Good morning, and welcome to the Broadridge Financial Solutions First Quarter and Fiscal Year 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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 first quarter fiscal year 2024 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'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?

Thank you, Edings, and good morning. I'm pleased to be here to discuss our strong start to fiscal 2024. Clearly, the economy and our world remain in a volatile and difficult place. Despite the uncertain economic environment, our business continued to perform well in the first quarter, which speaks to the long-term trends and needs driving our growth as well as the strength of our business model and the execution of our team. I'll start with the headlines. First, Broadridge reported strong financial results. Recurring revenue grew 8%, all organic, with strong growth across governance, capital markets and wealth. Adjusted EPS rose 30% driven by strong recurring revenue growth, timing of event-driven fees and continued expense discipline. After a slower finish to last fiscal year, closed sales rose $19 million to a first quarter record of $48 million. Second, while markets have remained uneven. Continued growth in investor participation drove equity and fund position growth of 8% and 3%, respectively. Third, we continue to execute our strategy to enable our clients to democratize investing, simplify and innovate trading and modernize wealth management. That execution is driving our results in the form of strong sales in our Government Solutions and strong performance of BTCS, and a growing pipeline in our Wealth Management business among many examples. Fourth, our commitment to balance capital allocation has always been a key part of our value creation strategy. In recent years, we've invested heavily to build out our wealth and capital markets platform capabilities. That investment is moderating. And in fiscal 2023, we repaid a portion of the debt from our BTCS acquisition and ended the year at our target leverage. Now we're returning to our more historical mix of investment and capital allocation. Type-4 investments declined significantly from last year's level, and we repurchased…

Thank you, Tim. And thank you, in particular, for those comments on Bob. There is no doubt that he will be missed. Good morning, everyone. I’m really pleased to be here to discuss the results from another strong quarter and a strong start to fiscal 2024. Before reviewing this quarter’s results, let me share a few key points. First, Broadridge delivered strong top line growth, led by strong recurring revenue in line with our expectations and higher event driven revenue. Second, and as a result, we expect to generate approximately 25% of adjusted EPS in the first half of fiscal 2024. Third, we are reaffirming our fiscal 2024 guidance. And finally, we resumed share repurchases in Q1 as we are confident in our ability to drive 100% free cash flow conversion and return more capital to shareholders. As you can see from the financial summary on Slide 6, recurring revenues rose to $871 million, up 8% on a constant currency basis, all organic. Adjusted operating income increased 33% and AOI margin expanded 220 basis points to 13.9%. Adjusted EPS was up 30% to $1.09. And I’ll remind you that while higher interest expense partially offsets operating income growth, the interest rate impact at the Broadridge level is fully offset by higher float income in our ICS segment. Continuing with the results. We delivered closed sales of $48 million, up $19 million over Q1 2023. And finally, I will note again that we repurchased $150 million of Broadridge shares as part of our balanced capital allocation model. Let’s get into the details of these results, starting with recurring revenue on Slide 7. Recurring revenues grew 8% to $871 million in Q1 2024 and was at the higher end of our full year guidance range of 6% to 9%. Our recurring revenue…

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

Thank you. Good morning. Good to see the strong start to fiscal 2024. Looks like you’re running at about 3x the EPS growth targeted for the year as a whole, 30% versus 8% to 12%. Granted, 1Q is your smallest quarter of the year, and fourth quarter is the most important. Can you unpack the drivers of outperformance between recurring elements, which seem to be expense discipline, recurring revenue growth and some that are non-recurring, like event driven fees and obviously E-Trade was on your system perhaps a little longer than anticipated. But it looks like you’re on track to outperform versus your annual guide. What’s keeping you a little more conservative?

David, good morning to you. Thanks for joining. You asked the question and answered it within your own question. You did a very good job of that. And you said it exactly. I’ll start with one of the points you made, that Q1 is really a small quarter for us. And you know well that our focus is on driving medium to long-term growth and in the short-term meeting our commitments. In the short-term we’re focused on annual growth, and we run the company as an annual growth company. And over the last 10 years, you’ve seen, as I said in my remarks that roughly about 25% of our earnings happened in the first half of the year that’s given the strong proxy season in the back half of the year. And I think 2024 will be no different. And to the question that you ask, it is some of the non-recurring items that’s driving that type of performance. Specifically, in Q2, you’ll see more normalized event driven revenue as we talked about. We said in Q4 that we expected some of the pent-up demand from 2023 coming into 2024, and that’s exactly what we saw. It will be more normalized as we go through the rest of the year. You’ll see the full impact another non-recurring item of converting E-Trade over to the Morgan Stanley platform. And within your question you made the final point that I think is important to point out here is that the more recurring drivers of growth are stable, both for this year and both for the long-term. And I’ll call those out as converting our backlog to revenue. That’s very stable. That drove, as you saw in my remarks, over 5 points of growth here. The position growth and our testing for that remains in line with our expectations both for equities and funds. And to your – another point you made the continued discipline on expense management to be able to get the operating leverage from the scale in our business, to be able to execute on the actions that we’ve taken as we evaluate our cost basis. Those things continue to help us have the kind of growth. I would not get too hung up, the final point you made on the growth in this particular quarter. But on a full year basis, we continue – nothing’s unusual here and we continue to feel very strong and confident about the full year guidance.

Appreciate that. Just as a quick follow-up. Good to see the improved bookings performance in Q1 after a somewhat soft second half of FY2023, despite the pipelines being strong last year. Was there anything that changed in particular in the first quarter that gives you a better line of sight to your full year bookings target? Or is it just some of these sales cycles just got over the goal line?

Yes, Dave, it’s Tim. And thank you for that question. Look, we were really pleased with record sales in Q1. I think as you have heard from others, sales cycles are lengthening, which did drive some slippage from Q4 into Q1. But I think as we look forward, one of the advantages that we feel is really the breadth of our product set, which enables us from a mixed perspective to benefit from a wide range of market conditions. And so we have many chances to ensure that we’re sort of part of the solution to the problems that our clients are facing at any given time. So right now we’re seeing more demand for components and solutions that are addressing cost or are driving near-term revenue less for transformational solutions at this time. But we’re seeing good demand across all three of our franchises. Our pipeline has never been higher. And so that’s why we confirmed the $280 million to $320 million for this year.

Understood. Thanks so much. And condolences on Bob’s passing. I remember him well from your Investor and Analyst Day’s.

Thanks, David.

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

Hey, just to follow-up, Tim and you addressed this in your answer to the last question. You’re talking about some of the components of the wealth management system. At least I think you’re referring to that when you said that the components that are more designed for cost efficiencies or cost savings are proving a little bit more popular. But could you just dig into that a little bit in more detail. Talk about some of the components in terms of relative demand and then the implementation cycles? Can some of the components go live fairly quickly? And then lastly, I didn’t hear you say it, but I think in the last quarter call you talked about perhaps $20 million to $30 million of new closed sales related to wealth management components. Do you think that’s still a good estimate?

Yes. Good. Peter, good morning. I would say, and we can talk about components across all of our franchises, but I think you were specifically asking a little bit more on the wealth side. And we really remain quite pleased with our progress on wealth. And obviously we began recognizing revenue from UBS in July. And on the components, we really started that marketing the components last spring with a really significant kick-off at the Securities Industry Conference, the CIFFA Conference in May, demoing live software, really being able to show clients working components. And so we’re sort of fully into selling mode on that. Our pipeline has built nicely and is quite a bit where it was a year ago. And we’re seeing – I think in the near-term, we’re seeing demand around things that can help drive advisor productivity. We’re seeing demand in corporate and class actions. We’re seeing demand around helping people process alternatives. So lots of things that are meeting some important needs that our clients have. So as I said, we now have clients – multiple clients live with at least one component and others in implementation. I think that shows that component approach is working. As you said, we are targeting $20 million to $30 million in incremental sales, and I think we’re on track to achieve that over time. So I think when you look at how we’re looking about our wealth strategy, we’re really assuming mostly these component sales within every few years, something a little bit larger that will boost sales in that year. But I think right now we’re focused on the component side.

Okay. Okay, that makes sense. And then just I didn’t hear you reference it. And certainly historically, Broadridge has been pretty active on M&A. But now with leverage back down below 2.5%, how do you view the M&A pipeline? And do you think we could still see a deal or two happen in fiscal 2024?

Yes, it is. I think if you look at the market there’s still a disconnect between buyers and sellers in terms of what the values are. So the landscape in terms of what is available is a little light, I would say. There are some interesting things that we are looking at. So I wouldn’t be surprised if we’re able to transact something in 2024. But the degree of pipeline and activity is definitely way below where it was a few years ago. I think one of the things, Peter, is that with the investments that we’ve made, we’re feeling really good about our ability to drive organic growth through organic investment. And so that balance between organic growth and M&A that may be a little bit different over the next few years than it was in past. But we will continue to look for the right opportunities that meet our criteria.

All right. That’s helpful, Tim. I appreciate it.

The next question is from Darrin Peller of Wolfe Research. Please go ahead.

Hey, guys. Thanks. Maybe we could jump in a little more to the components of the business, maybe just touching first on the communication side. I just want to make sure we understand. I know we saw strong growth in digital offset by slowing print. If you could just give us a little bit of an update on some of the additional color on print trends, sustainability of it and just broadly speaking, that’s a segment that is one that’s shown us some element of improvement obviously, since you – really, since you closed the deal, but it took a little while at first. So just give us a little more color on what you’re seeing there first, please.

Sure. Darrin, thank you very much. Thank you for that question. We really liked this quarter because we’re now beginning to see that conversion of print to digital that we’ve been talking about. So this quarter we had a significant client that went live on our next-generation digital solution and moved a lot of communications from print to digital. So they saved a ton of money, and their end clients and advisors are really happy with the new solution and are very engaged with it and seeing real upticks in satisfaction. So on the base of that, we saw lower print volumes on that client, but overall, we saw a double digit increase in our digital revenues and a double digit increase in profitability. So that really shows how this transition can work for us. So I do think – just stepping back a little bit, our main story is that continued flow towards digital. But I do have to put an asterisk on it, which is that we are continuing to see a lot of demand from companies that are seeking to rationalize their print facilities. And so there still is an opportunity sort of in that midterm to be the consolidation point for print, which we'll do and are happy to do as long as the digital comes with it so we get the transition over time. So longer term, we expect to see lower growth in print, with strong growth in digital and strong profitability growth, which is exactly what we saw in the first quarter. But there will be some bumps along the way where we have stronger print volume.

And then in the mean – and I'll just add, Darrin, you made a point in your question is worth highlighting that since the acquisition, we've continued to see margins expanding and low double-digit earnings growth as we execute on this strategy for print to digital that Tim just talked about. So we feel very good about that.

Quick follow-up just on the positional growth side, specifically on mutual fund, but maybe more – first more, just more broadly what you're seeing and what you're expecting on trends. You guys tend to have a lot of really good data as you always say, in terms of at least the next six months. So just remind us your conviction on what you're seeing now on that front broadly. But then specifically mutual funds, I think, were 3%, I think you said driven by passive – and so – if you could just add color on active mutual fund position trends here broadly and just couple that into the first question on overall position growth.

Yes, Darrin. Look, I think that the underlying trends on both numbers, both the equity side and the fund side are positive. And as we've talked about, that includes growth in managed accounts and then over time, things like direct indexing and pass-through voting. And we were certainly happy with the 8% record growth, which I know wasn't your question about what it was, but I have to repeat it. And that was really driven by the managed account side. On the fund side, where it was 3%, we have seen that be a little bit noisier quarter-to-quarter based on timing, and that is really what we think was going on this quarter. Sort of looking inside that, it's – there's good growth in money market funds, not surprisingly given sort of the volatility that is out there. And – but then as we look forward, I think the thing that really is giving us the confidence is the forward testing, which again, is showing the mid-high for equities and the mid single for funds. But really, the long-term trends we haven't really seen any change in those. So we're – that's why we're confirming where we are.

Okay, thanks a lot.

The next question is from Matthew Roswell of RBC Capital Markets. Please go ahead. Matthew, is your line muted?

Hopefully you can hear me now.

Yes.

Excellent, sorry about that. It's Matt Roswell on for Dan Perlin. Congratulations on a nice quarter. Just a couple of quick questions, hopefully. What was the FX impact in the quarter? And how should we think about it for the rest of the year?

Yes. Matt, that's – I'll just be quick on that one. In the quarter, on our recurring – it was not material on our recurring revenue, 15 basis points benefit to us. What we said when we gave guidance in Q4 is that we expected a modest 0.5 point benefit to earnings, and that's not us trying to do our own estimates of FX, but just looking at what current rates sit at today. And I think we're still largely in that range. If you look at our 10-K, and you'll see that a change in the U.S. dollar of 10% against the currencies that matter to our economics, primarily the pound, the Canadian dollar and increasingly with BTCS, the euro and the Swedish corona, there is about a $15 million impact on earnings. So that gives you some sense about what the overall impact can be, but we've been specific about what we think for fiscal 2024.

Okay. And then on the margin expansion for the remainder of the year, is there anything we should look out for in terms of either seasonality or grow over compared to last year?

And that's a great one to point out, Matt, because I think looking at the margins in any particular quarter is not – you should certainly be looking at that on a full year basis, given the timing of our investments and the timing of some things that are recurring versus nonrecurring? The short answer of what you should expect is that approximately 20%, which is margin expansion. And there's a couple of things going on there, right. There is setting aside the float income that we see in our ICS business, which is a benefit to the overall reported margin expansion but has no impact to our earnings because we have the interest expense that offsets that. The second component that you see impacting the reported rate is the distribution revenue, particularly with no margin postal rate increases in it that has no impact to our earnings. The impact of those two things together for the full year, we estimate to be dilutive by about 50 basis points and what we said is we'd be able to overcome that and continue to deliver margin expansion in the 50 basis points range absorbing the amortization associated with the Wealth management platform. So you put those two things together, to dilutive impact from the items that I mentioned, our ability to be able to drive margin expansion after absorbing the wealth management platform and you get to this approximately 20%. And I think the first quarter is a strong testament to that. I put those two things aside, we drove 100 basis points with the amortization in our overall results. So we continue to feel very good about that guidance. And finally, I think it's just important – it's important for us to drive that margin expansion because it allows us to both hit the earnings objectives that we have and fund.

Hello?

We're still here, Matt.

Okay, all right. Just lost you for a second there. And then I guess the final question I have is just what's the repurchase assumptions in the guidance?

Well, look, I think you have seen over the – as Tim said in his earlier remarks, our focus has been on paying down the debt and building out the wealth management in our capital markets platforms now that we are past that elevated investment phase and with the expectation of approximately 100% of free cash flow conversion. When you think about that, we have a dividend that we pay $3.20 a share at our share, as you can expect, just under $400 million of that going towards the dividend. The rest of that capacity will either be devoted to M&A, if we find the right opportunities, as Tim just said, that meet our strategic and financial criteria or return back to investors in the form of share repurchases. So I think those are the components you need to think about what that range of share repurchases is – approximately 100% free cash flow conversion the dividend and the rest of that capacity towards M&A and share repurchases.

And I think the only thing I would add to that is we tend to wait on that until we really have high confidence on how the year is coming out. So that from a – it's really almost more of a 2025 question because any share repurchase we do would tend to be later in the year and not affect our weighted average share count for this year.

Excellent, thank you. Thank you for all the color.

Yes.

The next question is from James Faucette of Morgan Stanley. Please go ahead.

Great. Thank you. I wanted to ask a couple of questions here. First, on the announcement of the UBS go live on the DLP platform, is that incremental to the $75 million of contribution outlined previously? Or is that project already contemplated in that number?

Great to clarify that is – that's part of the $75 million.

Okay, thank you for that. And then I wanted to ask a more broad-reaching question around competition. I think we all know about the competitive dynamics at play within the proxy space. But there were – have been one or two announcements of more AI-focused players that seem to be pretty well funded that are looking to get into the space. Anything to call out in terms of changes in competitive dynamics or where there may be some incremental investment needed from your perspective?

Dave, I don't think there's anything significant that is incremental to what has been out there. I think that we always say that competition has always been significant in this area. And even though people like to talk about us as a market utility, the – we've always had in-house – competition from in-house and from other players. And we think that we win that on the merits by being safer for our clients, more resilient, less cyber risk, smarter in terms of better all-in economics when you take into account all the things we can provide our clients based on our unique network. So we don't really see a change, and we are certainly – we've already talked about on the AI side that we are going to be a leader in AI in our spaces. And we have products in market – AI different products in market, BondGPT on the Bond side, which is one of the earliest products we've got quite a bit of attention and reviews on that. And we're certainly investing to apply AI also on the governance side. So I think to the extent there's something interesting in applying AI in the governance space, we'll be a leader in that.

And I also – James, I just want to comment back to your first question, overall across both UBS and across the success that we've been seeing with DLR with our Digital Ledger Repo system. Right now, the economics to Broadridge are not material at all for any of our clients. We've had great success really signing that up, but the economics are still not having a significant material impact on our guidance for fiscal 2024.

Great, really appreciate the color on both those things.

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

Thank you very much for joining us today to talk about our strong first quarter results. We look forward to seeing you and talking to you at our Investor Day in New York on December 7, when we'll be talking about our outlook over the next three years, which we think will be a pretty productive day. And we have – we're pretty excited to share our forward view. Thank you.

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