Q1 2023 Broadridge Financial Solutions Inc Earnings Call
Good day and welcome to the Broadridge first quarter 2023 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Darcie followed by zero.
After todays presentation, there will be an opportunity to ask questions and please note. This event is being recorded I would now like to turn the conference over adding Quito head of Investor Relations. Please go ahead Sir.
Thank you Paul Good morning, everybody and welcome to Brokerages first quarter fiscal year 2023 earnings call our earnings release and the slides that accompany this call may be found on the Investor Relations section of Broadridge Dot com.
Joining me on the call. This morning are Tim Gokey, our CEO and our CFO Edmund Reese.
Before I turn the call over to Tim for your standard reminders.
We will be making forward looking statements on today's call regarding broadridge and involve risks.
Many 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.
Well also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding rodriguez underlying operating results.
Explanation of these non-GAAP measures and reconciliations to their comparable GAAP measures can be found in the earnings release and presentation.
Additionally on September 26, we filed an 8-K announcing changes to our segment reporting regarding the impact of foreign exchange rates on our business. This changed the final step in aligning our foreign currency reporting with industry standards and is reflected in our first quarter report.
From this point forward earnings materials referenced recurring revenue growth percentages on a constant currency basis, both for our results and our forward looking guidance. Please reference our filings and investor materials for the corresponding reconciliations.
Out of the way, let me now turn the call over to Tim Tim.
Adding <unk>. Thank you very much.
Good morning, everyone I'm pleased to be here discuss our strong start to fiscal 'twenty three.
There's a lot to cover so I'll walk through our strong results for the quarter provide.
Provide a business overview.
And then share some thoughts on why Broadridge is well positioned to drive profitable growth over the balance of fiscal 'twenty three and beyond.
Before I start I think it's helpful to provide some context, given the volatile conditions the market and economy are experiencing.
Despite market declines we have seen continued growth in investor position.
Given our forward testing, we have visibility about six months ahead, which puts us well into the busy part of proxy season.
And we see continued solid growth in investor positions over that period.
Our conversations with our large broker dealer in asset manager clients also continued to be positive as our clients continue to drive to modernize their technology.
With that as a backdrop, let's start with our strong results.
Recurring revenues rose, 9% on a constant currency basis with strong growth across both our segments.
Adjusted EPS was <unk> 84 cents.
Down year over year, but modestly ahead of our expectations.
All in all a strong start to the year.
Second as I mentioned demand for our solutions remain strong.
We continued to benefit from increasing investor participation.
Which is fueling very healthy stock record growth.
After a record sales year in fiscal 'twenty, two we're off to a good start to fiscal 'twenty three keeping us on track to deliver on our closed sales guidance.
Third we continue to drive long term growth across our three franchises.
In governance, we're enabling increasing shareholder engagement for our fund clients.
In capital markets, we're delivering on trading innovation and global simplification.
And in wealth, we're seeing a growing pipeline for a powerful suite of modular solutions.
Fourth remember that our fiscal year extends six months into calendar 'twenty three.
Today, we are reaffirming our guidance for that full period, including 69% constant currency recurring revenue growth.
<unk> margin expansion.
711% adjusted EPS growth.
That puts us on track to deliver at or above the higher end of our growth objectives for the three year period ending next year.
Why don't we do it will be the fourth consecutive three year period, covering 12 years in total that we've delivered on our recurring revenue and adjusted EPS objectives.
First and last we remain well positioned to deliver continued growth in the years ahead, even as the economy faces growing uncertainty.
Providing mission critical services that power investing in governance positions us to deliver a resilient growth through the ups and downs of the financial cycle.
Our visibility into position growth in our $430 million backlog gives us confidence in our outlook for this year.
And our investments, which are attracting growing interest from clients position broadridge to deliver increasing returns and long term growth well into the future.
Now, let's turn to slide four for an update on our business.
I'll begin with their Ics, our governance business, which had another strong quarter.
The biggest driver of that growth was new sales, especially in our fund solutions and customer communications businesses.
Positional growth remains robust despite market headwinds rising 9% for equities in the smallest quarter for equity proxy and 11% for funds.
This growth is being driven by continued activity get managed accounts on the equity side and.
And by continued strong demand for passive investments on the farm side.
Beyond the first quarter were now seeing increasing visibility into position growth for the seasonally one meaningful second half of our fiscal year and the outlook remains very healthy.
As you know, we continue to drive innovation and governance, especially around digital solutions.
Last year, we rolled out end to end vote confirmation for nearly 3000 public companies.
We pioneered pass through voting for funds.
Updated a proxy vote app and delivered nearly 2500 virtual shareholder meetings.
This year, we're continuing to innovate.
Last month, Charles Schwab announced it is leveraging our network capability to query a sample of retail shareholders to help guide schwab's voting and select Schwab funds and Etfs.
We're seeing similar interest in passive voting.
<unk> for retail fund shareholders from several of our largest asset management clients.
Beyond our regulatory solutions, we saw growth across our other product lines.
Customer communications revenue rose, 11% driven by both print and digital.
One digital contributor was the launch of our Omnichannel wealth in focused solution with Terra.
Today wealth clients may receive as many as 120 communications a year from their wealth manager well.
Wealth and focus consolidates it critical information across various client and regulatory communications.
Creating a single simply communications simplifies the investor experience.
Providing advisors with new communications opportunities.
At lower cost.
Following our early rollout nearly 90% of participants prefer the new solution.
It's an exciting example of how our digital capabilities are creating increased engagement at lower cost.
Before I leave our governance business I want to update you on our new SEC regulation and tailored shareholder reports for funds and Etfs that was announced last week.
Many of you recall, we first highlighted this regulation when it was initially proposed in August 2020, and we've been providing occasional update soon.
The SEC voted five zero last week to inflict a measure that replaces the existing long form annual and semi annual reports.
With a shorter two to three page summary document.
The SEC is aiming to use these shorter reports to provide key information in a more digestible digestible format.
Investors better informed and more engaged at lower cost than long form reports.
We're still studying the full implications of the new rule, but let me offer some thoughts.
There is no question that the shorter reports will create a better investor experience overall, and especially for digital delivery.
They will also create a path for even further digitization, which as you know is currently about 80%.
Long term that's positive for funds and for Broadridge.
On the other hand, our fund clients are concerned about the cost and complexity of the new world because they'll have to compose both long form and short form reports.
And we estimate the impact on Broadridge, assuming no offsets some new services would be a $30 million reduction in recurring revenue phasing in over our fiscal 'twenty five 'twenty six.
Just as we did with Dirty Eatery, which also had its complexities will work with our clients to create a cost effective English solution, which.
Which will be good for investors and good for funds.
Moving to capital markets revenues rose, 14% constant currency driven by strong growth from Broadridge trading and connectivity solutions.
From new sales.
BTC S continues to perform well with strong sales and very positive client conversations about simplifying global trading.
And longer term driving factor back.
We also saw strong growth in the rest of our capital markets business.
Powered by new sales and increased fixed income trading.
We achieved a key milestone with the implementation of our Nextgen Global post trade platform across the North American fixed income operations of a major U S based bank.
And we've already begun the next phase, which will extend to unified global equities and fixed income.
Turning to wealth management revenues rose, 5% driven.
Driven by revenue from new sales.
I am pleased to report that our wealth sales pipeline is growing substantially up 25% year on year as we begin to bring to market completed modular solutions combined do wealth platform.
We're now gambling live solutions to our clients, which is creating a much deeper level of engagement and were seeing real client interest.
We're confident that our sales and module solutions from the new platform are on track to meaningfully contribute to our FY 'twenty three closed sales, but an even bigger impact in FY 'twenty four.
These module solutions are part of the broader wealth platform, we're creating with UBS as an anchor client.
UBS has been a fantastic partner.
Now, making very exciting progress net broader solution.
Where development complete on 26 of our 29 platform areas with the remaining three to be complete this month.
On the testing side, we're completing the fourth of five integrated testing cycles with integration testing largely complete by the end of the calendar year.
So it's great progress keeps us on track for full rollout.
And as Ed will outline we are now through the peak of our investment in this key program.
With that let me take a step back and put our growth strategy in context.
The parts and wealth management technology and operations that we touch.
Our 16 billion dollar addressable market and wealth managers face a pressing need to modernize and digitize their operations.
We expect that the wealth management platform and a suite of module solutions. We are building will put broadridge in position to be a leading provider in the growing wealth space for the next decade and beyond.
That position <unk>.
Together with the benefits, we're already seeing for our product and technology capability across Broadridge.
Should strengthen our ability to build an increasingly strong profitable and high return business going forward.
I'll close my remarks on slide five.
As we move from more uncertain macroeconomic outlook.
Broadridge is resilience becomes an even greater strength.
Demand for the critical services, we provide has remained strong giving us confidence in this year.
Our forward looking to investor participation in the next six months and a $430 million backlog gives us good visibility.
As a result, we are reaffirming our guidance for fiscal 'twenty three.
We will deliver at the high end of our three year objectives.
Longer term, we're serving a 60 billion dollar market with growth driven by long term secular trends.
Fintech innovation is forcing banks to digitize and innovations like managed accounts Zero Commission trading direct indexing and passive voting are continuing to drive investor participation.
As our clients seek to reduce costs, partly in response to macroeconomic trends.
Their need for Broadridge is low cost platform solutions increases.
Third.
We've built.
Strong and resilient business model, focusing on recurring revenues and sustained growth.
Excluding our distribution revenues fully 93% of our revenues are recurring.
By multiyear contracts across all three of our franchises.
This revenue is supported by our long history of putting our clients first which has driven a 98% revenue retention rate.
At the same time growth enable us to drive scale efficiencies propelling our margins and finding additional investments to help drive additional growth going forward.
Fourth.
As we look beyond fiscal 'twenty three.
We have made and are making it our digital capabilities in our wealth and other technology platforms and extending our capital markets business.
Leave us better positioned than ever to drive long term profitable growth with increasing returns to the cycle and.
And beyond.
Finally.
To support this long term growth, we're also driving forward on sustainability.
We recently released our latest sustainability report highlighting our commitment to drive sustainable growth.
<unk> our talented diverse associates.
And reduce our and our clients' emissions.
I encourage you to go to our site and review our progress.
Before I turn the call over to Edmund.
Let me take a moment to thank our associates.
None of what we do is easy.
And none of it would be possible without their focus on clients.
Creating the future.
Delivering results today.
Now I'll turn the call over to Edmund to review our financials. Thank you Tim and good morning, everyone. I'm pleased to be here to discuss the results from another strong quarter, where both topline growth and earnings were modestly ahead of our expectations.
So a seasonally small quarter, our first quarter results represent a strong start to the year.
And continued conversion of our sales backlog to revenue.
Our outlook for continued robust demand trends and the operating leverage coupled with our disciplined expense management.
In a challenging macroeconomic environment.
It gives us the confidence to reaffirm our fiscal 'twenty three guidance.
As you can see from the financial summary on slide six recurring revenues rose to 806 million.
9% on a constant currency basis all organic.
Adjusted operating income decreased 15% driven by lower event, driven revenue and carryover impact of investments we made last year.
Oh why margins of 11, 7% were also impacted by the continued drag from higher distribution revenues.
And adjusted EPS was <unk> 84 cents.
Finally, and as Tim noted, we delivered closed sales of $29 million.
Our first quarter results benefited from strong position growth across both equities and funds.
And continued strength from BTC, yes.
I'll also note that while higher interest rates offset operating income the.
The interest rate impact to Broadridge is offset by higher float income and our Ics segment.
Let's get into the details of these results starting with recurring revenue on slide seven.
Recurring revenues grew to $806 million in Q1, 'twenty, three or 9% coming in at the top end of our full year guidance range of 6% to 9%.
Our recurring revenue growth was all organic again, keeping us on track to exceed our 5% to 7% three year growth objective.
Let's now turn to slide eight to look at the growth across our Ics and GTO segments.
We continue to see strong growth in both of our segments.
Ics recurring revenue grew to 443 million or 9% with double digit growth across three of our product lines.
Regulatory revenues rose, 4% and were driven by strong fund position growth.
Proxy revenue growth was impacted by the timing of certain annual meetings, which can have a disproportionate impact in what is seasonally our smallest quarter for proxies.
More importantly equity position growth of 9% remains strong and in line with our expectations as I'll detail in a moment.
Data driven fund solutions grew 13% driven by new client wins across our mutual fund trade processing, and our data and analytics business as well as the impact of higher interest rates on our float income.
Our issuer business increased by 16% as we continued to see growth in our disclosure products and.
And finally, our customer communications business grew by 11%.
Driven by continued demand for print.
And high single digit digital growth.
Turning to GTO recurring revenues grew to 363 million or 10% driven by continued strength in capital markets, including BTC S. A revenue from sales and wealth management.
Capital markets revenue grew 14% propelled by strong growth from BTC, yes, new sales and higher fixed income trading volumes.
Tcs revenue growth benefited from the removal of the deferred revenue haircut, excluding that impact Bgc's revenues grew at a high single digit rate.
Wealth and investment management grew by 5% driven by revenue from new sales.
Looking forward to Q2.
We expect continued strong revenue growth from sales in wealth management to be offset by growing over an uptick in fiscal 'twenty to license revenues from large client renewals.
Now, let's turn to slide nine for a closer look at volume trends.
As you can see by our results investor participation in financial markets has continued to increase despite the market volatility.
Q1, two three position growth was strong across both equities and funds.
Equity position growth was 9% on the back of double digit growth in managed accounts and mid single digit growth at self directed accounts.
Our testing of position growth continues to prove reliable is Q1 was in line with our July testing.
We have now extended our testing into the seasonally critical second half of the year.
And those results for giving us increased confidence in our forecast for mid to high single digit growth for the full year.
Mutual fund position growth has also been consistently strong.
Reaching 11% driven by growth in passive funds.
Turning to trade volumes on the bottom of the slide tray.
Trade volumes grew 6% on a blended basis in Q1, driven by our fifth consecutive quarter of double digit growth in fixed income volumes.
Equity volumes were flat as higher trading by institutional investors more than offset the lower activity at our retail wealth management clients.
Let's now move to slide 10, where we summarize the drivers of recurring revenue growth.
Recurring revenue growth was all organic organic growth was balanced between net new business contributing five points and internal growth, primarily volume and expanding our relationships with existing clients.
Also contributing five points.
Our recurring revenue retention rate remained at 98%.
Foreign exchange impacted recurring revenue by 2% with the bulk of that impact coming in our GTO business as you can see on the table at the bottom of the slide.
I'll finish the discussion on revenue with a view of total revenue on slide 11.
Total revenue grew 8% in Q1 to $1 3 billion.
Recurring revenue was the largest contributor driving six points of growth.
Low to no margin distribution revenue increased by 13% consistent with our outlook for low double digit growth and it contributed four points to total revenue.
We continue to see higher volumes in our customer communications business as well as the impact of another postal rate increase in July .
Elevated growth in distribution revenue.
And the mix of distribution revenue from customer communications continues to have a dilutive impact on our reported adjusted operating income margin, which I'll discuss in more detail shortly.
Event, driven revenues were above our seven year quarterly average and reached $63 million $14 million lower than an unusually high Q1 'twenty two.
We continue to expect full year event, driven revenue to be in the $240 million to $260 million range in line with recent years.
<unk> and FX lowered reported revenues by one point.
Turning now to margins on slide 12.
Adjusted operating income margin was down 310 basis points from prior year to 11, 7% in Q1.
The positive impact of strong incremental margin on recurring revenue growth was offset by three items first elevated low to no margin distribution revenue for the full year, we expect 45 to 50 basis points impact on adjusted operating income margin with no impact.
On adjusted EPS.
Second rate inflation on our material expense, which we pass through at a one to two month lag.
And finally, the carryover impact of investments that we began in fiscal 'twenty two.
As we enter the second quarter, we expect to see increased margin expansion.
From the targeted cost initiatives that we initiated in Q4 22.
These actions along with the operating leverage inherent in our business model.
Give us confidence that we will meet our earnings growth objectives.
Even in this period of macroeconomic uncertainty.
Let's move ahead to closed sales on slide 13.
Closed sales of $29 million were essentially flat year over year, we were encouraged to see strong closed sales across both Ics and GTO with strong contribution from BTC, Yes, and as Tim noted our pipeline remains strong and we remain confident in our full year closed sales guidance.
Between 270 million to $310 million.
I'll now turn to cash flow and capital allocation on slide 14.
I'll start with a reminder, that Broadridge is cash flow generation is typically negative in the fiscal first quarter and strengthened throughout the year.
Q1, 'twenty three free cash flow was negative $218 million down from negative $151 million last year.
Total client platform spend for Q1, 'twenty three was $163 million with the wealth platform accounting for the most significant part of that investment.
We expect client platform investment to decline for the balance of fiscal 'twenty three.
And for the full year, we expect client platform investment to be lower than our fiscal 'twenty two peak year of investment.
We project fiscal year, 'twenty, three free cash flow conversion to be higher than fiscal year 'twenty two.
And we'll return to more historical levels in fiscal year 'twenty four.
Given the significance of the wealth platform investment and the importance to our franchise growth I want to share some additional insight.
The impact of Broadridge margins and earnings growth as.
As well as the expected return on investment.
As Tim noted our progress on our platform is strong and we continue to expect to go live in mid calendar 'twenty three.
As we previously discussed we expect to begin to recognize revenue and amortize the investment spend when the platform goes live.
Based on the existing and in flight client agreements, we project average annualized revenue to be approximately 100 million with.
With average amortization cost per year of approximately 65 million.
The addition of the servicing and infrastructure costs will make the initial platform rollout modestly dilutive to Broadridge, a oh why margins.
We are confident that the operating leverage and ability to prioritize other investments inherent in our business model.
Will allow us to mitigate this dilution and continued to deliver on our earnings growth objectives.
Beyond the agreements noted above and as Tim noted our pipeline for wealth management sales is strong and growing.
Giving us confidence that we will bring on 20 to 30 million in new wealth sales per year at accretive incremental margins.
Together, we expect the combination of existing clients and new sales will drive a return on invested capital that is higher than our cost of capital.
And along with the continued performance in our core business.
Broadridge R O Y C to mid to high teens within our next three year performance period.
Let's now turn to slide 15 to review our fiscal 'twenty three guidance followed by 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 6% to 9% recurring revenue growth.
Approximately 50 basis points of adjusted operating income margin expansion.
Adjusted EPS growth of 7% to 11%.
And closed sales of between 270 million to $310 million.
Additionally, we expect approximately 75% of our earnings to be generated in the second half of the year with 25% in the first half in line with our performance over the last 10 years.
As a reminder, our fiscal 'twenty three guidance extends into the first half of calendar year 2023.
Despite the challenging macro environment.
We have confidence in our guidance given the visibility into our forward looking recurring revenue.
Our fiscal 'twenty three recurring revenue growth will be driven by our strong sales backlog, which was $430 million at the end of fiscal 'twenty two.
And by our equity in fund position growth, where our latest testing supports mid to high single digit position growth.
And as I noted earlier, the inherent operating leverage in our business and the targeted cost initiatives that we initiated at the end of last year.
Will help us meet our earnings objectives.
Finally, let me reiterate my key messages.
Broadridge delivered strong Q1 financial results.
Demand for our services remains strong and our testing is showing continued equity and fund position growth into the second half of the fiscal year.
We expect our capital investment to decline improved.
Improved free cash flow conversion in fiscal 'twenty three.
And to return to more historical free cash flow conversion levels in fiscal 'twenty four.
We have a resilient business and financial model that performs through the economic cycle and we are confident in reaffirming our fiscal year 'twenty three guidance.
With that let's take your questions operator.
Thank you Amy will now begin the question and answer session to ask a question you May Press Star then one on you touched on food.
If youre using a speakerphone please pick up your handset before pressing the key.
Draw. Your question. Please press Star then two.
And our first question today will come from David <unk> with Evercore ISI. Please go ahead.
Thank you.
Given the divergence between the strong revenue growth of 8% and 15.
15% decline in operating income could.
Could you dig into your investment spending plans for this year, particularly as they affect both the income statement.
The cash flow statement and the pacing of those plans. So we get a better sense of kind of the margin and quarterly earnings cadence throughout the year.
Sure I'll just make a comment here, Dave and then I will let Edmond Ah I take that on and in some detail first of all good morning. Thank you. Thank you for the question.
Thank you.
I want to reiterate that our results today, where this quarter were very much in line with our with our expectations, a little bit a little bit above and we made.
Investments at the end of last year that we knew would make the expense growth this quarter, a little bit a little bit stronger and so we don't see any surprise here, we do see a a more evenly paced year this year, but I'll, let I'll, let Adam comment on David. Thank you for the question I want to reiterate a few points to add onto that.
What Tim just said first if I think specifically about Q1 as Tim said it was modestly better than our expectations. As you think about the divergence between revenue and the adjusted operating income a decline the key drivers there as I noted in my earlier script was the year over year growth in event.
Driven revenue, we had a very strong quarter higher than our seven year average at 63 million, but we're coming off an unusually high Q1 'twenty two that's the first item in the second item was the carryover of the investments, which we will continue to do as we think about driving revenue growth in each of our businesses the carryover those investments into <unk>.
23.
You look out for the rest of the year first the key point that I want to make is that as you know over 75% of our earnings have historically come in the second half of the year. The first half is a much smaller portion of our overall earnings that we are an annual business the noise in between the.
<unk> you know I do not think we certainly run the company as an annual company. We think about our earnings overall that said I do expect margin expansion into second third and fourth quarters and I will reiterate the 50 basis points of margin expansion that we have as part of our guidance, we're coming off a very.
Economic environment in the last two years and drove 60 basis points of margin expansion. So I continue to be very confident in our ability to hit the margin expansion and to deliver earnings growth in the 7% to 11% range and I just might add on on all of that which is the hot there for a second and 25% of earnings.
In the first half.
I appreciate that just as a quick follow up.
Edmund you you talked about the client platform investments and that's really the number one incoming investor question I get on Broadridge, which is expected returns on the large investments.
On the wealth management Tech business can you shed any additional light on that.
Pipeline.
Any any line of sight you have into other large signings you know beyond UBS a few years ago.
That's a great question, let me make one or two comments and I'll turn it over to Tim to maybe talk about the pipeline. Some because as he said we have a strong pipeline here first I think the key thing for me David is that when we make these types of investments.
Particularly large platform investments to grow the franchise. They are initially going to come on dilutive to the margins, but we have a track record of making these types of investments and using our scale and other levers in our business to be able to ensure that they become accretive and drive towards Broadridge as returns that is what gives me.
Confidence that we're making the right investment in this platform and the progress that we've seen with it going live.
And the pipeline that Tim can speak about is giving me confidence and confidence in it being accretive to broadridge and driving us back to the types of historical returns that we've had before but let me turn it over to Tim.
Yeah look we continue to see the wealth platform as a very.
Very much as a long term positive for Broadridge. It is.
Yeah, its doing three things for US first of all it's definitely deepening our relationship with UBS, who we view as a long term global winter they've been a long term partner. It says a lot about the work that we're doing together that are at this point in that and the work the relationship is deeper than ever that's not always the case.
It's really setting us up to be a leading provider in the 16 billion dollar wealth Tech market, which obviously is why we're doing this.
Wealth Tech is a rapidly growing space I I saw some recent research only 70% of wealth management firms are planning to increase the technology spend the next two years.
Others are investing but we believe we have some real advantages.
And a key part of our transformation as a company to being a modern SaaS provider. All of this work is in the cloud the key components like workstation API gateway integration layer are foundational to our to our overall tech roadmap. So that's we're excited about our about the progress that we're reporting today.
And David we really are seeing this as client discussions move I'm talking to showing and you know when you're able to show real life software.
Makes it a very much of a difference in the conversation I'm just I'm thinking of a client conversation that we're involved with now where the kind of asked us to set.
Set up a sandbox.
Our data are two.
To have them be able to play with the applications and we were able to do that in a matter of weeks and that that makes a.
That's a big difference in the conversations that's why we're seeing the 25% increase in the pipeline and so as we look forward here I think the markers of success are going to be.
Going live with UBS.
Sustained growth over time in our wealth management business now the sales will start to convert to revenue not in this year. So so we're not talking about did you ever talking about beginning next year.
And then also the progress in our overall technology roadmap I think those are some of the markers that investors investors should look for and we're confident we're going to get good returns here.
Thank you.
And our next question will come from Puneet Jain with JP Morgan. Please go ahead.
Hi, Thanks for taking my question can you comment on velocity of deals in that pipeline perfectly for large deals.
Any kind of pause or delays from clients.
Given the macro uncertainty and signing on new work.
Look.
Yeah Puneet it is as Tim Thanks for that question and it is a it is an interesting one.
I think that we are seeing.
Strong appetite for continued Digitization and for moving platforms forward and we're also seeing a real healthy balance between.
Internal builds versus Mutualization.
I think that as the world moves to a more agile.
People are thinking less about large scale multiyear transformational projects and more about how they can step into things.
In ways that I take are quicker to come on and add value in a way that they can they can see and I think we're seeing that both in North America and in Europe . When you look at our mix of sales last year, which was a record which.
Which was a record it it didn't have any of those large transformational deals in it. So I think we are and I think that's what we're seeing that's what we're seeing now is some some nice chunky deals, but we are seeing are.
Not a large scale transformational ones I think the exception to that a little bit is in customer communications, where.
There are still significant players that have in house platforms that we're there they're trying to think about that and those some of those could be larger.
But.
On the on the technology side of it tends to be a Sikh sequence of a really nice deals and we liked the velocity of that versus the bigger one. So I'll just add one point to quantify and help emphasize the point that Tim made puneet and that is that you know roughly about three quarters of our deals.
Or less than 2 million dollar deals and that has been that's been the trend that we've seen stay consistent over the past couple of years and I think as Tim just said we feel good about.
The velocity the fact that it shows interest across our different product lines. So nothing has changed there.
Gotcha.
Your appetite to do large.
Changed.
Especially the Adidas that required cost sitting on your balance sheet.
What's your appetite changed as a result of rising rate environment should we expect any changes in.
Number or types of deal you pursue as a result of that.
Yes, I think puneet.
<unk>.
What I would say is certainly if you think about the the work youre doing with with UBS I think that is.
Something that is truly exceptional.
To put us into a into a whole space and not something that we are you know.
Thinking about something like that.
It is and having built the platform and built the technology, we see additional deals being able to come on with a much much lower incremental investment.
Got it thank you.
Yeah.
And once again, if you would like to ask a question. Please press Star then one our next question will come from Darrin Peller with Wolfe Research. Please go ahead.
Hey, guys.
Maybe we start off just with the growth in the regulatory side of the position growth trends I guess first of all I was a little confused maybe I missed it at the beginning of the call to see the revenue growth rate on the regulatory side at 4% versus position growth which was.
I think it was 9% for equity or 11% from mutual fund it looked pretty decent other side of that spread widened.
I'd love to hear your latest thoughts on the sustainability of position growth I know, it's always hard to tell for sure but.
Given what we're seeing with retail investors and some of the some of the trade changing trends just curious your thoughts medium term on that Russ thanks, guys.
Yeah.
On the just on that the variance between position growth and revenue. There is just some timing in there and Oh, let edmond expound on that but that's not Darrin I think something that is that anything significant inside that.
But on the bigger question around position growth.
It remains robust.
Based on long term trends.
At recent.
<unk> that are that we believe are here to stay so it certainly starts with a long term trend.
Increasing investor participation and diversification, which has he knows based on historically falling costs ongoing innovation, including Etfs managed accounts and that's what's driven sort of the high single digit growth that we've seen over the last decade.
Obviously, you've seen in the last couple of years innovations around free trading an app based investing in a new generation of investors, which has caused a real step change the past two years.
We do think that's a change that is here to stay.
And now we see the next generation of innovation like direct indexing and passive voting to support continued, albeit you know what we think will be more normalized growth going forward. So.
It is I think we have Oh I've had a question about as we move into a into a different investing environment.
Would we see with the physician growth, but as we have increasing visibility into the second half of the fiscal year. We're seeing this very normalized mid to high single digit growth.
Just back that tactically on the first part of your question in terms of the position growth.
9% of the regulatory revenues at a lower percentage of the way I'd think about positioning growth Derrick.
Darren as same store sales. If you went to proxy in Q1 last year and you want Q1. This year than you are in that position growth number. If you went Q1 last year, but Q2 this year youre not in the quarterly position number you would be in the full year position growth number and that's what matters to us because from a revenue standpoint.
Doesn't matter, which quarter, you're coming in we're going to have the benefit from that so that's the difference between the position growth and the revenue that we see.
Okay. That's really helpful. Thanks, just one quick follow up on the earlier question on margins and really just free cash as well.
Some of the dynamics on distribution, obviously is a lower margin and I guess is that driven revenue time exhibit impact as well, but what do you see really changing other than the timing of investments and it's a small seasonal quarter. So it's probably not worth extrapolating too much but what do you see changing that really helps the operating margin from here.
When considering that distribution costs will remain high but I guess the scale or operating leverages. Some of the business should kick in also maybe you could just help us split of puts and takes.
Yeah, I do remember distribution, we have elevated distribution revenue last year again that.
Impacted the margins by nearly 50 basis points last year. The same thing we expect this year here with double digit growth in distribution. I think you will see is exactly what you just said first the initiatives that we initiated at the end of last quarter. We have executed on those so we will see benefit from that and.
Then the scale the natural operating leverage in our business as we go through the quarter and getting it get into our seasonally heavier quarters with more revenue coming on those things are coming on with incremental margins and when we see the expansion in the overall, our adjusted operating income margin as we move forward through to three two to three quarters.
Alright, thanks, guys.
And our next question will come from Patrick O'shaughnessy with Raymond James. Please go ahead.
Hey, good morning, guys. So the wealth management sales pipeline that you've been speaking to can you give some more color on how much of that pipeline is for the entire comprehensive wealth management Tech stack versus some of these components solutions that you're bringing to market.
Sure Patrick it is.
Got it.
It's a mix of both.
I would say it is more on the components side there are some.
Firms that are of the same size and scale of someone like a UBS that are looking at at full solutions.
And and we would imagine those are again stepping in more in a in a sequential kind of way than in the past.
But then there are also a larger firms looking at at the components and I think if you were to look across the.
The entire pipeline it would be much more weighted to the component side.
Got you and I think and if I can just just add onto that which is I think one of our real learnings are.
Over that couple of years that we have the two years. We've been building. This is you know as we've built this in a very.
Open way with.
All API driven and the original vision as you call was really to create a you know based on our back office a.
Very open data layer.
Being able to then take modules on top of that that would be built either by us by our client or by other third parties to be able to have that work seamlessly together and so that vision is really more and more appropriate for what people want today.
And so the ability for us to you know whether it's the back office or whether it's the integration layer out to help people time to tie together what they're doing.
And then take some of our applications on top of that is a I think a real opportunity.
Got it I appreciate that detail.
Yes.
Free cash flow improves over the remainder of fiscal 2023, how are you guys thinking about deploying that cash whether it's debt reduction share repurchases M&A et cetera.
Yeah, I mean, we continue to have a very consistent capital allocation policy, where we're balancing.
Return to return of capital to shareholders with.
Our investments for growth with continuing to maintain an investment grade credit ratings. So as I think about the near term with a leverage rates that are higher than where we've historically been we obviously stay very close to the rating agencies and have an objective to bring that debt down to.
A more sustainable leverage ratio I would say in the near term we're focused on that.
But as free cash flow conversion increases going into fiscal 'twenty four I think it gives us more capacity to return capital to shareholders to think about other investments.
Investments, whether internal or external on the on the you know on the.
Road back in line with our historical practice has been smaller types of acquisitions.
I think that's going to be the focus for us with a free cash flow conversion.
Great. Thank you.
Yeah.
And this will conclude our question and answer session I'd like to turn the conference back over to management for any closing remarks.
Yeah. It is as Tim I, just want to thank everyone for for joining today I want to just reiterate how pleased we are with the strong results for the first quarter.
Our strong outlook for the remaining of the year.
We're making good progress on our key investments that our business is resilient in an uncertain environment.
And really just at most important our confidence in our long term growth.
Cash flows and strong returns for our shareholders. So thank you very much we look forward to continuing the conversation and seeing you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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