Good day, and welcome to the Broadridge First Quarter 2022 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, sir.

Thank you, Chuck. Good morning, everybody, and welcome to Broadridge's First Quarter Fiscal Year 2022 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, 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 in the presentation. Let me now turn the call over to Tim Gokey. Tim?

Thanks, Edings. Good morning, and thank you for joining us. I'll begin with an overview of our key messages and some highlights from our strong first quarter. Next, I'll provide an update on execution against our growth strategy across our 3 franchises. Finally, I'll close with some thoughts on how Broadridge is continuing to drive long-term sustainable growth. Let's get started. Our first quarter results marked a strong start to the fiscal year. Recurring revenues rose 16% and adjusted EPS rose 9%. Second, our top line growth continues to be propelled by a combination of our own actions and strong underlying market trends. The biggest driver of our 7% organic growth across all 3 of our businesses was the onboarding of closed sales as we continue to convert our $385 million backlog into recurring revenue. We also benefited from the continued tailwind of very healthy position growth in governance, driven by ongoing trends. Third, we continue to execute on our long-term growth plans across our governance, capital markets and wealth and investment management franchises. I'll provide an update on our execution steps in a few moments. Finally, our strong start to the year puts us in a very good position to reaffirm our full year guidance, including 12% to 15% recurring revenue growth and 11% to 15% adjusted EPS growth. It also keeps us on track to deliver at the higher end of our 3-year growth objectives. Beyond those 3-year objectives, we are focused on delivering sustainable long-term growth driven by ongoing industry trends and investments across our governance, capital markets and wealth franchises and in turn, generating consistent top quartile shareholder returns. Generating those returns requires consistent execution. So let's turn to Slide 5 for an update on our growth strategy, starting with governance. Our governance business had a…

Thank you, Tim, and good morning, everyone. As you've just heard from Tim, we are pleased with how our strategy is progressing. It's good to be here to discuss another quarter of strong financial performance, driven by new sales, strong underlying volume trends and the acquisition of Itiviti. You can see that strong performance in the financial summary on Slide 7, which shows that recurring revenues grew 16% to $751 million. Adjusted operating income rose 17% to $177 million, with AOI margins flat to last year at 14.8%, reflecting our continued ability to find efficiencies and gain operating leverage through our scale, allowing us to invest in our technology and digital platforms. That growth in operating income was partially offset by higher interest expense related to financing the Itiviti acquisition. As a result, adjusted EPS rose 9% to $1.07. Let's get into the details of those results, starting with the recurring revenue on Slide 8. Recurring revenues grew from $650 million in Q1 '21 to $751 million in Q1 '22, an increase of 16%. Organic recurring revenue grew at 7% and came in at the high end of our 5% to 7% 3-year objectives, reflecting the continued momentum from our sales and revenue backlog and increased investor participation. The contribution from acquisitions, primarily our continued success integrating Itiviti, added another 9 points to recurring revenue growth. Now let's turn to Slide 9 and look at the growth across our ICS and GTO businesses. We reported double-digit recurring revenue growth in both of our segments. ICS recurring revenue grew by 11%, all organic, to $410 million, propelled by a combination of new sales and strong volumes. Regulatory revenues rose 23% to $165 million, powered by higher mutual funded ETF communications, strong equity position growth in the U.S. and closed sales revenue.…

[Operator Instructions] And the first question will come from Darrin Peller with Wolfe Research.

Look, I just want to start off on the GTO side of the business for a minute. When I look at the underlying growth trends, excluding the acquisitions, it was more -- I think it was up 1% or flattish and I know there were tough comps on volume. Can you just remind us of how it's going with, first, on the wealth management side and the initiatives with UBS, timing and investments necessary that we should expect there. And then more importantly, just the overall opportunity on the pipeline on the capital market side as well. It's been an area that I know we focused on that should have a long runway. So I'm curious to hear where the bookings are coming in that category and what kind of play out that could be in the next couple of years?

Darrin, it's Tim. Let me give a little bit of background on where we are on the wealth management side. And then I'll let Edmund take you through sort of the broader pipeline and momentum in capital markets. So on the wealth management side, and I think as we said before, this transformation of wealth management is one of our most exciting opportunities. And we continue to drive with UBS on bringing that forward. We've had -- just last week, we spent time with the senior leadership and really feeling good about how the partnership is working. And making really strong progress in building the new capabilities and the pretty complex work of decommissioning was a very tenured platform. So we are, as you know, already live with some applications. We're working with UBS to sequencing, bringing forward the additional solutions that will align with the pace of their broader digital transformation. We expect to implement that in phases over the next 18 to 24 months. As you remember, the way we do our revenue recognition, we'll begin recognizing revenue when that becomes fully live. And so in the meantime, the net of that goes on to our balance sheet, which you'll see in coming quarters. So we feel good about it. We think, though, on the revenue side for that particular initiative, it will be a ways out before you begin to see it. But we're continuing to hear validation with other clients, good progress with RBC and good discussions with others. So that's sort of the update on the wealth management piece. Obviously, in the mean we continue to make strong progress with our component sales on the wealth management side. For a review of where we are in capital markets and sort of the overall momentum, let me just let Edmund comment on that.

Thanks for that, Tim, and thanks for the question, Darrin. I want to start with just saying that GTO continues to be a very healthy franchise with over $30 billion when you look at capital markets and wealth management inside of that $30 billion in market opportunity. We're coming off a strong year in GTO overall at 7% in fiscal year '21 and now, 21% this year. A lot of that is Itiviti, of course, but the organic business in GTO was 2% growth. And it's just -- as Tim just talked about the wealth management business, if you think about that component, it grew at 6% for the quarter. That's well within our 5% to 7% organic growth objectives, and that's coming from continued onboarding of new sales and the retail trading that we've seen. The organic business in the capital markets in the first quarter was slightly negative. I mentioned in my remarks that lower license revenue and lower consulting revenue was the driver of that. But to your question, we have a strong pipeline to onboard. And we've mentioned earlier our recurring revenue backlog of $385 million, a large chunk of that is GTO. So we look to have license revenue growth in the back half of the year, flat trading growth and continue to onboard that pipeline. That puts us in a position where we expect the capital markets business to also be within our 5- to 7-year growth objectives. And I think that's a great place to be with both of these franchises well within our organic overall growth ranges.

Okay. That's helpful, guys. A very quick follow-up. When -- obviously, there's been strong position growth on the mutual funding on the equity side, in particular. But without that, I mean, even without that, I guess, you can say you've had decent growth in the other parts of the non-regulatory side and customer communications, it's good to see it being consistently positive now. So what are your -- what are you thinking on that piece of business, the customer communications, which I know had been a little bit of a challenge seems to have deflected?

Yes, Darrin, thanks for noticing that and bringing it up. It is -- obviously, we had that long story of a large client that was going away, that took longer to go away and sort of created that negative headwind for what seemed like many, many quarters. So glad to have that behind us. I think the important story within customer communications is a little bit sort of deeper than this top line number, even though it's nice to see that top line number positive. It's really around the transition within that business, from paper to digital. And as you know, we've grown the digital business inside that at double digits the past 2 years. That continues to have nice momentum. And so -- it's nice to see the overall number be positive. It is pretty muted at 2%. It will continue to be muted. But inside that, we really like the transition we see going on.

And I'll only add to Tim's comment that, that higher growth in digital comes on at higher margins as well. The customer communications has been a strong earnings driver. And now you're starting to see that translate into the top line as we grow digital with higher margin business as well.

The next question will come from Michael Young with Truist Securities.

Wanted to just start with an update on Itiviti. I know you guys have been working pretty hard at that and pretty hands on there. So just kind of an update in revenue generation, sales opportunity and anything on kind of the cost or operating margin side?

Sure. Thank you, Michael. And really excited to talk about Itiviti. It's a strong complement to what we're doing. And as a reminder, its strength in front office and Europe and Asia really complements our strength in back office and North America. And we're really pursuing 3 growth opportunities there. There's an ongoing opportunity sort of -- Itiviti, without Broadridge, has just continued to take share in front office and its existing markets and solutions really based on the fact that the competitors are disinvesting. Medium term, we think there's a really nice opportunity to bring Itiviti to Broadridge clients in North America, leverage our strength in fixed income and other new asset classes. And then longer term, we talked about linking front and back office and really bringing data from the back office into the front and also making that whole front to back office more seamless and cost effective. So we are seeing really nice signs of affirmation of that. We're seeing really nice demand from clients to have discussions about that and continued interest in having alternatives to existing providers. So really high client engagement around that long-term thesis. And in the meantime, the integration is going well. The combined capital markets team, as I said in my remarks, is making great strides in the integration. We're seeing results that are on track with the expectations, including good contributions of sales revenue and bottom line. I'll just ask if Edmund wants to...

Yes, the only thing I'll add just to your question specifically, Michael, is on the margin side. This is largely a recurring revenue business. We said that it would come in at over 30% margins and be accretive. You heard in my prepared remarks that it was accretive to our overall AOI margin for the quarter. And to Tim's point about front to back, this is something that we are investing in. So the investments that we're deploying in this quarter and for the rest of the year will go towards activity as we look to build capabilities front to back as well. So we feel good about the progress. The last thing I'd say about it is I've mentioned to you that acquisitions would be 7% to 8% of contribution, and you saw strong reaffirmation of that in the first quarter with 9 points of our recurring revenue growth from acquisitions. And for our 3-year objectives, I think since we brought Itiviti on, we'll see 2 points of contribution to adjusted EPS growth. So I feel good about Itiviti and the acquisitions that we've been making over the past 2 quarters.

And maybe kind of following up on that, just on sales opportunities internationally. I know this was potentially a nice foothold with some clients on a more international basis. It seems like that may take a little more time as you focus on integration. But when could we see some benefits from kind of the Itiviti customer book? And then also maybe just a more broad kind of update on what's going on internationally as maybe the pandemic subsides. Are you seeing any more success there?

Sure, Michael. First of all, I think we do expect a strong contribution from sales from Itiviti this year. As you know, we went from where we landed last year, around $240 million, a little bit above that to guiding to $240 million to $280 million this year. And a significant chunk of that is some Itiviti, and we're seeing nice traction on that. So I do think you'll see contribution to closed sales from Itiviti. If we think specifically about international. We've had pretty significant growth in international sales. It's lumpy year-to-year, but if you look at the trend, it's been very consistently up with some really nice opportunities that we're in the midst of pursuing now. So I expect that to be an increasingly strong contributor to our overall sales mix over time.

And Michael, I'll just add one comment to Tim's, which is we said that we expect strong revenue synergies from Itiviti as a result of those sales. We said $20 million by 2025, and we're still pursuing that.

The next question will come from Chris Donat with Piper Sandler.

It's Chris Donat. I wanted to ask one more question on the -- on the wealth business and just to make sure I understand sort of the quarter-on-quarter dynamics there because it's the second consecutive year we've seen a decline in revenue in your September quarter. And I'm just wondering because, Edmund, you made the comment about the license revenue and consulting. Is there a seasonal factor there? Or is it just coincidence that we've seen sort of this happen 2 years running on a quarter-on-quarter thing?

Chris, you might -- sorry to interrupt. Thanks for the question. You may be referencing the capital markets business and not the wealth management business. What we saw was some big clients signed in fiscal year '20 that drove up license revenue. We were growing over that in fiscal year '21. We sort of have a plan that suggests flat in the first quarter and growing license revenue in the back half of the year that will help the capital markets reach sort of our normal 5% to 7% organic levels. Wealth management, that's continued to grow. I think the 4-year CAGR on wealth management is about 8%. It grew 6% in this quarter, and that's a contribution of both continuing to bring on closed sales and having strong retail trading growth help drive that business as well. So that's the dynamic between the 2 businesses. I'll see if there's anything else Tim would want to add.

Yes. The only thing I'd add, Chris, is, first of all, there's no -- there's nothing seasonal about it. So to the extent there's something you're seeing, it is sort of idiosyncratic. And there were, a couple of years ago on the license side, some significant business in Canada, and that created a little bit of lumpiness and up and then down the next year. But we don't see anything of that magnitude going forward, and I wouldn't think that there's really any systematic seasonality.

That's right.

Yes. Okay. Yes. Just it was on the -- I appreciate the comments on the capital market. Just on the wealth side, and it's a small piece, but the quarter-on-quarter change, fourth quarter, $136 million in wealth revenue and then it slips to $131 million. I guess I was thinking of that business is highly recurring. But can you just remind us what the revenue drivers are? I thought it was something that -- whatever, not a big percentage change from the June quarter. But anyway, just trying to make sure I understand what's going on.

In this quarter, Chris, you're going to see about a 6% growth of that, about 5 points of it is on the organic component, 1 point is from new revenue from new acquisitions that we had still showing up in that business. And on the organic side, very much like the other components of our business, you see us being able to retain our clients at 98% of the recurring revenue that we have with them in new sales being the largest driver. And recently, the retail trading being the uptick that we've seen on wealth management, it really does boil down to those drivers.

And Chris, I would say we can come back on any sequential comparisons. But I think if you step back and look at what is our -- what we're seeing for the full year, we're seeing that nice sort of within our range organic growth for the full year. So I wouldn't take any information out of that sequential quarter number.

Okay. And then just thinking about the cadence of earnings for the full year. I thought you had some comments, Edmund, about some pieces, but just thinking about that, like the EPS by quarter over the course of the year, should we expect it to be like it has in prior or at least since Broadridge had a change in revenue recognition that kind of affected timing of fiscal third quarter and fourth quarter revenues?

I do. I like to point out the comments about the components of the businesses have some seasonality in it. But in my prepared remarks, I made a comment about the first half of the year being typically just under 30% of the full year adjusted EPS. And I think fiscal year '22 is going to continue with that trend.

The next question will come from David Togut with Evercore ISI.

The 39% equity position growth is probably a record since Broadridge spun out of ADP in 2007. So my question is, what are you assuming for stock record growth for the critical spring proxy season?

Yes, Dave, it's Tim. I'm going to just make a couple of broad comments on this. And then Edmund will a little bit of detail about what we're seeing in our testing right now because we do have a little bit of a forward view on that. And it is -- those certainly, as you correctly noted, are some eye-popping numbers. Obviously, it's a small quarter, so it's hard to really draw anything from that 1 data point. I think the thing that I want to come back to, just at the broad level, is that this whole trend I talked about in my remarks, the democratization, it's a long-term trend that's made investing more accessible and cost-effective and those drivers have been consistent over time in the mid- to high single digits. It certainly is elevated now. We don't see that elevated level as something that continues over the long run. We do see return to that mid-single digits. It will still be elevated a bit this year. But we feel really good about those long-term drivers, including new things like direct indexing. So Edmund, then maybe just give us a little bit more color on that.

Yes, I'll give some color on the -- what we think about moving forward. So as Tim just said, David, mid-single-digit growth over the last 10 years in both equities and fund and ETF positions, to the point that Tim just made, that has elevated, I'd say, beginning with the fiscal '20 Q4 time period and ended at 26% last year, up to the eye-popping numbers at 39% in Q1 '22. Our recent testing shows that Q2 is normalizing a bit to be closer to 20%. Now that's a nice uptick from the low teen growth that we saw in testing just a few months ago. I will mention that you should keep in mind that the first half is a much lighter component of the volumes. Last year, I think we showed in the slide that last year, the first half was about 13%. Over 80% of the volumes are in the back half of the year, the third and the fourth quarter, and our mid-October testing for that suggests high single-digit growth for the second half of the year. So I think we feel good about where that positions us for '22. And more importantly, the trends that Tim mentioned earlier, like direct indexing, I think that gives us confidence that we should expect to see mid- to high-single digits for many years to come. And as is our history, we'll come back to you in February as we get closer to proxy season and do more testing with an update on where we stand.

Yes, the visibility at this stage, we are pulling the records of the companies that will be having meetings in the second half. And so the upper single digit is what we're seeing in October, but we'll redo that and that obviously continues to change as the year progresses.

Understood. Just as a quick follow-up. On Darrin's earlier question, a lot of incoming questions on UBS. So when you talk about 18- to 24-month time line to complete the contract fully, how much of that is driven by UBS and their own internal time lines, i.e., decommissioning of their platform versus your delivery on the platform itself?

Dave, I think that is very hard to disentangle. It's just very complex. And as we get into bringing components that are being built and then testing them and this is all being done agile. So in comparison to functionality, a lot of it is just because that -- remember, UBS, $1.7 trillion assets, ultra-high net worth, really the highest net worth clients of the large competitors out there. And so the complexity of what they're doing does lead to discovery of, oh, it also does this. And so it's an ongoing process. But I think we feel really good about some things we're going to be doing that will be out in the first half of next year and then additional releases over the coming quarters.

[Operator Instructions] Our next question will come from Peter Heckmann with D.A. Davidson.

I think most of my questions have been answered, but just 2 quick follow-ups. One on the customer communication and customer reimbursables piece, noting the mix shift there where the decline in some of the print and postage is masking strong growth in digital. Over the last few quarters, have we seen much impact from that regulatory change around 30e-3 and 498A? Or do you expect that to occur over the next couple of quarters?

I would say, and I'll let Edmund add on, but we are seeing -- beginning to see a positive benefit from 30e-3. That is -- has been a modest benefit. The 498 piece, I'm less certain about. I think that is still in the -- I guess, the 498B is the piece that is not yet approved. The 498A, I think is -- we're not -- I'm not seeing that come out as a driver significantly one way or the other.

Tim, you're exactly right. We have been seeing an uptick in recurring revenue from 30e-3. And I think we still have a couple more quarters in fiscal year '22 where we'll continue to see incremental benefit from that. The offset is in the distribution revenue, which is passed through and low to no margin. So overall, that's a benefit for us that we're picking up now and not much from the 498B.

Yes. And remember, Pete, that -- or I know you know this, but for everyone listening, all that appears within the regulatory line. And there is an ongoing substitution from paper to digital within regulatory. And then when I was talking earlier, I was talking about within the BRCC customer communications line, where that same thing is happening.

Got it. Got it. And then just a follow-up on the -- within wealth management, I mean, is it possible for the RBC deployment to go forward while you're still finishing up some of the UBS? Or is some of that development that you're doing with UBS going to be required to then convert RBC?

That is a great question, and we are deep in discussion with both clients on that very topic because some of these components are -- maybe ready. And it may be simpler in RBC where they're already on our back office to implement some of the components and get them going. But we really need to work that through with both clients at this stage. It has always been our plan that it would be after UBS, but it's -- I think the order of that is something that is -- continues to evolve.

The next question will come from Patrick O'Shaughnessy with Raymond James.

I was wondering if you could size the potential revenue impact of that pass-through voting initiative from BlackRock. And then as you kind of think about pass-through voting as a topic in general, is the ability to expand that to mutual funds and ETFs and other products over time? Or do you think it's kind of limited to a subset of BlackRock's products?

Thanks, Patrick. Thanks for asking the question because I think this is a development that we are really excited about. It is -- and it just -- stepping back, it combines a lot of the things we've been talking about. It combines democratization, it combines ESG, it combines innovation, it combines the power of the network and our infrastructure. So a lot of the things that we've been working on. This really brings them together and it's something that we have been working on for a while. So near term, as you pointed out, it's not a revenue driver and to the extent that it's on the institutional side, it's not really a revenue driver. I think the interesting question is as others look at this, would it come to the retail and ETF side. And in which case, it could become a revenue driver. I would think that would be a long term that kind of thing. So I'm not -- I wouldn't be thinking about anything at all near term. But as you think about the kinds of things that continue to support that high mid-single or high single-digit position growth, it could be a factor over time. I do think that topic around increasing importance of governance, that's a clear positive for Broadridge, whether it's institutional or retail and the fact that BlackRock, the world's largest global asset manager, is taking a step, I think, is really making people take a hard look at this.

Got it. And then on your closed sales, can you remind me about the underlying reasons for the seasonality in your closed sales? Is that because your client budgets are, hey, we want to get this deal done before the end of June? Or is it more on your end?

Yes. Great question, Patrick. It is -- most clients closed their budgets in December and they're trying to -- so if you look at a lot of companies, it would be -- they would have their big sales sort of at the end of the calendar year. So this, I do think is driven more by our fiscal year. It's not driven because we cut a lot of deals at the very end. It just is -- we have very good relationships with clients. And so many of these things are sort of already decided, but then they get caught in the contracting and there's a big pipeline of things. And because of the relationship we have with our clients, they know it's coming up and they tend to sort of bump us up to the top of the heap and create this big backlog in Q4. So we are trying to get it a little more like we'd -- we'd like to have 2 big bumps, one in December, one in June, but we'll keep working on that.

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

Yes, I would like to just thank everyone for participating in all this morning for your interest in Broadridge. We're off to a strong start for the fiscal year. We are continuing to execute on our growth strategies across governance, capital markets and wealth management. We're reaffirming our guidance for the year and our expectation to be at the upper end of our 3-year objectives. And we look forward to updating you again in a few months.

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