Good morning, and welcome to the Broadridge Fiscal Third Quarter 2023 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, Kate. And good morning, everybody, and welcome to Broadridge's Third Quarter Fiscal Year 2023 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 this morning are Tim Gokey, our CEO; and our CFO, Edmund Reese. Before I turn the call over to Tim, let me make 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'll 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 in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thanks, Edings. Good morning, and thank you for joining us. I'm pleased to be here to review our strong third quarter results. I'll start with a quick summary and key headlines followed by a review of our business. Then I'll close with some thoughts on why I think fiscal '23 has been such a strong year for Broadridge across key operating, strategic and financial milestones and why that positions us well for the future. Let's get started on Slide 3. First, Broadridge delivered another strong quarter. Recurring revenue rose 9% in constant currency, with double-digit growth in our governance business, and strong growth in GTO. Debt revenue growth helped drive 10% growth in adjusted operating income and 6% growth in adjusted EPS. Importantly, those earnings translated to Street's strong free cash flow, which nearly tripled year-over-year as we continue to step down our wealth platform investments. Second, investor participation remains strong. Q3 equity position growth was 10%, and fund position growth was 6%, with over 90% of equity record dates completed through last week, we continue to expect position growth to be in the high single digits for fiscal '23, underlining the power of the trends driving that growth. Third, Broadridge continues to execute across governance, capital markets and wealth. The investments we have made to innovate in our governance business to put in place front-to-back capabilities in capital markets and to build a transformational wealth platform suite are resonating with clients. Fourth, as we move through our seasonally large fourth quarter, Broadridge is on track to deliver another year of steady top and bottom-line growth. We expect to report recurring revenue growth at the higher end of our 6% to 9% guidance range. And we are reaffirming our outlook for continued margin expansion, and 7% to 11% adjusted EPS…

Well, thank you, Tim. And good morning, everyone. Today, I am going to review our Q3 financial performance. I want to provide some additional insights on our rising free cash flow conversion. And I'll outline the drivers of our Q4 growth, which give us confidence in our recurring revenue and adjusted EPS guidance for fiscal '23. Starting with Q3, I am pleased to share the results from another strong quarter, where recurring revenue growth and continued disciplined expense management drove mid-single-digit adjusted EPS growth despite weaker event-driven revenue in the challenging macroeconomic environment. We continue to see robust organic recurring revenue growth from converting our sales backlog to revenue and healthy position growth. And as you can see from the financial summary on Slide 6, recurring revenue rose to over $1.1 billion, up 9% on a constant currency basis, all organic. Adjusted operating income increased 10% as we lapped elevated investments in fiscal '22 and realized the benefit from targeted cost actions that we initiated in Q4 '22, both of which more than offset the impact of lower event-driven revenue. AOI margins of 21% expanded 60 basis points and adjusted EPS rose 6% to $2.05. Finally, we delivered closed sales of $62 million, up 8% over Q3 '22. And I'll remind you that while higher interest expense partially offsets the operating income growth, the interest rate impact at the Broadridge level is fully offset by the higher float income in our ICS segment. On taxes, we continue to project an overall tax rate of approximately 21% for fiscal '23. And let's get into the details of the Q3 results, starting with recurring revenue on Slide 7. Recurring revenues grew 9% to $1.1 billion in Q3 '23 and was at the high end of our full year guidance range of 6%…

[Operator Instructions] The first question is from David Togut of Evercore ISI.

Could you just go perhaps a level deeper, Tim, on some of the delays you're seeing in new bookings, particularly why you think some of the longer sales cycles in Europe will kind of reach fruition over the next couple of quarters and not materially affect FY '24?

Yes, absolutely. Thank you, Dave. And we are -- when we look at our overall pipeline, it is stronger than it's ever been. And when we look at the quality of the conversations that we're having and the exciting, and in some cases, transformational opportunities we're pursuing, we just see continued ways that we can really make a big difference for the industry. So we really like the conversations we're in. And then at the same time, there is a lot going on in the world. And so there's that phase between when you have agreement on what you're doing and when you get all the contracting and everything done and that can expand or contract based on all the things that are going on in those particular institutions. There haven't been any opportunities that have gone away. And with -- and it's just one of the things we always do a lot of our sales in the fourth quarter, makes it very hard to predict exactly when things will come in. In the end, remember, as I know you well know, all of that adds to a backlog of projects which we then need to work through, we need to staff, put teams on and get going. And so whether something closes in June or it closes in July, it really has an immaterial impact on our revenue in the long run. So we're seeing great demand. We are really pleased, and we're really excited about the new solutions across each of the areas that I could go on about, but I won't. And so we'll just -- we'll play it by a year, but we did -- like others, we are seeing a lot of things going on in our clients. And so we're working hard to get there.

Appreciate that. And just as a follow-up, Edmund, I've received some investor questions about the implied fourth quarter guide, perhaps suggesting a steeper-than-normal ramp versus the March quarter. And I know you did call out kind of extensive testing pointing to a strong proxy season. But is there anything else in the implied fourth quarter guide that would suggest a steeper June versus March quarter ramp?

So David, thanks for the question. And I think you hit on one important key component, and that is the position growth from equities. And we gave -- we've been saying the entire year that, that would be mid- to high single-digit growth and now having 92% of the record data in strong, strong visibility for this year and we can point directly to approximately 8%, right in line with what we've been saying all year. The other component, though, to call out, and I did mention this in the remarks, is on our continued ability to drive operating expansion in the business. We had this operating leverage in both of our businesses. So as we bring on new revenue, we see benefit there. We had 60 basis points of expansion in Q3, right in line with our expectations and we expect that operating leverage to continue to drive impact in Q4. And I know you'll remember that in Q4 '22, we announced some targeted actions. So we continue to rightsize our real estate footprint, particularly as we think about the new hybrid work environment. We slowed our hiring. We took other targeted cost actions as well. And we expect to see those benefits come to fruition in our Q4 '23 as well. So when you add that equity position growth and you add the operating leverage in our business and the explicit actions that we are taking for Q4 '23, that gives us high confidence that we'll be able to have the margin expansion and drive the earnings growth for the full year.

The next question is from Dan Perlin of RBC.

I wanted to just touch base on the free cash flow conversion. It was great to see that, that's ramping back to kind of 63%. The question is, how do we think about the pacing of that kind of from here given the heavy lift is kind of behind us. Anything that you can help us kind of reconcile as you think about it getting back to closer to 100% free cash flow conversion?

Yes. I mean -- so thanks, good to have you join the call, Dan, first of all.

Good to be here.

What I would say is you've seen the sequential uptick 48% from fiscal '22, which had our peak level of investment in it. We said that, that client platform spend was going to be lower beginning in Q2 of '23 after going through our peak quarter of Q1, and we saw that client platform spend was down 50% in Q3 -- in Q2 and is down 35% in Q3, and I expect to see the continued decline year-over-year as we go into Q4 as well. As a result, you've seen the free cash flow conversion tick up 10 points over the last 2 quarters and sequentially in each of those two quarters. So as that client platform spend drops, we'll continue to see improvement. We're not yet ready to give exactly what that number is for fiscal '23. But I think the trend you see gives us -- is what gives us high confidence that we'll continue to see it significantly better than fiscal year '22. And as we've been saying this entire time trending towards our more historical levels as we go into Q4 '24 -- as we go into fiscal year '24.

Yes. That's great. And just as a -- my follow-up is really it was a nice quarter, up 10% on a recurring basis. I'm wondering -- you called out a pipeline, I think 40%. So the demand sounds good there. I'm wondering, are there things or I should say, modules in particular, that clients are gravitating towards? Is it just they want to take books of record? Is it order management? Is your alternatives? And you've got a lot of them in this platform. I'm just wondering where, if anything, they're kind of finding the most interest these days?

Yes. Dan, thank you very much. And also this is Tim. Also welcome to the call. Thank you. Good to have you here. I think there are -- as we've said in past calls, it is we really like the evolution of how we're going to market in terms of a componentized approach, which really allows clients to, as we call it, transform on their terms, which means really take a North Star and put in place solutions that are on the direction to that North Star that create value along the way. We are seeing a lot of interest in some of the foundational technology, the client and relationship master and that really sort of pulls things together with our onboarding solution. We're seeing strong interest in corporate actions and have multiple firms in the pipeline there. That's been a sore point for the industry for some time. And in addition to the components of the existing platform, they are all the existing solutions we had, which -- things like securities-based lending and other solutions to digital marketing that are -- have strong demand as well. So it's been nice to see the growth this quarter but really more importantly, to see how the pipeline is building over time.

The next question is from Peter Heckmann of D.A. Davidson.

I just wanted to see if you had any additional thoughts on tailored shareholder reports and where Broadridge might see opportunity to offset some of the revenue loss related to notice and access.

Yes, Peter, thank you very much. And a very important topic. And as you know, in the tailored shareholder reports, we'll really enable deeper engagement by investors and they're going to drive digitization. And we think it's something that is ultimately good for funds and makes Broadridge more valuable to its clients. And it is part of a long series of innovations that the industry has undertaken that have been really good for investors and good for the industry. Now as we have talked about, it does create challenges for ourselves with some -- about $30 million of revenue that will go away and challenges for funds because the number of -- basically the number of SKUs that they have since these reports need to be tailored by share class means the number of versions has dramatically increased. And I think I talked last quarter about one fund, where it's going from maybe just under 200 reports to over 1,000. So a real challenge for the industry. We are creating what we believe is a really unique industry solution that will significantly address the challenges that funds face. From a distribution standpoint, while 80% of this is digital, there is still -- 20% of a line is -- there's still a fair bit of print out there. And we're creating a unique print on demand solution that really eliminates the need to inventory, these literally tens of thousands of SKUs and create tens of millions in postal savings for funds by being able to combine mailings and print directly a client that's receiving something print. Instead of 5 different envelopes, print 5 things right off, put them in an envelope in one shot. And so that is a solution that really funds are seeing a lot of power in. And then this also creates a really important opposition -- opportunity in composition. And composition has really been something that's been largely performed by one of our competitors in the industry, hasn't been an area that we have strongly competed in. But a couple of years ago, we bought a composition engine, and it is uniquely suited to help funds solve the problem of having many versions of the same document and of delivering data directly into composed documents, whether those are physically delivered or digitally delivered. And so by putting the composition engine together with the unique print on demand, it's a really unique end-to-end solution that can really simplify this for our clients. So we're actively demoing that end-to-end solution to our clients. The reception has been very positive. And we think with that combination, we should be able to offset or more the revenue that we see.

That's helpful. Helpful insight. And then can you just remind us in terms of the -- I think is it the retirement account trading business that generates the float? And remind us just some of the mechanics there and kind of what type of flow we're talking about.

Yes. Thank you. So yes, in our retirement business, one of the businesses in there is trading mutual funds on behalf typically of smaller plans and working on behalf of the record keeper to do the fund trading on their behalf. And that does generate float. It's fairly significant. And so as interest rates go up, we get the benefit of that. Our team has been extremely effective. I think the flow-through from interest rates to us has been something in the order of 95%. And so that is something that has really been a counterbalance so that as we have seen interest rates go up on the debt that we have, we've gotten the counterbalancing here. Now I'll say, certainly, as we pay down the debt as we're talking to, that balance will shift positively for us.

The next question is from Darrin Peller of Wolfe Research.

So I mean it's great to see the progress on the wealth side and the build-out, when we look at the free cash conversion, I know you talked -- I think it was 100% you said you expected to get to in fiscal '24 last quarter. You may be more reticent to say about guidance now. But any just directional where we see that going in the next couple of years in terms of free cash conversion? And then really as a follow-up on the same business. Again, I mean, you scaled it out. Can you just help us understand it should be a much better operating leverage as you bring on new business now that you've done the heavy lifting, right? And maybe just give us a sense of what it takes to bring on new customers now beyond UBS once we get that going.

Yes. Absolutely. Darrin, let me just start with the second part first. Obviously, this, as we have built, the platform has been a significant investment for us. And as we look going forward in terms of bringing on additional clients, we would -- I wouldn't say that the investment to bring on additional clients is 0, but we expect to be much, much lower. It's not the platform build. There's just really the data conversion and things like that. It's also -- since it's a componentized approach, the testing is dramatically simpler. And so the investment to bring on new clients will look a lot more like our regular GTO business, which does have pretty attractive incremental margins. So we do expect good incremental margins on those. Let me come to your free cash flow topic. And let me just wrap in something to that. So -- and just to be clear, I didn't -- none of us said it will be 100% in '24. What we just said is historically, it has been around that number, and we will be going to more historic. So it's a little bit like the transitive property of a equals to b, but we're not committing to that now, and it's a little too early in the cycle for that. I do want to call your attention, though, I think that as we return to high free cash flow conversion, what it really does for us on the capital allocation side. And our capital allocation is really unchanged from what it has been, but the result of that can be different. So we're committed to investment-grade credit rating. We're committed to growing a dividend to then funding high-return internal investments, making high-value tuck-in M&A and then not letting capital build up on the balance sheet to return excess to shareholders. And so we're really at an inflection point now with 2 things going on as we enter '24. So first, we do expect to return to more historic free cash flow conversion. And second, as we exit '23, we're trending strongly towards our committed 2.5x leverage, which means a lot less need for debt paydown. So therefore, and when we get there, which we're not there yet, but when we get there, we'll have a lot more flexibility to return to our historic approach on capital allocation that really balances share buybacks and strategic tuck-in M&A. And as I mentioned last quarter, we expect an outcome of all of that to drive increased ROIC to the mid- to high teens over the medium term. So we do think that this -- we did want to make an emphasis on the cash flow point in this quarter because we do think we're sort of turning a page here and moving to something that people will like going forward.

Okay. That's really helpful. Just a quick follow-up. I mean, when -- maybe preliminary, but any early thoughts on what UBS and Crédit Suisse coming together means for that business? And then actually, I did want to touch on position growth also. I mean, I think it accelerated a point when we look at equity position growth. When you think about what the normal rate of growth there is, I mean, it obviously has been strong for, like you said, a couple of years now. And so -- just maybe reiterate, are we in the new norm now? Or what you think we can see over the next 12 months, assuming savings rates stay relatively -- I guess, depending on what savings rates and unemployment levels do, et cetera?

Sure. Let me take the Crédit Suisse, UBS piece first. And to be clear, the transaction hasn't closed, UBS has not completed its integration plan. So all of this is very preliminary. But if you look at the footprint of the 2 institutions and how it lines up versus us, first of all, on the wealth side, Crédit Suisse does not have a significant wealth business in the United States. There's very little impact there. I will note that UBS has reaffirmed that continuing to grow U.S. wealth will be a strategic priority for UBS. And so in terms of the work that we're doing with them on the wealth side, that will continue. And we've seen really no slowdown in their focus on that. The other side of things is the capital market side. And as you may know, UBS is an important client for us on the capital market side in North America. Crédit Suisse is as not a client for us on that side. And so that's an opportunity. UBS does plan what they've said certainly as a sort of speculation. What they said is that they will be reducing the size of that business in Crédit Suisse. But that said, whatever is left. And again, I don't have any specific information on this, but it would be logical for them to try to consolidate infrastructure and to bring that on to the Broadridge infrastructure. So we think that will be a modest uptick for us. So as we look at that overall transaction, we're seeing it as a modest uptick. Then on to position growth, it's a bit of a two-fold question there, Darrin. But on to position growth, it has been elevated the past 2 years, and investors have wondered if we'd see positions decline…

The next question is from James Faucette of Morgan Stanley.

Appreciate your comments on capital allocation and how you expect that to change or return to previous uses. I'm just wondering on particularly acquisitions. We saw acquisition of one of your BTCS competitors in SimCorp over the past week? And how does that impact your thinking on acquisitions generally and how should we be thinking about the assets you could be targeting either by geography or product, et cetera?

Sure. James, thank you. And I think, first of all, relative to Deutsche Börse and SimCorp coming together, I think that is -- that has relatively low impact on us. We almost never compete with SimCorp, and they have an interesting theory about putting their data assets together with essentially a sort of a back-office product, and we'll see how that plays. But we don't really compete directly with them. So I don't see it any direct competitive impact. In terms of how we think about the market, I think it has been somewhat fortuitous and this time that we've been out of the market that there's really been very little activity. I think most people are predicting that there will be some increased activity over the next 12 months. At the same time, I think that asset levels or asset pricing is still pretty elevated despite the downturn. And so I think you see us being pretty selective with a pretty high bar sort of irrespective of the avenue. We really look for things where we are sort of uniquely the best owner. If you think about the kinds of assets that we would be interested in if they were to become available, obviously, we've done a lot of investment over the past few years on the GTO side of the business. And there are a lot of opportunities on the ICS side that we'd be looking for. So I think that's what you'd see. And but if that's not the right thing, then we'll return on new shareholders.

And the only thing I'd add to what Tim said, which was spot on, James, is that we continue to have our revenue growth model focused on organic growth. We drive 5 to 7 points of our recurring revenue from organic growth drivers. And if we find, as Tim just said, the right sort of tuck-in strategic fit, then we could expect to see 1 to 2 points of growth from that.

Got it. And then I just want to drill down a little bit more on the UBS, Crédit Suisse situation, particularly as it relates to any updates that you might have for us around ACV. I think previously, you've been targeting around $100 million or so once we have go live in the first quarter of fiscal '24, do you still expect that quarterly run rate to be in that same range? And I guess, I know there's a lot of moving pieces over there right now. But when -- I guess based on previous experience, how long should we expect before you can get a more concrete or clear view on where that should end up and where the opportunities may or may not lie?

So let me start, James, and Tim might jump in here. As we just said in the prepared remarks, we are now complete with the development and the testing of it and still on track to go live in this calendar year and start to recognize revenue in fiscal -- in our first quarter fiscal '24. And when we finalize that rollout plan with them, we'll share more specifics on the economics of it. As we said before, we'll recognize that revenue in fiscal '24 in the first quarter of that. It will be dilutive to us. As Tim just said, we have a very strong pipeline. We'll be able to bring on more sales that are at very accretive margins to us to help us get back to the returns that we've historically seen in our rollout. And so that's what we're focused on now, and we'll share more as we finalize the plans with UBS.

Yes. I think the only thing I'd add to that is just qualitatively, as UBS has shifted to this more agile modular approach where they are implementing in phases, when the revenue comes on, it will be less than that $100 million number and not dramatically, but it will be less and but also the investment in the amortization will be less, and we'll be able to lay that out when we can.

The next question is from Puneet Jain of JPMorgan.

I just had like a question on closed sales, like the lowered expectations for this year. Like is that something you would attribute to a weak macro? Like are you seeing any, like the clients delaying decision-making like in your pipeline?

Sure. Sure, Puneet. I think that -- I think part of the good news is that our clients are continuing to prioritize their technology spend. And I think they view -- in many cases, they view that as table stakes to continue to drive their business forward. And so it's interesting that we haven't really seen any decline in the volume of conversations. And so that's what makes us believe that this is more of a timing issue. Is it weak macro? Is it just the number of other moving parts that they have? It's hard for us to untangle those. But it's -- what we're heartened by is that the conversations continue to be very positive.

Got it. And then on the Q4 guidance, the implied guidance for Q4, what should we expect for contribution from internal growth, like the trade volume, record growth versus new sales contribution?

So Puneet, we've continued to see balanced growth across those 2 items, not just this year, but historically, over the past few years, balanced growth, half of it coming from converting the sales backlog, that Tim mentioned earlier, to revenue. We saw 4 points from that in this quarter and the other half coming from the position growth that we've seen and other trading growth in our GTO business. In this particular quarter, we saw 5 points coming from that. And I think you're going to continue to see that same balance of contribution from those 2 areas as we move forward into Q4 and again, as I mentioned to David earlier, I think our -- the actions that we've taken on the expense management side of it will play a big role in our ability to be able to hit the Q4 objective as well.

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

Thank you, operator, and thank you, everyone, who has joined us today. I hope, as you can tell, we're excited about our progress against our long-term objectives and about the way those are playing out within this year and how that sets us up for the future. We are making important progress on our key strategic milestones across each of our businesses of governance, capital markets and wealth. We're seeing the benefits of that in our business results, and we're seeing the benefits of that in really increasingly strong free cash flow. So thank you very much for your interest in Broadridge. We look forward to reporting the results of another strong and consistent year to you when we meet in August. Thank you.

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