Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Broadridge Financial Solutions Inc (BR, Financial) reported record closed sales of $342 million for the year, a 39% increase.
- Adjusted EPS rose 10% for the full year, driven by 6% organic growth in recurring revenues.
- The company announced a 10% increase in its annual dividend, marking the 12th double-digit increase in the last 13 years.
- Broadridge Financial Solutions Inc (BR) achieved strong free cash flow conversion, ending the year at 102%.
- The company has a strong pipeline and backlog, positioning it well for sustainable growth in fiscal 2025.
Negative Points
- The de-conversion of Morgan Stanley E-Trade negatively impacted the wealth and investment management revenue growth.
- Lower float income and higher distribution revenues are expected to have a dilutive impact on margins in fiscal 2025.
- The company incurred $56 million in restructuring charges in the fourth quarter, which were not included in the calculation of adjusted operating income and adjusted EPS.
- Event-driven revenue, which can be volatile, contributed to growth but may not be sustainable.
- The impact of E-Trade deconversion is expected to continue to weigh on the wealth and investment management growth through the first half of fiscal 2025.
Q & A Highlights
Q: What have been the client behaviors and business performance during periods of heightened volatility in the past, and are there structural differences in the business today that might provide more stability?
A: Tim Gokey, CEO, emphasized the resilience of Broadridge's business model, noting that 94% of their fee revenues are recurring. He highlighted that the company has a $450 million backlog of contracted sales and that position growth has remained resilient through various economic cycles. Gokey also mentioned that the company is hedged on interest rates and benefits from trading volatility. He concluded that the fundamental components of their resilient business model remain intact, providing confidence in their guidance for 5% to 7% recurring revenue growth and 8% to 12% earnings growth.
Q: Can you revisit the key drivers behind the strong bookings trends and the areas of demand for new bookings and closed sales?
A: Tim Gokey, CEO, attributed the strong sales results to four main drivers: tailored shareholder reports, digital solutions, and strong growth in both capital markets and wealth and investment management. He noted that the sales are aligned with the company's investments in regulatory, digital, capital markets, and wealth solutions. Gokey expressed confidence in continuing to grow sales in FY25, with a guidance range of $290 million to $330 million based on a strong pipeline.
Q: Are you still on track to deliver the $20 million to $30 million of incremental module sales in wealth management, and what are the incremental opportunities down the road?
A: Tim Gokey, CEO, confirmed that they are on track, with sales up 40% year-on-year, nearing the $20 million goal. He highlighted a 30% increase in the pipeline of opportunities compared to 12 months ago. Gokey also mentioned that the acquisition of SIS in Canada will add to the long-term opportunity, allowing them to bring their wealth platform investments to the Canadian market.
Q: Should we expect more small tuck-in deals like AdvisorTarget and CompSci as your M&A priority over the near term?
A: Tim Gokey, CEO, explained that while Broadridge is primarily an organic growth company, M&A has been an attractive way to meet new client needs. He emphasized a disciplined approach to M&A, focusing on strategic areas where they can be the best owner. Gokey noted that the mix of M&A will continue to include both small tuck-ins and larger acquisitions like SIS.
Q: Can you talk about the lack of margin expansion in the fiscal '25 guide despite the $100 million savings from restructuring?
A: Ashima Ghei, Interim CFO, acknowledged the importance of margin expansion but emphasized the focus on delivering sustainable double-digit earnings growth while investing in long-term growth opportunities. She noted that the fiscal '25 guidance includes the impact of lower float income and higher distribution revenues but expects the benefits from restructuring to allow for core margin expansion and continued investment in growth.
Q: Is the duration of the $450 million backlog any different from what it generally has been in the past?
A: Ashima Ghei, Interim CFO, explained that the backlog includes both ICS and GTO businesses, with ICS sales typically converting faster. She noted that the backlog as a share of recurring revenue is 11% this year, compared to 10% last year, indicating a slight improvement.
Q: How confident are you in your three-year, 50 basis points per year margin outlook?
A: Ashima Ghei, Interim CFO, expressed confidence in the three-year margin outlook, noting that Broadridge has a long history of margin expansion. She highlighted the ability to fund long-term growth investments while delivering on earnings objectives. Tim Gokey, CEO, added that the company has overcome various one-off impacts and continues to see core margin expansion as a key part of their strategy.
Q: Does the 5% to 7% recurring revenue growth outlook for the year include contributions from the two smaller tuck-ins and the SIS deal?
A: Ashima Ghei, Interim CFO, confirmed that the 5% to 7% recurring revenue growth outlook includes a 0.2% contribution from the two smaller tuck-ins but does not include the SIS deal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
