfs and other products over time or do you think it's kind of limited to a sub set up.
Blackhawks.
Products.
Thanks, Patrick.
Thank you for asking that question because I think this is a development that we are really excited about it is you know and it just.
Stepping back it combines a lot of the things we've been talking about it combines democratization that combines ESG. It combines innovation that combines the power of the network and their infrastructure. So a lot of the things that we've been working on this.
This this really brings brings them together and it's something that we have been.
Working on for a while so.
Near term.
As he pointed out it's not a revenue driver and to the extent that is on the institutional side.
It's not really a revenue driver I think the.
The interesting question is.
As others look at this when it come to the retail and an ETF side and and.
In which case it could become a revenue driver I would think that it would be long term kind of thing so I'm not I wouldn't be.
Thinking about anything at all near term, but as you think about the kinds of things that continue to support that heightened mid single or high single digit position growth. It could be a factor over time I do think that at.
That topic around.
Increasing importance of governance, that's a clear positive for for Broadridge, whether it's institutional or retail and the fact that.
Blackrock.
Just global asset manager is taking a step I think is really making people take a hard look at this.
Got it thank you.
And then on your close sales can you remind me about the underlying reasons for the seasonality in our closed sales is that because youre client budgets aren't hey, we want to get this deal done before the end of June or is it more on your end.
Yeah, Great Great question Patrick.
It is.
Most clients close their budgets.
In December and are trying to say if you look at a lot of companies.
It would be they would have their big sale sort of you know at the end of the calendar year. So this I do think it's driven more by our fiscal year, it's not driven because we cut a lot of deals at the very end. It just is.
We have very good relationships with clients and.
So many of these things.
Are sort of already decided but then they get caught in the contracting and the and there's a big pipeline of things and because of the relationship we have for their clients. They they know what's coming up and they tend to sort of bump us up to the top of the top of the heap and and create this big backlog in Q4. So we are trying to get a little more like.
We'd have we'd like to have two big bumps you know one in December one in June.
But that will we'll keep working on that.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tim Gokey for any closing remarks. Please go ahead.
Yes, I'd like to just thank everyone for participating in the call. This morning for your interest in and Broadridge.
We're off to a strong start for the fiscal year.
We are continuing to execute on our growth strategies across governance capital markets and wealth management, we are reaffirming our guidance for the year and our expectation to be at the upper end of our three year objectives, and we look forward to updating you again in a few months.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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