Q3 2022 Broadridge Financial Solutions Inc Earnings Call
Good morning, and welcome to the Broadridge fiscal third quarter 2022 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to adding tape out head of Investor Relations. Please go ahead.
Thank you Kate good morning, and welcome to Broadridge as third quarter fiscal year 2022 earnings call.
Our earnings release and slides that accompany this call may be found on the Investor Relations section of Broadridge Dotcom Joy.
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 this page on the in 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 is 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.
Hey.
Good morning, I'm pleased to be here to discuss our strong results record sales and outlook for another really good year.
I'll start with the highlights for the quarter.
First broadridge reported another quarter of strong results.
Recurring revenues rose, 16% and adjusted EPS Rose 10%.
More importantly, we're entering our seasonally largest quarter with continued momentum and we are well positioned to close out another year of strong top and bottom line growth.
Second our growth continues to be powered by long term trends.
In an uncertain market, we're benefiting from increased investor participation.
The need to modernize and digitize financial systems technology.
And the ever present focus on efficiency.
Thanks to our investments and multiyear focus Broadridge is taking advantage of these trends.
And you see that in our growth and in our closed sales.
We're also benefiting from strong performance in our acquisition of activity.
Third the convergence of long term trends is making what we do increasingly important especially in governance.
A few moments I'll discuss those trends and their positive implications.
Finally <unk>.
Broadridge is on track to deliver another strong year.
As a result of our year to date performance and visibility into the fourth quarter, we are raising our adjusted EPS forecast to 13% to 15%.
From 11% to 15%.
With only a few months ago, we expect to deliver mid teens recurring revenue.
And mid teens, adjusted EPS growth along with another year of margin expansion.
That in turn positions us to deliver at the higher end of our three year growth objectives.
Let's turn now to our business update on slide four starting with governance.
Our governance business continues to drive our growth.
Ics recurring revenues rose, 9% to $630 million in the third quarter, driven by new sales and strong position growth.
We are now well into the peak proxy season and record growth remained strong.
Equity stock record growth was 17% in the third quarter with overall positions increasing throughout the quarter despite volatility in the market.
We see this momentum continuing into the fourth quarter and then we'll share with you.
Looking at the drivers of that growth our data shows the largest increase in online brokers complemented by substantial double digit growth from more traditional players.
And we continue to see very good growth across both managed and individually graduate accounts.
We're also seeing investor participation, increasing on the farm side with mutual fund and ETF record growth of 10% for the quarter.
Etfs are continuing to gain ground with investors.
We also saw strong growth at a number of active complexes.
The continuing strength and breadth of equity and fund additional growth reflects the continued breadth of retail investor participation.
And the power of technology to increase access to markets.
Outside of regulatory we saw solid mid single digit growth across our other businesses, including data driven solutions issuer and customer communications.
Yes.
Moving to capital markets.
Revenues rose, 56% to $247 million.
Activity was the biggest driver and it's also contributing nicely to our closed sales growth.
The combination of activities modular technology architecture.
Our commitment to client service.
And our long term product roadmap is resonating with clients and driving market share gains.
We're also making good strides in the integration itself, including rebranding the business as Broadridge trading in connectivity solutions or BTC, yes.
With three quarters under our belt, we forecast the rebranded activity is on track to meet our expectations.
I'm also pleased to see continued progress in our distributed ledger and AI initiatives.
Undistributed ledger repo, we're on pace to go live with our third significant market with respect in the next few weeks, which will take our daily average trading volume up overtime to $50 billion per day from $35 billion now.
With a strong pipeline behind that.
Our AI powered fixed income trading platform also continues to make steady progress.
During the quarter, we completed the integration with Charles River and last week, we announced our buy side advisory for them with many of the world's largest asset management firms, including Blackrock and pimco.
Turning to wealth and investment management.
Revenues declined 2% to 134 million as we lap the elevated trading volumes triggered by the mean stock from a nominal a year ago.
More importantly, our wealth sales remained strong in the quarter and are up more than 50% year to date building the base for future growth.
Finally, we successfully rolled out our next generation client workstation and more than 15000, UBS advisor than others and feedback from those users has remained exceptionally positive.
Last we reported another strong quarter for closed sales, which are up more than 40% year to date and set a new record for third quarter and for year to date.
These new sales are being paced by our investments in enhancing investor engagement.
Adding and growing activity.
Building out our DLT and AI powered solutions.
Wealth product suite among others.
Our strong sales results have us on track to achieve another year of record closed sales.
Set the stage for continued growth.
As he noted earlier, we are now well into proxy season as more than 80% of annual meetings take place in April through June .
Equity position growth remained strong which speaks to the continued increase in participation in our market. That's clearly a strong tailwind for our business.
Beyond that growth. However, we see a confluence of long term trends that are making our will power and corporate governance, even more critical and valuable to the investment process.
So, let's turn to slide five for a deeper dive.
The first of those tranches, one I've already discussed which is growing participation in our markets, where the democratization of investing.
And that really is a function of falling trading costs, enabling a much wider set of products for investors.
If you think back over the past two decades, we've seen the rise of ETF managed accounts and more recently at based investing and Zero Commission trading.
As we look forward, we see more changes, including pass through voting and direct indexing.
Taken together these trends are bringing more investors, especially younger ones into the market and giving them access to more diversified and sophisticated investment strategies.
At the same time, the important I've environmental social and government factors is also growing driven especially by climate and social issues.
Investors are voting with their assets as shown by the strong inflows into ESG funds.
And increasingly they're voting with their shares.
Not only are we seeing a rising number of ESG proposals on the ballot for annual meetings.
Those proposals are getting more support over time.
And we've all seen the SEC's proposed rules for further ESG disclosures.
It's clear that ESG issues are increasing engagement of all investors, both retail and institutional.
Yeah.
As a result engagement between retail investors institutional investors wealth managers fund companies and issuers is more important than ever.
Facilitating this engagement is what we do.
And we're innovating to meet that challenge.
We're enabling fund companies to drive past few voting to their investors.
We've instituted end to end vote confirmation for 2005 hundred public companies, including all of the Fortune 500, so that investors can confirm their vote to be encountered.
And we're implementing universal proxy to simplify contests.
At the same time, we're making it easier than ever for voters and issuers to engage each other with our enhanced proxy vote, app and an upgraded virtual shareholder meeting platform.
In short we are using our a place at the center of a network linking broker dealers institutional investors tens of millions of retail investors and thousands of funds in public companies and make it easier than ever for every investor to vote and have a voice in the policies of the companies that they are.
And we're making it more efficient than ever for public companies and funds to engage fiduciary holders.
These investments are paying off in the form of higher growth and higher value for all of our stakeholders.
I'll wrap up with some final thoughts and five six and then turn it over to Edmund.
Broadridge continues to execute and deliver on our growth strategy.
We're extending our governance franchise and enhancing investor engagement ring.
We're growing capital markets by driving efficiency, and enabling trading innovation and.
And we are building, our wealth and investment management business with next generation technology.
Our performance in the quarter and over this year has been driven by the Onboarding of new sales and strong underlying volume trends.
Looking ahead, we see another strong quarter, despite increased volatility as a world copes with rising inflation higher rates the slowdown in China.
And unfortunately, the Russian invasion of Ukraine.
Our ability to execute in these choppy markets.
It reflects the strength of our recurring business recurring revenue business model.
And the long term trends that power growth.
Whether it's the increased investor participation driven by falling trading costs Digitization or do we learnt list pace of technology innovation. These trends have proven durable in both strong and weak markets and give us the confidence to make investments to drive long term growth.
So even in the face of increased volatility our business is poised to grow.
Broadridge is on track to deliver a strong fourth quarter to close out another very good year.
FY 'twenty two recurring revenue at the high end of our guidance range.
With continued margin expansion and.
And with the adjusted EPS growth of 13% to 15%.
That strong performance in 'twenty two comes on the back of a fiscal year 2021 and wished Fridays delivered 10% recurring revenue growth 60 basis points of margin expansion and 13% adjusted EPS growth.
As a result, we remain well positioned to deliver at the higher end of the three year growth objectives, we laid out at our last Investor day.
Before I turn it over to Edmund I want to thank our 14000 associates around the world for their hard work in delivering the results we're announcing today.
The work we do is important.
Better financial lives for millions of investors around the globe.
Our associates high engagement still 10% above pre pandemic levels.
Makes a difference everyday for those investors.
For our clients.
And for our shareholders.
Thank you.
With that let me turn the call over to Edmund Thank you, Tim and good morning, everyone.
I'm pleased to be here discussing another quarter of strong performance, which highlights the strength and the stability of our financial model and the long term trends that are driving our growth.
Broadridge delivered top line growth above our fiscal year 'twenty two guidance range driven by revenue from new sales strong volumes and continued contributions from my activity.
We continue to expect recurring revenue growth to be at the high end of our 12%, 15% growth range and that coupled with our continued ability to create operating leverage even in this inflationary environment gives us confidence to increase our adjusted EPS guidance to 13% to 15% growth.
As a result of our strong third quarter performance together with our expectations for a strong fourth quarter.
Broadridge remains on track to deliver another year of double digit revenue growth.
Are your margins and double digit adjusted EPS growth.
Turning to slide seven you can see that strong performance in Q3, Broadridge as recurring revenues grew 16% to 1 billion.
Adjusted operating income increased 10% to $313 million in a oh why margins were flat at 24%.
Including the drag from low to no margin distribution revenues.
And adjusted EPS increased 10% to $1.93.
Our Q3 results included higher than expected equity position growth and also benefited from the timing of activity revenue and tax discrete.
I'll also reiterate that we will continue to see operating income growth, partially offset by higher interest expense related to the acquisition of activity.
Until we grow over the incremental.
Interest expense in fiscal Q1 'twenty three.
Let's get into the detail of those results starting with recurring revenue on slide eight.
Recurring revenue grew from $873 million in Q3 dollars 21 to 1 billion in Q3 dollars 22, an increase of 16%.
Exceeding our fiscal 'twenty two guidance range.
Organic growth accounted for seven points of the 16% increase.
Driven by a balance of Onboarding, new sales and volume growth Act.
Acquisitions, primarily activity drove nine points of growth.
Now, let's turn to slide nine to look at the growth across our Ics and GTO segments.
We continue to see strong growth in both of our segments.
Ics recurring revenues grew 9% all organic to 630 billion driven.
Driven by strong growth in our regulatory business and balanced mid single digit growth across all other product lines.
Regulatory revenues rose, 13% to 322 million driven by strong growth in equity positions and mutual fund Interims.
Data driven fund solutions revenue grew 6% to $91 million.
Resulting from higher assets under administration in our mutual fund trade processing unit.
Our issuer business increased by 5% to 46 million as we continued to see growth in our disclosure products.
That business also benefited from high retention rates for our virtual shareholder meeting platform as the number of meetings are on pace to modestly exceed fiscal year 'twenty one.
Finally, we continue to benefit from strong demand in our customer communications business as revenues rose, 6% to $172 million.
Turning to GTO recurring revenues grew by 29% to 381 million organic growth was 2%.
Capital market revenues grew by 56% to 247 million.
Activity now unbranded BTC, yes was the largest contributor to this growth, adding $79 million of revenue.
Q3 activity revenue includes a benefit from the timing of license revenue, but more importantly.
Activity continues to benefit from strong demand, including market share gains in Europe and Asia.
On an organic basis capital market revenues grew by 6% driven by new sales and higher fixed income trading volumes.
Wealth and investment management revenues decreased by 2% to 134 million in line with our expectations.
Lower equity trading volumes, resulting from lapping the elevated retail volumes, we saw last year at the height of the mean stock phenomenon lowered growth by four points.
Looking forward, we expect both wealth and capital markets growth to pick up in the fourth quarter as we continue to onboard new sales with full year organic growth in our targeted 5% to 7% range for both franchises.
Now, let's turn to slide 10 for a closer look at volume trends.
We are now in the peak period for annual meetings and proxies and we continue to see strong volume growth.
Given by increasing investor participation.
Equity positions continued to strengthen throughout the quarter and reached 17% in Q3.
Through the end of April we have received record data for 97% of the proxies that are expected for the year.
And this data gives us high confidence in our Q4 estimate.
For the full year, we expect equity position growth of approximately 18%.
We are encouraged by this long term tailwind in its contribution to driving growth in our business.
Growth in mutual fund and ETF volumes was also strong at 10% in Q3, despite choppy markets.
We continue to expect low double digit growth for the full year.
Turning to the bottom of the slide trading volumes fell by 6% on a blended basis as expected.
Driven by lower equity trading volumes in wealth.
Which more than offset an increase in fixed income trading and capital markets.
We continue to expect full year trading volume to be essentially flat for the year.
So now I'll move to slide 11, where we summarize the drivers of recurring revenue growth.
Recurring revenues rose, 16% powered by 7% organic growth in the nine point contribution from my activity.
Organic growth was balanced between net new business and internal growth.
Revenue from closed sales and our continued high retention of recurring revenue from existing client contracts drove three points.
Internal growth contributed three points to recurring revenue driven largely by a position growth, which more than offset the decline in equity trading volumes.
Our nine points of acquisition growth were driven by activity, which contributed $79 million as I noted earlier in.
And keep in mind, we expect to benefit from acquisitions has declined significantly in the fourth quarter as we lapped the one year anniversary of the close of the activity acquisition in mid May.
At that point activity will begin to contribute to our organic growth.
I'll finish with a discussion on revenue with a view of total revenue on slide 12.
Total revenue grew 10% in Q3.
Recurring revenue was the largest contributor driving 10 points of growth.
Low to no margin distribution revenue increased by 6% and contributed two points to total revenue growth.
The biggest driver of that growth came from higher mail volumes in our customer communications business as well as higher postage rates, which offset a decline in event driven activity.
I will reiterate that both elevated distribution revenue and the increased mix of distribution revenue from customer communications suppresses our reported margin.
We expect continued elevated growth in distribution revenue in the fourth quarter.
Over the long term, we expect that the share of distribution revenue as a percentage of total revenue will decline.
Event, driven revenues were slightly above our seven year quarterly average and reached 59 million diluting total revenue growth by one point.
For modeling purposes, we continue to believe that the best assumption is our 55 million seven year quarterly average versus a strong Q4 'twenty one.
Now the margins on slide 13.
Adjusted operating income margin in Q3 was flat at 24% as our strong growth in recurring revenue was offset by elevated growth in low margin distribution revenue and our continued investment in our digital and technology platforms.
As a reminder, the increased distribution revenue, we have seen throughout the year, including the postage rate increase will negatively impact our reported full year adjusted operating income margin by 40 to 50 basis points with no impact on adjusted EPS.
Like others, we continue to see an impact from higher inflation.
Both in attracting and retaining talent and in materials cost.
To date this impact has been modest and we are confident that we can continue to offset most of these costs.
Let me also add that we've been increasing our level of investments over the last several quarters with a focus on revenue generating initiatives client retention and strengthening our technology infrastructure.
I'll reiterate that we have the flexibility to dial up and dial down our investments.
That period of elevated investment began in Q2 'twenty, one and continued in the Q3 dollars 22.
As we entered the fourth quarter, we are now fully lapping the period of higher investments and we expect to see increased margin expansion.
As a result, we are reiterating our margin guidance of approximately 18, 5%.
Let's move ahead to closed sales on slide 14.
We reported third quarter closed sales of $58 million, bringing our year to date total to $170 million, which as Tim said earlier is more than 40% above last year.
Our strong sales performance continued to be propelled by smaller sales in fact sales of less than 2 million accounted for 90% of our sales in the third quarter.
To me, that's an indicator of strong sales traction and highlights the value of our increasing focus on driving components high solutions, especially in G. T O.
Looking ahead to the all important fourth quarter, we have a very healthy pipeline and we are well positioned to achieve our closed sales guidance of 240 million to $280 million.
And finally, let's turn to cash flow and capital allocation on slide 15.
For the quarter Broadridge generated $55 million in free cash flow, bringing our year to date total to negative 68 billion.
Year to date, we have invested $54 million in Capex in software and $350 million in our platforms.
As we indicated last quarter, we continue to be the peak period of investment across multiple client platform investments, including our wealth platform.
We expect lower investment as we complete the wealth management platform build and begin to recognize revenue from the UBS contract in mid calendar 2023.
As we move past our current investment phase, we expect that our free cash flow conversion or revert to historical low levels.
More broadly we remain committed to a balanced capital allocation policy that prioritizes internal investments value enhancing M&A and our strong and growing dividend.
We have returned a net of 168 million to shareholders in fiscal year 'twenty two primarily in the form of our dividend.
And we remain focused on paying down debt and maintaining an investment grade credit rating.
All while delivering steady and consistent earnings growth.
I'll close my prepared remarks with commentary on our updated guidance on slide 16, and some final thoughts on our third quarter results.
We are maintaining our revenue and margin guidance and increasing our adjusted EPS guidance, specifically, we expect to deliver recurring revenue growth at the high end of 12% to 15% guidance range.
We maintain our adjusted operating income margin guidance of approximately 18, 5%.
We are raising our adjusted EPS guidance to 13% to 15% modestly higher than our original 11% to 15% range, reflecting better than expected performance in the third quarter and our continued ability to create operating leverage while delivering steady and consistent earnings growth.
And we are reiterating our closed sales guidance of $240 million to $280 million.
With that let me reiterate my key messages.
First broadridge delivered strong third quarter results across both the top and bottom line.
Second we are positioned to deliver strong fourth quarter results and more importantly, another strong fiscal year.
Our updated guidance calls for the high end of 12% to 15% recurring revenue growth.
Higher margins in 13% to 15% adjusted EPS growth and not to mentioned record sales.
Third and last we continue to balance strong short term results with long term growth investments and we are well positioned going into fiscal year 'twenty three to deliver at the higher end of our three year growth objectives and with that let's take your questions I'll turn it back over to Kate.
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.
Jonathan The question queue. Please press Star then two.
The first question is from David Toga with Evercore ISI. Please go ahead.
Hi, This is Mary.
Behalf of David told Ed.
On the strong quarter.
The 42% you stay closed sale.
Can you please give us more color on the mix.
Contributing factors to that 42% increase.
Yeah. This is that this is Tim I'll comment and.
And the admin add onto it.
First of all it's great to see the continued momentum.
In the market for our for our products.
Evidence really really nice progress.
What we saw was balanced across both Ics and GTO.
<unk> of course. This is the first year, we have activity as part of the mix and so that is adding nicely and the timing of the activity sales are a little bit different than our traditional timing. So I think that partly is contributing to the very strong year to date results.
But now when we talk to clients and talking about their underlying needs. We are just seeing the things we talked about in terms of long term, we're seeing a strong demand.
On the government side in the wealth side in the capital market side I met some great client conversations over the past at past few months had an opportunity to demo all of our wealth products with one of the leading wealth managers is a really exciting day when they see how it's all coming together now that that's beginning to be live and they can see things are in production. So so we're very excited about the momentum.
And we think that's all leading into that $240 million to $280 million for the year. So actually I went on longer than I expected.
The only thing I'd add to that is milly as you know closed sales as more of a longer term metric. What we are we continue to be focused on is our revenue backlog and as you know the last time, we reported on that number it was 12% of recurring revenue and that gives us great visibility into the recurring revenue growth as well. So that's the only piece of that.
So what you have there to them that's right.
Perfect. Thank you so much.
The next question is from Michael Young of Truest. Please go ahead.
Hey, good morning. Thank you for taking the question I actually wanted to follow up on kind of the sales commentary, maybe get a little bit deeper more granular I appreciate.
The detail on kind of the size of the sales, but just generally you know kind of as you zoom out what's what's kind of your key driver of new sales is it new product or expanding relationships as it kind of a backlog post pandemic. Just if you could kind of walk us through what's kind of driving it in both segments would be would be helpful.
Yeah, Michael it's it is really.
It's a combination of of all of that it is.
<unk>.
We have deep client relationships and most of our sales are to existing clients and are sort of part of I guess, what some people call land and expand but if you look at the available wallet share inside our largest clients relative to what we're selling them. Even when we have large relationships, there's a lot of opportunity and so I think across the.
Board that tends to be a.
It tends to be the biggest driver you know a year ago. At this time, we had a lots and lots of new clients with the shareholder rights Directive you know when we signed up over 300 clients in the span of 18 months that is continues to be a factor, but less less than it was a year ago.
Also a year ago, we were having.
You know really strong success with our expanding virtual shareholder meetings. This year that is more of a retention at more of a retention story. So I think if you look at the difference between last year last.
Last year and this year it continues to be strong governance, obviously, we talked about the increase in wealth.
The addition of activity and then just really solid capital markets results as we go through.
And I'm not sure if you have it.
The only thing the only thing I'd add to that because again you were thorough there Tim is as we said in our prepared remarks here Michael The fact that most of the sales or smaller sales. There are core less than 2 million sales. It really gives us confidence in the value proposition across the entire product set Tim talked about existing clients, we see strong exist.
Think products as well that are selling in our customer communications business. We've expanded our relationships from just print relationships into digital and have seen strong sales there as well. So again I think it's broad based on the cross our our overall product portfolio.
Okay, Great. That's helpful. And then the second question I just wanted to ask about you know kind of the capital market's volatility. We've seen here more recently are you guys seeing any pull through impact into either stockholder of record growth.
As we move past the fourth quarter I know you guys can start to see end of the quarter following that and then or or is it impacting your trading comps would be helpful to get some color on either of those.
Sure Michael you know, there's there's clearly a lot of increased uncertainty in the market and you know driven by higher inflation, the Russian invasion rising.
Rising rates.
You know those had very little impact on our Q3 results.
We just talked about the strong sales we saw the strong record growth.
Trading activity was modestly lower but that was really more as we lapped last year's high volatility.
We have a lot of visibility into Q4 at this point.
Given given the the.
The way the records closed before the actual sending of communications and we see it.
<unk> continued rapid growth in Q4 so.
So it's really being driven by by the long term trends that we've talked about in terms of market participation Digitization technology.
<unk>.
You know as we look beyond that.
Yeah.
We do have some visibility into the first half of next year and we do expect a return to more normalized levels are testing right now would be a would be mid single digits, but it's hard to say because it always continues to increase as you get closer to the event and we're pretty far pretty far out right now so it's a yeah do you think.
The growth will be lower than this year and and that's that's sort of the planning scenario that we're working on and then we're seeing inflationary pressures like like others.
But the strong revenue growth, we're seeing the efficiencies are enabling a means that we think we can we can offset that and still deliver sort of the margin expansion that we typically talk about.
Okay. Thank you I appreciate it.
The next question is from Patrick O'shaughnessy Raymond James. Please go ahead.
Hey, good morning curious about what areas of your business you would think that you would have pricing power in an inflationary environment.
Okay.
Yes, Patrick.
I will I'll start on that and.
And let them.
I'm gonna add onto it. It is you know as we think about.
As we think about how the world is evolving and could we be.
In a more inflationary environment over time, obviously, we have a large portion of our revenue. Our total revenue that has pass throughs and so take that out but if you focus on fee revenue.
The regulated part of that is about 25% and as you know those fees are fixed but there's good underlying growth in those revenues with operating leverage.
But about 75% is are things that we we renegotiate they have CPI.
And so I think there can be a quarter to quarter, even within year impacts where you get the timing of that off but over time.
We think that's something where you know these are solutions that are.
Absolutely critical to our clients they have high switching costs and you know and we have good long term relationships with our clients and where we ended up being a interfere.
Fair with each other in terms of the value provided.
Got it thank you for that.
Activity I think it looks like the revenue was up nicely quarter over quarter and I believe during your prepared remarks, you mentioned something about the timing, but can you speak to that.
Tim any revenue contribution in the quarter and what was driving that strength.
Sure let me make.
Make a few comments about that Patrick and then I'll turn it over to tend to see it.
He wants to add anything and let me just remind you. We had always said that activity was a business that grew at mid single digit rates as we brought it on we'd be able to move that to high single digit rates fans. We thought that this year it contribute seven to eight points to our overall recurring growth and through the first three quarters is contributing nine points. So strong.
Strong performance there that is primarily a subscription like revenue model.
On on SaaS, you know on our hosted.
Solutions here there is a small component of it that's license revenue that the timing of that license recognition change. We initially thought in a later time period that came into Q3, so that drove a small bump in the overall business, but I think the key thing is that we expect it to continue to perform this year in line with our expectations.
And as we go forward the overall contribution that we thought it would make to our three year objectives still sits.
With what we thought at two and a half to three points of growth.
And Patrick I, just wanted to add on because I.
I have to say, we are really pleased with the overall progress, we're making and activity.
The integration is on track.
The revenue and profitability objectives relative to our business cases are planned for this year. You know we are on track to achieve or where more than achieve and and you know when you come down to.
The modular architecture.
Our focus on clients.
Our long term roadmap is really resonating and so you.
As we look at the short medium and long term goals that we had our near term goal is to continue to take share by doing what activity was doing before the acquisition, but with our backing and and we're really seeing that in continued wins of fadesa clients and nice market share gains there.
We had a medium term goal around better penetrating their client based advisory products and vice versa, and we began to see the beginnings of that we had a nice fun office plus cat sale for a large bank in North America.
And then long term as that Lincoln front to back and that's that that is more of a long term, even 18 month roadmap for phased developments there, but we have some really nice engagement by some of our key north American clients on that topic. So I think it's it's a we really like the way. This is playing out right here in any of the leader there is doing a really nice job.
Is is creating a really strong really strong team and if you were to sit down with our capital markets team.
Today and talk about what we can bring to the table and capital markets for for any global player. It is a is an incredibly impressive team.
Great. Thank you very much.
The next question is from Puneet Jain of Jpmorgan. Please go ahead.
Yeah, Hi, Thanks for taking my question.
Tim.
You see them.
Obviously U S C.
Some tailwind in the business.
In space, specifically in the regulatory side.
Did you see any cyclical pressure from the market being down in Q1 and more broadly if you can.
Update us on how the business performs like macroeconomic weakness as good as like a recession.
Macro economic factors continue to.
I mean the hope.
Hope.
Rich will businesses Ics as well as.
Mike performing back in line.
Sure.
And.
I'll make a couple of comments and and and let Evan add onto it.
As we have gone through.
Periods of our pockets of volatility over this first five months of the year.
And we're doing measuring record growth almost weekly.
We have seen continued a continued record growth even when the market has been down. So this in the near term and if you look over the past few months, we have not seen any correlation between between market activity and and record growth. So so that's been that's been a nice positive I think if you.
We're thinking about a bigger a scenario where there are some sort of real market wipe out and we look back at our past times when that has happened.
Hey.
<unk> 2008, or even going back to 1999.
What happened in those instances was that.
Obviously trading did what it did in the market level of stupidity, but position growth basically remained.
Positive low zero for maybe a little bit positive even in 202008 2009 overall position growth was a it was modestly positive so it.
It definitely affects the growth, but we don't we don't tend to see the big downturn.
On the on the GTO side, our contracts there are you know much more.
Much more fixed price in purely trading driven so they there's there's impact.
But it is much more moderated than than it would've been it sometimes in the past so I think.
We tend to be sort of a lagging indicator and when when markets go down we tend to be not impacted as much and then maybe it takes us a little bit longer to reaccelerate growth coming out of things but.
Right now we're seeing you know really nice nice continued momentum.
Got you no. That's helpful. And then can you also talk about like the UBS.
Uh huh.
I think they announced that they expect like the full platform to convert inflicted went deep C. Can you, but I also understand it seems like you are implementing like the smaller Martin until then so can you talk about like the timing of revenue recognition related to UBS.
Well the full conversion.
Yeah, absolutely and you know as I said before this this transformation that we are pursuing of a digital wealth management is one of the most exciting initiatives that we have and you know, it's really creating modern technology cognitive solutions and scaling those across our our GTO business.
It is.
And then really exciting this this past quarter as we seen the workstation.
Go live and it's been invaded the last year, but go live with 15000 advisors client service Associates, how office associates and others and the feedback on that has been great and.
And that's added to.
Have a a billing solution for managed accounts that <unk>.
Enables enables UBS to.
Uh huh, rather than billing sort of at the beginning of the quarter and every quarter to Bill Bill based on the average through the quarter, if something really basically the navy wealth manager needs and they've seen a really nice pickup in economics as a result of it. So those are some nice components that are live and I think as we've talked about before we have worked with UBS to break.
This into more discrete chunks that will go live over time are the biggest of those is in mid 'twenty three and we've tied our revenue recognition to that so that's that's why we keep talking about about that that number and then just you know as long as I'm on.
On this topic.
You know the sort of the natural evolution of sort of where do we see where do you see this going in the future and I think.
As I've talked about before our thinking has really evolved too. We've made this much more modular and as we engage with clients.
Looking to get to value sooner and and so we think this is going to be much more package of modular sales over time with other clients and and I talked about the the event that I was involved with with a large wealth manager a few years ago excuse me a few months few weeks ago and it felt like years that if you're a few weeks ago and.
When you see all of the different modules, which are now fully integrated into the workstation and you see all that playing together, it's very very powerful and so I think it's going to lead to a lot of opportunity, which obviously, we're seeing already in some of our wealth sales.
Thank you. Thank you.
Okay.
The next question is from Chris Donat of Piper Sandler. Please go ahead.
Good morning, Thanks for taking my questions Tim.
Tim I just wanted to follow up on the comment you made could you just made about.
More modular sales and also on Edmunds comment about closed sales with 90% of them being below $2 million.
Are you seeing a shift away from the bigger ticket.
Sales.
Or is this.
Maybe like a temporary phenomenon because of an uncertain environment.
It sounds like everything is great with the modular but I'm just wondering is this.
More strategy driven on your part or customer driven.
Two more digestible bites from from your clients.
Yes, Chris I will.
It's a great question I would say.
Got.
It is.
His strategy driven in the sense of.
You know as he is one takes what used to be sort of a fully integrated all in one you know highly linked platform and evolve the technology and modernize it to be more API, driven micro services, driven and a series of components. It does enable the idea of modular sales a lot more.
And so in and Theres, a strategy and you see that particularly in and we've.
We've talked about in wealth, but you see it in capital markets, where our global post trade management platform that we've talked about is we're breaking that into components and we're seeing nice component sales, we saw a nice component of sale too.
Too you know one of the largest international banks.
That you know, we havent really penetrated them before.
And we have a nice pipeline of a so so it is being enabled by by how we're evolving our technology I don't think that we have necessarily thought to ourselves Oh, we're going to go to banks now with just smaller things.
But oh, that's definitely the uptake that we're seeing in terms of where the demand is right now we do have larger conversations in past, but you know as you know those take a long time and our are uncertain.
So you know it would be interesting to see how it how it evolves over over the next couple of years frankly.
I like lots of little ones are better than the big ones, but but it you know they're all good.
Yeah.
Okay.
Thanks for that Tim and then.
One for Ed and then just on the.
The distribution revenue, which sounds like.
Strong in the fiscal third quarter should be strong in the fourth quarter as we start thinking about fiscal.
Fiscal 'twenty three.
I would imagine the trends for postal pricing and in volume remained kind of also strong going into fiscal 'twenty three.
Is that a little bit of margin headwind as we go into 'twenty, three or too soon to tell or just something to keep an eye on I mean, we will definitely come back in August with more specific guidance on fiscal 'twenty. Three I think we will start to see us lapping a little bit the postage rate increases that we saw in this year here, but the.
Other component of that is this shift from higher margin regulatory driven distribution revenue to the customer communications and we continue to have strong business. There. We just showed 6% growth for the customer communications business. The sales continue to be strong in that business. So that is a you know going to be ongoing margin headwind.
But I think the key thing is that we continue to believe that we have a long runway of opportunity to drive efficiencies in our business and continue to drive 50 basis points of margin expansion, whether that's looking at our fixed infrastructure. The fact that even in that customer communications business, we move from print to digital which is at a higher margin for us.
And we continue to find you know in our technology.
Apologies stock efficiencies and saves as well I think the key thing to keep in mind is that that distribution revenue is fully pass through there's no earnings associated with it. So while it has an impact on our reported margin. There is no earnings associated with it which makes us very confident that we can continue to drive.
The steady and consistent consistent earnings growth in the in the range that we've set out for fiscal 'twenty three and be at the high end of that in fact, yeah and Chris as you know.
Sit down with investors I always say you know when you look at our company.
I pull out the distribution revenue and look at the fee revenue and that's really the right way to analyze the company in terms of growth and margin and other things are you know we do have constraints in terms of of.
How we're able to how we were able to report so we ended up reporting that as revenue, but it's really.
You know sort of immaterial to our to the true economics of the company.
Got it understood. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tim Gokey for closing remarks.
Thank you Kate that wraps us up for today.
Thank you on the call for your interest and your confidence in Broadridge and just to summarize the strong results that we reported today and.
And the increased guidance that we provided.
Being driven by long term trends and success in our most significant strategic initiatives, including strong year to date closed sales. We believe we are making a real difference and there's tremendous opportunity ahead for our investors our clients our associates.
And of course, our shareholders. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.