Good morning, and welcome to the Broadridge Financial Solutions First 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, Melissa. Good morning, everyone, and welcome to Broadridge's First Quarter Fiscal Year 2021 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 Interim CFO, Matt Connor. 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 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 their 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'll begin with the headlines. Broadridge is off to a strong start to fiscal year 2021. We reported 8% recurring revenue growth and record first quarter earnings. Our performance, in the face of the ongoing pandemic, highlights the resilience of our recurring revenue business model and the power of the long-term trends propelling our results. I'm especially proud of our cost efforts, which helped drive strong margin expansion and record earnings. These cost realignment initiatives helped slow our overall expense growth and position us to make important investments in our people, products and technology. Our strong first quarter results give us more confidence going forward, despite remaining headwinds, and we are adjusting our full year guidance to reflect that more positive outlook. The investments we are making will further drive long-term growth by enabling us to better meet our clients' accelerating needs for next-generation mutualization, resiliency and digital transformation. As I said, it's a strong start to the year. In my remarks this morning, I'll provide you with a brief overview of the results for each of our businesses, give you my thoughts on the factors driving our growth and discuss how our first quarter start impact our approach to the full year and leave us better positioned to take advantage of the post-pandemic environment to drive long-term sustainable growth. Matt will then review the financial highlights, provide additional insight into the measures we're taking to reduce controllable expenses and increase investment and walk you through our guidance updates. As always, we'll close with your questions. Let's get started on Slide 3. Broadridge reported strong first quarter results. Recurring revenues rose 8% to $671 million, driven by balanced growth across both our ICS and GTO segments. We continued to benefit from strong sales onboarding,…

Thanks, Tim. I'll begin my comments with several callouts on Slide 7. First, a strong quarter. This was an exceptional first quarter of top and bottom line growth, highlighted by our record adjusted EPS. Second, event-driven revenue came in right at our 6-year average first quarter number. This result was ahead of our expectations and 13% above the weaker first quarter of last year. Third, cost alignment initiatives. Our record earnings this quarter, coupled with strong cost discipline, drove an impressive 390 basis points of adjusted operating income margin improvement. Fourth, investments. That strong focus on cost controls and record earnings enabled us to begin deploying dollars against our planned fiscal year 2021 investments. While we took a cautious approach to fund these investments in the first quarter, we expect our investing activity to pick up meaningfully over the remainder of the year. And fifth and the final call out, our full year guidance. We are updating our fiscal 2021 guidance to reflect our strong results and increased confidence in our outlook for the full year. We remain well on track to deliver another year of top and bottom line growth, even in the face of the pandemic, while making meaningful investments to ensure we are well-prepared for the recovery and continued long-term growth. Let's turn to Slide 8 to review our revenue growth drivers. Total recurring revenue grew 8%. The biggest driver of this was growth from onboarding new business, which contributed 5 points of growth and the carryover impact of acquisitions, which contributed 3 points of growth. Internal growth was neutral, though we did see an uptick in our GTO segment, which Tim walked you through earlier, offset by marginally negative internal growth in our ICS segment, which, as a reminder, was the impact of lower interest rates.…

[Operator Instructions] The first question today comes from Darrin Peller of Wolfe Research.

It's good to see these trends and the flow-through to guidance with confidence. When we risk weight this guidance, can you just touch on what you need to see to come through to reach the maybe the low end versus the high end of the ranges? Maybe on the underlying drivers of the business and perhaps touch on what you guys have control over as well?

Sure, it's Tim. I will start, and then I will let Matt comment a little bit more. I would say first of all, just in terms of guidance, we were rather pleased with the strong start of the year. And as we said, it really confirms our confidence in the full year. We are -- as I said, we're seeing strong stock record growth and we're seeing good trading volatility as well. When we think about what it would take for the top and bottom ends of this, it really comes down to continuing to see the growth that we are seeing, Darrin, in position growth and in what we're seeing around equity and fixed income trading volumes. So let me just hand it to Matt to comment a little bit more on the details of that, and then I can finish up.

Sure. So Darrin, we had forecasted, in the first half of the year, that volatility in the equity trade volumes to stay high and kind of moderate a bit in the second half. And going against our higher comps. So I think seeing these next few months come in at where we thought they would be is really important. And as Tim said, that stock record growth, kind of the mid- to the high level single digits in the second half, which is also kind of against a pretty high comparable, would be the 2 big things.

I think the other piece -- is just on the earnings side, is really that we have a lot of investment plans and that we are able to execute on those, because it is -- while it's all planned, it is -- sometimes it doesn't come through all the way. So making sure that we get those executed, which we think is important for our future, is one of the things we're working on as well.

Yes. I was actually going to make that my next question, which is really just where -- just given the backdrop of this environment, it sounds like you really are trying to capitalize on these tailwinds with investments. Tim, can you just give us a little bit more explanation or disclosure on where you want to put the money in terms of, number one, what specific business lines, the way we look at it from analysts, the way you report. And then when we would expect to see returns on those investments, just given that I think you're really stepping up and it's going to impact the margins some degree, at least.

Yes. I think if you think about our investments around really making sure that we are very well-positioned post pandemic, they fall in a couple of categories. It's a big category of just, I'll say, very foundational investments in our product organization, in our technology organization and platforms to just really make sure that we have the best foundational capability. I think you've heard me talk about this before in which we believe the opportunity for us is basically unlimited, if we are good enough. And so making sure we -- while we have the ability here to make those foundational investments, is important. And I think the returns on those are more long term in nature. The third category investments are targeted product investments. And whether that is in accelerating, we're doing with the shareholder rights directive and accelerating what we're doing with virtual shareholder meetings, around some of our wealth products with our digital capabilities, those -- we have a whole road map of -- as all technology companies do have a road map of things we want to do and being able to accelerate some of those things. And I think the return on those, we would begin to see more near term and even see some returns on that next year. And then the last category is in go-to-market. And as you know, we're growing rapidly international, internationally putting money behind that, putting money behind our brand. And again, I think the returns on those things are probably in the 18- to 24-month range. So all in all, I think we feel really good about it, and we feel what we're seeing with the pandemic is just accelerating trends that were already out there. But as you heard from many others on other calls, I'm sure it's -- 5 years of change in 6 months. And we really want to be in a position to help our clients with that.

The next question comes from David Togut of Evercore ISI.

Good to see the first quarter outperformance and the upgraded guidance for fiscal 2021. Just starting off on bookings. Closed sales were down 13% year-over-year, although that was after a 55% increase in June. Can you dig into the new business pipeline a little bit, Tim? And where you think you might land in that closed sales range for this year, $190 million to $235 million?

Yes. Absolutely. And the one thing I'd point out when we talk about the comparison to last year is that last year's first quarter had an important strategic sale in it. And so it was, by far, a record. So this is our second highest ever, first quarter. And if you take out the strategic sale from a year ago, we really -- we like the way the comparable lines up. I think, generally, we are seeing the pandemic, as I mentioned a moment ago, is accelerating the trends that benefit our business model. And as we look at what's happening on the sales side, certainly, we're seeing continued ability to close sales, so that's good. I think the other piece is just what are we seeing in terms of pipeline generation. And we feel pretty good about that. We are -- we generated a pipeline in the first quarter. If you look at our core deals, taking out the strategic ones above last year and above our 3-year average. And longer term, probably not for this year, but there's some longer-term more speculative conversations that are very promising. So I think overall, we feel good about sales for the year. We're holding guidance at this point. But I think we'll feel that they'll come in very solidly.

Understood. And just as a follow-up, can you update us on the timeline to onboard the big UBS contract? Is that still on track for, call it, July of next year? And then your ability to build on that and bring in other big customers on that platform?

Sure. And it was great to hear UBS talked about this on their recent earnings call. And it's great to hear their comments reinforcing the positive impact that this is already having. They've introduced a change in advisory billings, which they believe is going to be very positive. And just to be fully aligned with what they said, they talked about next summer. So I'm just going to leave it at that because I want to be aligned with what they said. I think, more broadly, that wealth remains a key focus area. We're continuing to invest in our capabilities. As you know, we've been pretty active in M&A in that arena. Those recent acquisitions, RPM and Rockall are really, really performing well. As we look at the interest in -- specifically in the wealth platform and building in UBS, we're seeing very strong interest from our existing clients that want to upgrade and evolve into this new ecosystem. I would say that significant platform sales to new clients at this stage are unlikely before we complete the UBS go live, but there are definitely positive conversations.

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

Tim, could you talk a little bit about how you're thinking about M&A right now and capital allocation? The kind of weighing stock buybacks against M&A, but as well, what you're seeing in the marketplace in terms of valuations and seller expectations?

Yes. And I'll let Matt comment on this as well. Let me just say a couple of things and have him comment. But certainly, pre-tuck-in M&A is an important part of our balanced capital allocation framework, and we've been pretty active over the past few years. I think you know that our strategy is very -- or tightly aligned with our franchises, which I think has given us attractive returns. At the same time, what we're seeing right now is pretty high valuation levels. And so while we continue to look at lots of things, the levels are high. And so we're being very cautious. I think if you do see us transact on the M&A side, you'll know that it's something we have real conviction in and that we think really aligns well strategically. Let me just let Matt comment a little bit more on overall capital allocation and balance sheet.

Sure. Sure. So we're still in a very, very strong place in terms of our balance sheet. We're at that 2.0 ratio at this point. And as Tim said, valuations are very high right now, but we are in the midst of talking around a number of different opportunities. So we'll manage ourselves to what's the right thing to do from an acquisition versus buyback, and we're always committed to the dividend delivering that. So I don't think you'll see much of a change in terms of where we have been over the last several years. It's always been a little bit of an ebb and a flow, in terms of where we are from a buyback versus acquisition. So we'll be in that same spot.

Got it. That's fair. And then just the equity proxy revenue growth number just really was very impressive. And definitely heard you call out the other position growth, record growth. Anything else that might account for some of that strength within the revenue number itself or just primarily driven by individual investors holding more positions?

It's generally individual investors holding more positions. And as you look at kind of those Internet advisers, the activity that's happening on the retail investors is significantly higher here in the first half than what we had expected. We expect that to continue through the first half, and then we get up against some tougher comps in the second half from the growth that we saw at the end of FY '20. So that will moderate itself down into the kind of mid- to high single digits at that point.

Got it. Got it.

And I'd just add one thing. The first quarter, it's a small quarter. There's sort of a lot of small numbers. So while the revenue grew 35%, stock record growth was 16%. And the -- there are always a few one-offs sort of in the previous year or this year, they can make the percentage changes in revenue look, sort of unusual in such a small quarter. But I think keying off that sort of greater than double digit for the first half is the right way to think about it.

And there was a little bit of shifting from last quarter to this quarter in terms of some of the handful of some of the large-cap companies in terms of pushing out.

The next question comes from Chris Donat of Piper Sandler.

I just wanted to follow up on Pete's question on position growth. I'm just trying to understand if it's more on the online brokers, and I'll use the name, Robin Hood, driving a lot of activity? Or if it's more robo advisers or call it like a betterment or wealth front, which have the direct indexing that might be causing more position growth as people directly own stocks rather than the index? And this is something we've talked about before, Tim, but just want to make sure I'm understanding some of the dynamics of what's driving the equity position growth.

Yes. I would say, first of all, it has been -- and I'll let Matt add on to this, but it's been strong across the board. It has been certainly strong at the large online brokers. And the -- some of the other ones you mentioned are -- while they had very good growth, they're small enough that it doesn't really affect us. And Robin Hood is, certainly, a phenomenon -- is not a driver for Broadridge. But really, if you look at specifically the large online brokers, big changes there, 20-plus percent and -- but really good strength across the board to get this number.

But I would let you know that the direct index is really not a major driver for us at this point. And I think just to remind also, we don't get paid for less than a single share. So those fractional shares aren't going to drive anything for us in some of those smaller holdings. So it's really more on those long line trades that are happening from the direct consumer.

Okay. That's very helpful. And then thinking about on the mutual fund side of positions. In October, we had the announcements of Morgan Stanley with Eaton Vance, and then some activist involvement potentially pushing for a Janus Henderson-Invesco merger. Can you just remind us how mutual fund mergers have worked out for you in the past? It seems like that's been a driver of campaigns for kind of repapering mutual fund positions. But -- just help us understand how mutual fund industry consolidation might affect you on the position side and maybe anywhere else that could happen?

Yes. I think on the -- for mutual fund consolidation, we, certainly, are seeing consolidation. I think we would expect there to be ongoing consolidation in the asset management industry. I think you have to disentangle the long-term impacts and the near-term impact. So let me just start with the long-term impacts, which is we get paid, as you know, by position. And typically, the positions don't go away. So when 2 companies come together, it really -- it doesn't necessarily affect us one way or the other from a long-term perspective. On the near-term perspective, it's definitely true that typically, they have to go to a vote for the shareholders and that, that can create some near-term event-driven activity.

The next question comes from Puneet Jain of JPMorgan.

Good quarter. So I understand like this is like a small quarter for sales, but can you comment on pace of activity in pipeline? And also on implementations given uncertainty from rising COVID cases and the upcoming elections?

Yes. Absolutely, Puneet. So on the sales pipeline side, and it's definitely something that we have been monitoring to understand because we had -- clearly had a very strong Q4 and many of those had already been originated and run the one yard line. So what -- we definitely learned is we can close. And so we've been monitoring around whether we can originate new opportunities. And so now I think the larger opportunities are a bit lumpy. If you look at our sort of core opportunities outside of the strategic sales, what we're seeing is nice growth in those year-on-year and a nice multiyear trend of growth in this quarter being really a continuation of that trend. So I'd say, on track. If you turn it to the implementation side, I think that one of the things that has been surprising to us, although we hear it from others, so it's not, not unique to us. It is being experienced by the industry is that our productivity in a remote environment has been -- really has not been effective. It is -- if anything, it's slightly better. And in particular, our ability to engage our more remote teams where we have -- maybe have skills that are geographically separate, our India team. All of that is working extremely well. And so we really have not seen any slowdown in the pace of client implementations. And similarly, in terms of clients' ability, the one thing that we've been worried about is would they be able to focus on working with us. And we haven't seen that to be affected either. So our productivity and their productivity really has continued to be solid.

Understood. That's good to know. And how should we think about COVID-related cost cuts? Could some of those cost actions like facility footprint you talked about be like a permanent cut versus like more like a temporary reduction? And as people start returning to office, you'll invest again in facilities?

Yes. Great question, Puneet. We are really using this opportunity. Let me just talk about sort of the future of work for a second, and I'll come back to the broader cost initiative. We are really using this opportunity to lean into the future of work. And as we talk to our associates around the globe, what most of them are saying is they are looking forward to coming back to the office, but not every day. And I think we have all learned from being on video conferences all day long that it can be very, very effective, particularly as I mentioned, for engaging people from our more remote offices. So when we look at our -- how we're thinking about real estate in the future, we're thinking about it as sort of hub, not home. And again, when you -- under that whole theme of accelerating things that probably needed to happen anyway, as we have done acquisitions, we have accumulated smaller offices, where it's more difficult to have the sale for associates to have everything they need to operate effectively. And so being able to trim it actually fairly significant number of offices only about 10% of our square feet. But trimming that, moving to hoteling, moving to other things that we think are really the future of how people interact, we think will set us up well for the future. And those changes will be permanent. As we look at the cost changes that we've made, there's certainly some of them, like travel or things, that are this year. But there's a lot of it that is structural that we expect to continue in the future. And just going to see if Matt wants to add anything on to that.

No. I think you got it. And that hub idea, think about in a city where we had three sites before, we're going down to one site. We're consolidating into one. So they're -- some of them are pretty simple kind of actions, but it's not going to change in terms of when folks start to come back to work, are we going to do more? And then we talked about what we've done with IBM and our private cloud. That is something that's going to be permanent in terms of savings that we're going to get from that. So as Tim said, there's a mix in terms of some of which is this year. And T&E, for example, there's definitely a bigger benefit this year, but I do think that we'll have a whole new way in terms of how we look at T&E across, in terms of how we travel and interact with the video that's become so easy to do and for us to get in contact with our clients.

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

So a handful of major broker-dealers sent the SEC a letter during the quarter, recommending that electronic delivery of regulatory documents becomes the default rather than the opt-in. Where do you think this proposal might head? And what would be the impact on Broadridge if it did, in fact, get implemented?

Yes. Thank you, Patrick. That is -- we worked with SIFMA on creating that letter. We do think that digital delivery is the future as we certainly have talked about. And so we're supportive of this direction. The -- in terms of its near-term likelihood of any change, I think there's going to be a -- it's going to be hard to get anything through the SEC in this administration. And irrespective of the outcome of the election, Jay Clayton has said that he's stepping down, and there's already sort of change at the top there. So I think there will be a slowdown in things going through the SEC. But longer term, this is something that we believe can be more engaging for investors save the industry money. Now the key is to make the delivery of those documents, if what you're getting is a link to go someplace and log in, you get a big drop-off. If you send a -- send the document directly, it's okay. Is it a really long and complicated document? A summary version is much better. So making what people receive as engaging as possible, making it interactive, making it clickable, that's really some of the investments that we talked about that we're doing to really help our clients with what is truly a digital transformation. When you think about the amount that large wealth management firms and fund companies spend on outbound communications, really making sure that they're getting strong return on that and that they're using it to really engage their clients, we think, is a big opportunity.

Got it. And then now that the E*TRADE sale to Morgan Stanley has closed, are you in a position to provide an update regarding the status of your E*TRADE relationship?

Yes. What I would say on that, Patrick, is it is a very complex integration, and it's something that Morgan Stanley continues to study in terms of what they want the -- their sort of long-term approach to be in terms of how and whether they combine those platforms. And irrespective, we expect that once they do decide that, it will be -- to whatever it is, it will be a multiyear transition. So I think it's still a ways out.

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

Well, I would like to just thank everyone for joining this morning. We are pleased with the strong start to the year that really increases our confidence in delivering in fiscal '21, and our confidence in the long-term trends that are propelling our growth and helping us help the industry. We look forward to updating you further at our Virtual Investor Day on December 10, and we look forward to seeing all of you then. Thank you.

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