Good morning, and welcome to the Broadridge Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Edings Thibault, Head of Investor Relations. Please go ahead.

Thank you, Andrea. Good morning, everybody, and welcome to Broadridge's Third Quarter Fiscal Year 2021 Earnings Conference Call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call today are Tim Gokey, our CEO; and our CFO, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. We will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second and third page of the slides and a more complete description on our annual report on Form 10-K. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found on the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thanks, Edings, and good morning. I'll begin with an overview of our key messages and an update on our third quarter results, including our performance against our strategic objectives. Edmund will review our financial results, and then we'll take your questions. It's an exciting time to be at Broadridge, and we have a lot to cover, so let's get started. I'm pleased to share that Broadridge delivered strong third quarter results. Recurring revenues and adjusted operating income both rose 8%. Our results in both ICS and GTO are being propelled by long-term trends, including increasing digitization, mutualization and the democratization of investing. These trends are driving strong new business growth, record growth in the number of shareholders and higher trading volumes. We're also executing well against our strategic growth plan across governance, capital markets and wealth and investment management. I'll highlight some of those initiatives in a few minutes. A combination of those strong results and continued execution against our growth plans is giving us the confidence to continue to invest in our business. We've continued to fund attractive investments in our products, platforms and people, including the pending acquisition of Itiviti. We're also substantially increasing our guidance for fiscal year 2021 on both the top and bottom line. We now expect recurring revenue growth of 8% to 10% and adjusted EPS growth of 11% to 13%. While the new guidance reflects the impact of Itiviti, the bulk of this raise is organic, as Edmund will discuss. The net result of all these points, our strong third quarter results, our continued internal and M&A investment and our outlook for fiscal 2021 is that Broadridge is executing well and is on track to deliver at the higher end of our 3-year financial objectives, including 8% to 12% adjusted EPS growth. We…

Thanks, Tim, and good morning, everyone. As you can see from the Q3 financial summary on Slide 7, Broadridge delivered another strong quarter. Recurring revenue grew 8% to $900 million. Adjusted operating income also grew 8% to $284 million. Margins declined 60 basis points to 20.4% as we successfully made the investments that we discussed last quarter in our technology platforms, in our products, our people. Our operating income was partially offset by a higher tax rate in Q3 '21 as we grew over discrete tax benefits in Q3 '20. So our adjusted EPS grew to $1.76 in the quarter, up 5% over Q3 '20. Now let's turn the slide and get into the details of the quarter, starting with recurring revenue growth. As I said, recurring revenue grew 8% in the quarter, powered by 7% organic growth, and comfortably within our historic mid- to high single-digit growth performance. demonstrating the strength of our sustainable recurring revenue growth model. As a result of that strong organic growth and an increase in our outlook for the fourth quarter, we're raising our guidance for recurring revenue growth to 8% to 10% for the full year, up from our prior guidance of growth at the higher end of 3% to 6%. Now let's look at this quarter's recurring revenue growth by business on Slide 9. I'll start with our ICS segment, where revenues grew by 11% to $586 million. Regulatory revenues rose 20% to $290 million driven by the 20% equity record growth, higher mutual fund and ETF communications volumes and net new sales, including from our Shareholder Rights Directive II solution that Tim highlighted earlier. We expect strong regulatory revenue growth to continue in the fourth quarter with, our current testing indicating 25% equity record growth. Our Issuer business also contributed to…

[Operator Instructions] And our first question comes from David Togut of Evercore ISI.

This is Millie Wu on for David Togut. So my question is the event-driven business continues to shift back to strong growth after several years of decline. How sustainable is the reason turnaround in the event-driven business? And how high were the incremental margins this quarter?

So Millie, thanks for the question. Event-driven revenue, as you know, is about 4% of our recurring revenue. It's a bit more cyclical, but it's an important part of our total offering. It's high-quality revenue at -- it's a strong margin in that business. And as you mentioned, Q3 has continued to increase and go back to our historical norms. We've done about -- on average, about $50 million a quarter. You've seen pickup in mutual fund proxy business and contests in capital markets. It's not unusual to see us have an unusually high quarter or an unusually low quarter. But over the long term, I do expect event-driven revenue to pick up and grow in line with stock record growth. So during the Investor Day, I came out and said that we've seen 14 years ago, event-driven revenues average for the first 7 years, $180 million. Over the last 7 years, it's been above $200 million. And I feel comfortable that we should anchor in the full year number for event-driven revenue, and we expect it to be at that level as we look throughout our objectives in the '22 and '23 and, again, at reasonably strong margins in that business.

The next question comes from Michael Young of Truist.

I appreciate the guidance on the Itiviti growth contribution for fiscal '21. Would you hazard a guess or any guidance as to how much you expect that to contribute to kind of the long-term 3-year growth guidance?

Yes. Michael, let me jump in there. And Tim, you might have some commentary on the business itself. And we were thinking -- when we were bringing Itiviti on, first, we were looking for very strong assets in the capital market space after deploying most of our M&A to wealth management and governance over the past 3 years. And the thing that looks great from a financial standpoint for Itiviti is the strong growth outlook. The core business by itself is mid-single-digit growth from a revenue standpoint. I talked earlier that we committed to about $20 million in synergies by 2025 in that business. So you should see high single-digit growth in that business. The recurring revenue models are predictable. They're subscription-like revenues, healthy operating margins in that business. And I think that's a great time to finance it in this low interest rate environment. I also said that we expect, because of that profile, to get to double-digit IRRs in this business. So I think we'll focus on integrating it, but I do expect it to have that high single-digit revenue growth at 30% margin, so a strong return over a very long time for us in that business. Tim, I don't know if you want to add some comments to the profile.

Yes, Michael, just remember at the time that we -- and we announced this, we said we were -- we felt confident that we'd be at the high end of our 3-year guide? So in terms of what the impact would be beyond '22, I think that also gives a bit of a flavor. And just to add on to what Edmund talked about strategically, we are really pleased with the way to strengthen our capital markets franchise and really allows us to drive front to back. That has been really emphasized in some of the client conversations that we've had since the acquisition was announced. We've talked to our top 50 clients and have half of them, one, have a conversation about this. And so it's really gratifying to see that level of interest. But specifically in the vision of front to back, and in the vision of having an alternative in the market with someone like Broadridge that is investing in this business. So we feel really good about that piece on the capital markets, and we also feel good about how it adds to our global scale and reach -- and really deepens our relationships with some of our most important clients. So we're excited about it. And we do think it's going to add to our growth and our ongoing organic growth in terms of the rate, specifically bring us to the top end of the 3-year guidance.

Okay. Great. And maybe just a bit of a departure from that question. But just as we look to kind of postpandemic and reopening and sales trends, are you seeing any increased conversations or willingness of clients to take on new products, new conversions, et cetera? Is that a tailwind at all for the business at this point?

I would say on the sales side, we are -- it's interesting because we've been this past year, really in the situation where -- I have talked about this before, in terms of originating new opportunities and then working them through the long sort of cycle of business case, requirements and things like that and doing that all remotely. And that's been a very interesting evolution over this past year. I think the productivity has been remarkably good. It is -- we'll see as we get to the end of the year here in terms of timing of some of the larger transactions. But what we're seeing certainly in the -- as people look out is this real pressure for next-generation technology, the digitization that is happening has just accelerated where people want to be, and you'll talk to client after client about who will say, what they expect it to happen over 3 years has happened in 12 months, or over 5 years that happened in 18 months. And so they're really looking to make change. It also means they're very busy. And so it's a matter of getting on their agenda. But we feel very good about our ability to continue to drive our business through net new sales.

The next question comes from Chris Donat of Piper Sandler.

I had one question. I just wanted to check in as we're thinking about -- as we refine our 2022 fiscal models. With the UBS Wealth Management platform, can you just remind us on where we stand with that? And once it goes live, how that starts to affect revenues and expenses?

Yes. Chris, it's Tim. Just on UBS, we continue to have a great partnership with UBS. We continue to support their ongoing technology and digital transformation. There are parts of this that are already live and creating benefits for UBS and its financial advisers. We're continuing to invest for both for UBS and for clients 2, 3, 4, and we're having very good conversations with clients 2, 3, 4. And I think our results show the momentum we have in our components. When we get into the timing of specifically when this is going to happen, it is -- that's really UBS' announcement to make. And when we get to August and really talking more specifically about '22, we'll have a further update then. But right now, I can't comment more on it.

Okay. Understood. And then Edmund, with Itiviti, I'm not sure I caught the comments fully on the impact for fiscal 2022. Well, I guess, first, did you say that the -- and was it $230 million of revenue? And did that include purchase accounting adjustments? And then if we start thinking about fiscal 2023 as the impact of purchase accounting adjustments paid, would we expect maybe -- but optically, that you have higher revenue growth just without the purchase accounting adjustments just so we're thinking...

Yes. So yes, understood, Chris. Thanks for the question. So just specifically on fiscal '22 for a moment, we said we expect it to add approximately $250 million in revenue, and that does include the purchase accounting of about $30 million. I mentioned that about 2/3 of that is in fiscal '22, the other 1/3 is this year in fiscal '21 impacting the revenues that we expect over the next 2 months. That will be about 8 points to the recurring revenue growth in fiscal year '22 and, as I mentioned, about 2 to 3 points to the adjusted EPS growth. And so you can expect growth on that revenue fully in the fiscal year '23 without any further impact from the accounting adjustment that I was just talking about. So we feel good about the contribution that it will make as we end the '23, as Tim said a moment ago, helping propel us to the top end of our range. I'll also add, Chris, when we gave the 3-year objectives, we talked about 5% to 7% organic recurring revenue growth. And we talked about 1 to 2 points from M&A and acquisition, and Itiviti makes -- I think that's what makes us feel good about the objectives is that Itiviti comes on and adds this type of contribution, putting us at the higher end of those 3-year objectives.

The next question comes from John Rodrigues of D.A. Davidson.

This is John calling off for [ Pete Heckmann ]. Now that you gave additional time to dig into the Itiviti business, I wanted to just see what are the main solutions that you guys see that are best poised for cross-selling?

Yes, John, it's Tim. And we are -- we haven't closed yet. So we'll be -- but we will be digging in. I think on the cross-selling opportunities, there are several. They have a strong position on Continental Europe, a stronger position than we do. And so the ability to bring our products to their clients in Continental Europe and Asia, for that matter, that's sort of opportunity one. Opportunity two, we have a much stronger position in North America. And so the opportunity to help them better penetrate North America is opportunity two. And so those are sort of the geographic opportunities. And then we have the asset class opportunities, and they have a very strong position in exchange-traded derivatives, and that's a more nascent area for us. And so we expect that combined offer to be very interesting. And we have a very strong position in fixed income, and they have a building position in fixed income. And so that's another attractive area. So we think that between the geographic cross-sell and the asset class cross-sell, that there's a really nice degree of revenue synergy built into this. And that, as you know, most of the things that we do, we do really for revenue growth. We're not a buy this slow-growing thing and cut costs, and then going to the next one. That's sort of not our model. So we think this will add nicely to our organic growth for a long time to come.

The next question comes from Patrick O'Shaughnessy of Raymond James.

On LTX can you speak to what sort of participation you have at this point from some of the largest fixed income dealers?

Yes, Patrick. Thanks, this is Tim. And I'm glad you asked that question actually because it was sort of in the script there, but we have, just in this last quarter, signed -- I'm not sure if it's the largest, but 1 of the top 3 in terms of fixed income managers, and so that is not on board yet, but it will be coming on board in the next few months, but that was a real milestone for us. So I think the milestones that we were excited about on LTX, and why we continue to talk about it were -- the patent we received on the best execution protocol, which really allows aggregation across buyers and sellers. The first execution of an aggregated trade, which is a real milestone and so important because the electronification of trading, as you know, has been a little slower in fixed income and really hasn't penetrated the larger trades, which are the important ones. And so that aggregation capability, we think, really will help unlock the digitization of fixed income. And then the third milestone was really the designing of one of the top -- one of the very top fixed income managers. And so we think that's just another sign and why we're confident, as we go through this year. We're going to continue to see momentum pick up.

Got it. And certainly, I think one of the interesting aspects of LTX is that it's kind of a dealer-centric solution. So I appreciate that you guys have got Alliance did that big trade. You signed up one of the biggest buy-side firms. But on the sell side, are you working with the biggest sell-side broker-dealers at this point with LTX?

At the moment, I would say we are working a tier below the very largest ones and -- which is a great first mover opportunity for those firms. We're working very closely with them, including Raymond James, as you know. And so we're excited about that. We are in conversations with 2 of the Tier 1 firms, and we'll see how those go. I think what's interesting is when we put -- and as you say, it's dealer-centric, so it really enables them to grow their business, and that is so much about the AI and about enabling them to serve your clients really well. And when you get a trade-in as the salesperson, as the trader, the likely counterparties, the top 1 or 2 were sort of obvious but #25 you might not think of. And what those firms are seeing and they're testing our AI side by side with their AI, and they're seeing that it adds real value in terms of, well, "Who's the #25 first," and I might not otherwise call it. And so it really increased the efficiency for the salesperson and allows them to serve their clients a lot better. So that AI piece, even independent of the marketplace, has real value. And so I think it really makes us some very interesting conversations.

Yes. Very interesting. And then switching gears to an expense question here. To what extent does your updated fiscal year '21 guidance reflect incremental organic investment relative to your prior outlook? And assuming there is some incremental organic investment, where are you directing those dollars?

So Patrick, I think we've obviously signaled during the Q2 call that we would continue to invest in the business, and I'll talk a little bit, and Tim, you should jump in on where those investments are going. But again, I'll reiterate that we remain committed to being able to drive adjusted operating margin to the tune of 50 basis points for the year, and I think we'll still be able to do that. But it does include organic investments. I think about them across our technology platforms, Tim mentioned in his earlier remarks across post-trade, across wealth management and our infrastructure. As you think about the network resiliency that we've had over the past few quarters where we've seen record trade volume growth, I would say that organic investment into our infrastructure and technology platforms are starting to pay dividends. You see it in our products as well. Tim earlier talked about the VSM solutions and the SRD solutions within that regulatory business growth. You saw 28% growth benefiting from the investments that we've been making in those solutions. And I almost added on to his comments about LTX where we have continued investments there. And as we think about our 3-year outlooks, no revenue associated with that. So that's an opportunity for us as well. And then the final thing I'd say, Patrick, is investments in our go-to-market and sales organizations, particularly as we think about expanding internationally, focusing on our premium accounts. These are investments that are really, as I mentioned, think drive recurring revenue growth. So we'll continue -- we have been, and we'll continue to be, committed to these investments while producing margin expansion and delivering the high return that we want to drive.

And I just can't help but add on because it's a topic that we're real passionate about. So it is -- Patrick, I think you know, well, from following us over a long time that it's a key part of our growth model and that we do reinvest when we get the opportunity. And I'm just pleased to be sitting here talking this morning, talking about increased guidance, increased margin, increased investment in our products and our associates. And when I look at the investments we're making in digital, in LTX, in wealth, in multiple areas in governance, including increased investments in data and analytics, and now with Itiviti, we have -- we've never had so many paths that are not just the next 18 months but well beyond that. And so it really gives the confidence to be talking about the upper end of our 3-year objectives but also really what happens after that. And that's why we feel really so good this morning.

The next question comes from Puneet Jain of JPMorgan.

How do you reconcile strong internal trade volume growth in capital markets with flattish revenue? Even if you adjust for $6 million in license sales, it looks like volume growth was much higher than revenue growth.

Yes. So when you think -- thanks for the question, Puneet. When you think about our GTO business, we show that chart that breaks it up between capital markets and wealth management. And the first thing I'd say is, as we were coming into Q2, remember, we're coming in Q3 off of record trading volume comps, 26% combined equity and fixed income and 28% for equity. And that was primarily -- you saw that benefit come through in the capital markets business, and we said that would be a tough comp. As we came into this quarter, so in the capital markets business, you had sort of a harder comp on trading volume and the license revenue impact that brought it to flattish revenue. The trading volumes that you saw, the continued growth, I mentioned, the fifth consecutive quarter of growth was primarily retail trading, and you saw the 7% growth in the wealth management business is the item that was benefiting from that. So you have this tale of 2 cities in our GTO business right now with capital markets coming over higher comps, facing the lower license revenue that I'll remind you was a grow over an issue, an uptick in Q3 '20 revenues, but wealth management seeing the benefit of the trade volumes that we saw this quarter.

Got you. And while it might be a little early, but do you expect any changes in regulatory focus under the new administration and the Chairman of SEC?

Yes. Puneet, it's Tim. Yes. First of all, let me just restate what I said before, which is we always work to support the SEC's mission to inform and protect investors, and we've done that for a long time, and we expect to continue to do that. I think when we hear about the focus of the next SEC, certainly, one of the things at the top of the list that we hear about in the market is around ESG and related disclosures for ESG, and how that may be an early focus. And we certainly stand ready to assist and to play the role that we play. I think it's too soon to tell that the business opportunity, but it certainly appears to be an area of focus. I think the other questions are really around the initiatives from the previous administration and the extent to which they will continue or not. We -- there's a lot of conversation about end-to-end vote confirmation. We're hearing that could remain an area of focus, and that's certainly something that we've been a supporter of. We shared with the SEC the result of a successful pilot that we've done with the top 100 issuers showing how that can work. On virtual shareholder meetings, there have been discussions about making the beneficial voting available to all providers, which we've done this season via APIs, universal proxy as an area we support and we stand ready to help. There's a working group that recommended changes there. There were discussions about OBO-NOBO and a working group that really isn't making a recommendation. And then there's a whole conversation around streamlined communications in funds, which we're focused with the previous SEC is unclear. That's going to be a focus for the new leadership, but we support the recommendations, and we'll continue to work to strengthen the industry for the long term. So lots of different things that were on the agenda, that are a little less clear in terms of what their forward momentum is. Certainly, the new things we hear about relate to ESG.

The next question comes from Andrew Bauch of Wolfe Research.

This is Andrew on behalf of Darrin. Tim, you mentioned in your prepared remarks that you're expecting 25% stock record growth in the fourth quarter. Could you unpack this a little bit? I mean obviously, that's an impressive acceleration considering the level of growth you're at today. And if I'm not mistaken, I believe the comps get harder in that regard.

Yes. Andrew, it's a great question, and it's definitely an interesting time. And we're -- just more broadly, we're seeing this, as I talked about in my prepared remarks, just as part of a long-term trend of the democratization of investing. And what we're looking at as we look into the fourth quarter is -- and we do have a fair bit of visibility at this stage into what's going to happen in the fourth quarter because there's a lag between when the records come together and when they go out. So we have testing, but we have good visibility. What I'd say is just -- what we're seeing is very, very broad-based growth. We're seeing it across all different types of issuers. We're seeing it across all different types of broker-dealers, although stronger in online broker-dealers. We're seeing it across industries and we're seeing it across both managed accounts and other accounts, and if not, just focused on meme stock. So like a lot of the things that you've been reading in other places in the press, this rise in equity holdings and rise in participation in the market is very significant. We're also seeing, to a less degree but good interim, record growth, which is driven by stronger inflows and healthy markets. So we're seeing very strong Q4. We often get asked about when the market changes or if the market changes, what would be the impact of that? And we have -- we've done a lot of work going back over the last 25 years of history and events like '99 and '09 and even last spring. And what that would really tell us is that growth flattens, could be slightly negative, but that equity investors tend to stay invested and it is -- sort of reaches a new plateau. So we do think that these levels of holdership are sustainable. We're not modeling the same level of growth in the future, clearly. But we see a return to sort of more sort of normalized growth in the future.

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Gokey for any closing remarks.

Thank you, and thank you all for joining us this morning. As I think you can tell, this is just an exciting time to be at Broadridge. Our business is strong. We're on our front foot. We're investing for growth, and we're on track to deliver at the higher end of our 3-year objectives. We appreciate your interest and ownership. And we look forward to speaking to you again in 3 months to tell you about our fourth quarter results and to share our guidance for fiscal year '22. Thanks again.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.