Good day and welcome to the Broadridge First Quarter 2023 Earnings Conference Call. [Operator Instructions] And please note that this event is being recorded. I would now like to turn the conference over to Edings Thibault, Head of Investor Relations. Please go ahead, sir.

Thank you, Cole. Good morning, everybody and welcome to Broadridge’s 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.com. Joining me on the call this morning are Tim Gokey, our CEO; and our CFO, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. One, we will be making forward-looking statements on today’s call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K. Two, 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 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 change is the final step in aligning our foreign currency reporting with industry standards and is reflected in our first quarter report. From this point forward, our earnings materials were 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. With that out of the way, let me now turn the call over to Tim Gokey. Tim?

Edings, thank you very much. Good morning, everyone. I am pleased to be here to discuss our strong start to fiscal ‘23. There is a lot to cover. So I’ll walk through our strong results for the quarter, provide a business overview and then share some thoughts on why Broadridge is well-positioned to drive profitable growth over the balance of fiscal ‘23 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 positions. Given our forward testing, we have visibility about 6 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 and asset manager clients also continue 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 $0.84, 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 remains strong. We continue to benefit from increasing investor participation, which is fueling very healthy stock record growth. After a record sales year in fiscal ‘22, we are off to a good start to fiscal ‘23, 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 are enabling increasing shareholder engagement for our fund clients. In capital markets, we are delivering on trading innovation and global simplification. And in wealth, we are seeing a…

Thank you, Tim and good morning everyone. I am pleased to be here to discuss the results from another strong quarter, where both top line growth and earnings were modestly ahead of our expectations. Though 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 and the challenging macroeconomic environment gives us the confidence to reaffirm our fiscal ‘23 guidance. As you can see from the financial summary on Slide 6, recurring revenues rose to $806 million, up 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. AOI margins of 11.7% were also impacted by the continued drag from higher distribution revenues and adjusted EPS was $0.84. 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 BTCS. I’ll also note that while higher interest rates offset operating income, the interest rate impact to Broadridge is offset by higher float income in our ICS segment. Let’s get into the details of these results, starting with recurring revenue on Slide 7. Recurring revenues grew to $806 million in Q1 ‘23 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% 3-year growth objective. Let’s now turn to Slide 8 to look at the growth across our ICS and GTO segments. We continue to see strong growth…

Thank you [Operator Instructions] And our first question today will come from David Togut with Evercore ISI. Please go ahead.

Thank you. Good morning. Given the divergence between the strong revenue growth of 8% and the 15% decline in operating income, could you dig into your investment spending plans for this year, particularly as they affect both the income statement and 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 Edmund take that on in some detail. First of all, good morning, thank you for the question. I think I just want to reiterate that our results today were – this quarter were very much in line with our expectations, a little bit above. And we made investments at the end of last year that we knew would make the expense growth for this quarter a little bit stronger. And so we don’t see any surprise here. We do see a more evenly paced year this year, but I’ll let Edmund comment on that.

David, thank you for the question. I want to reiterate a few points to add on to 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 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 7-year average at $63 million, but we’re coming off an unusually high Q1 ‘22. That’s the first item. And 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 of those investments into fiscal ‘23. As 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 quarters, 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 are coming off a very tough economic environment in the last 2 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 all of that, which is the – that we are expecting 25% of earnings in the first half.

Appreciate that. Just as a quick follow-up. Edmund, 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 in the wealth management tech business. Can you shed any additional light on the pipeline? Any line of sight you have into other large signings beyond UBS a few years ago?

That’s a great question. Let me make one or two comments, and I will turn it over to Tim to maybe talk about the pipeline 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’s returns. That is what gives me confidence that we are making the right investment in this platform and the progress that we have seen with it going live and the pipeline that Tim can speak about is giving me confidence in being accretive to Broadridge and driving us back to the types of historical returns that we have had before. But let me turn it over to Tim.

Yes. Look, we continue to see the wealth platform as very much as a long-term positive for Broadridge. It’s doing three things for us. First of all, it’s definitely deepening our relationship with UBS, who we view as a long-term global winner. They have been a long-term partner. It says a lot about the work that we are doing together that at this point in 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 wealth tech market, which obviously is why we are doing this. Wealth tech is a rapidly growing space. I saw some recent research in which 70% of wealth management firms are planning to increase their technology spend in the next 2 years. Others are investing, but we believe we have some real advantages. And it’s key part of our transformation as a company to being a modern SaaS provider. All this work is in the cloud. The key components like the workstation, API gateway integration layer are foundational to our overall tech roadmap. So, that’s we are excited about the progress that we are reporting today. And David, we really are seeing this as client discussions move from talking to showing. And when you are able to show real live software, it makes us very much of a difference in the conversation. I am just – I am thinking of a client conversation we are involved with now where the clients asked us to set up a sandbox with their data to have them be able to play with the applications, and we are able to do that in a matter of weeks. And that makes a big difference in the conversations. That’s why we are seeing the 25% increase in pipeline. And so as we look forward here, I think the markers of success are going to be going live with UBS, seeing sustained growth over time in our wealth management business. Now, these sales will start to convert to revenue not in this year. So, we are not talking about this year, we are 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 should look for, and we are confident we are going to get good returns here.

Thank you.

And our next question will come from Puneet Jain with JPMorgan. Please go ahead.

Hello. Thanks for taking my question. Can you comment on velocity of deals in the pipeline, specifically for large deals? Are you seeing any kind of pause or delays from clients given like that the macro uncertainty in signing on new work?

Yes. Puneet, it’s Tim. Thanks for that question and it is an interesting one. I think that we are seeing a strong appetite for continued digitization and for moving platforms forward. I think we are also seeing a real healthy balance between internal builds versus mutualization. I think that as the world moves to more agile, people are thinking less about large-scale multiyear transformational projects and more about how they can step into things in ways that take – are quicker to come on and add value in a way that they can see. And I think we are seeing that both in North America and in Europe. When you look at our mix of sales last year, which was a record. It didn’t have any of those large transformational deals in it. So, I think we are – and I think that’s what we are seeing now is some nice chunky deals. But we are seeing not 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 where they are trying to think about that. And those – some of those could be larger. But on the technology side, it tends to be a sequence of really nice deals, and we like the velocity of that versus the bigger ones.

I will just add one point to quantify and help emphasize the point that Tim made, Puneet and that is that roughly about three quarters of our deals are less than $2 million deals, and that’s been a trend that we have 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.

Got it. And how is your appetite to do large deals changed, especially the deals that require costs sitting on your balance sheet? How has your appetite changed as a result of rising rate environment? Should we expect any changes in number or types of deals you pursue as a result of that?

Yes. I think Puneet, what I would say is, certainly, if you think about the work we are doing with UBS, I think that is something that is truly exceptional is to put us into a whole space and not something that we are thinking about something that is like that. It is and having built the platform and built the technology, we see additional deals being able to come on with much, much lower incremental investment.

Got it. Thank you.

[Operator Instructions] Our next question will come from Darrin Peller with Wolfe Research. Please go ahead.

Hey guys. Listen, maybe we start off just with the growth in the regulatory side and the position growth trends. I guess first of all, I was a little confused, maybe I missed it in 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% for mutual fund. It looks pretty decent on the side on that trend line. And I would 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 are seeing with retail investors and some of the changing trends. Just curious your thoughts medium-term on that for us. Thanks guys.

Yes. On the – just on the variance between physician growth and revenue, there is just some timing in there. And I will let Edmund expound on that, but that’s not, Darrin, I think something that is anything significant inside that. But on the bigger question around position growth, it remains robust based on long-term trends and recent innovations that we believe are here to stay. So, it certainly starts with the long-term trend of increasing investor participation and diversification, which as you know, is 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 have seen over the last decade. Obviously, we have seen in the last couple of years, innovations around free trading and app-based investing in a new generation of investors, which has caused a real step change in the past 2 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 pass-through voting to support continued albeit what we think will be a more normalized growth going forward. So, it is – I think we have – all have had a question about as we move into a different investing environment, what would we see with the position growth. But as we have increasing visibility into the second half of the fiscal year, we are seeing this very normalized mid to high-single digit growth.

Just tactically on the first part of your question, in terms of the position growth at 9% in the regulatory have a lower percentage, the way I think about position growth, Derek, is – Darrin, is same-store sales. If you went to proxy in Q1 last year and you went Q1 this year, then you are in that position growth number. If you went Q1 last year, but Q2 this year, you are 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, it doesn’t matter which quarter you are coming in, we are 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 event-driven revenue timing could have an 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, the operating leverage of some of the business should kick in also. So, maybe you could just help us with the puts and takes.

Yes. I do – and 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 what 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 get into our seasonally heavier quarters with more revenue coming on, those things are coming on with incremental margins, and we see the expansion in the overall adjusted operating income margin as we move forward through the three quarters.

Got it. Thanks guys.

And our next question will come from Patrick O’Shaughnessy with Raymond James. Please go ahead. Patrick O’Shaughnessy: Hey. Good morning guys. So, the wealth management sales pipeline that you have 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 component solutions that you are bringing to market?

Sure, Patrick. It’s a mix of both. I would say it is more on the component side. There are some firms that aren’t of the same size and scale of someone like the UBS that are looking at full solutions. And we would imagine those, again, stepping in more in a sequential kind of way than in the past. But then there are also larger firms looking at the components. And I think if you are to look across the entire pipeline, it would be much more weighted to the component side. Patrick O’Shaughnessy: Got it.

And I think – and if I can just add on to that, which is I think one of our real learnings over the couple of years, the years we have been building this is, as we have built this in a very open way with all API-driven. And the original vision, as you recall, was really to create based on our back office, 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 and 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 – whether it’s the back office or whether it’s the integration layer out to help people tie together what they are doing and then take some of our applications on top of that is, I think a real opportunity. Patrick O’Shaughnessy: Got it. Appreciate that detail. And then as 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, etcetera?

Yes. I mean we continue to have a very consistent capital allocation policy, where we are balancing return to – return of capital to shareholders with our investments for growth, with continuing to maintain an investment-grade credit rating. So, as I think about the near-term with leverage rates that are higher than where we have 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 are focused on that. But as free cash flow conversion increases going into fiscal ‘24, I think it gives us more capacity to return capital to shareholders to think about other investments, whether internal or external on the – back in line with what our historical practice has been smaller types of acquisitions, I think that’s going to be the focus for us with the free cash flow conversion. Patrick O’Shaughnessy: Great. Thank you.

And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. End of Q&A:

Yes. It is Tim, I just want to thank everyone for joining today. I want to just reiterate how pleased we are with the strong results for the first quarter, strong outlook for the remaining of the year, the fact we are making good progress on our key investments that our business is resilient in an uncertain environment. And really just most important, our confidence in long-term growth, strong 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.