Release Date: November 05, 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 solid first-quarter results with a 4% growth in recurring revenue in constant currency, despite the impact of the E-Trade deconversion.
- The company is executing its strategy effectively, driving product innovation, growing its sales pipeline, and achieving strong sales.
- Broadridge is strengthening its business through targeted investments, including the acquisition of SIS, which is expected to enhance its Canadian business and wealth innovation capabilities.
- The company raised its fiscal 2025 recurring revenue guidance to 6% to 8%, reflecting strong organic growth and the SIS acquisition.
- Broadridge recorded a first-quarter record of $57 million in closed sales, indicating strong demand for its solutions and a robust sales pipeline.
Negative Points
- Recurring revenue growth was partially offset by a 4% decline in wealth and investment management revenues due to the E-Trade deconversion.
- Adjusted operating income decreased by 7%, impacted by lower event-driven revenues and the E-Trade deconversion.
- The company's adjusted EPS remained at $1, with no increase in EPS guidance despite the top-line revenue raise, suggesting lower incremental margins.
- Free cash flow was negative $158 million in Q1, a decline from the previous year, driven by increased cash taxes and severance payments.
- The acquisition of SIS is expected to be slightly dilutive to Broadridge's margins and neutral to EPS in the first year.
Q & A Highlights
Q: Why is Broadridge raising its recurring revenue guidance but not its EPS guidance?
A: Ashima Ghei, Interim CFO, explained that the recurring revenue guidance is raised due to the SIS acquisition and strong organic growth. However, the EPS guidance remains unchanged because the SIS acquisition is expected to be neutral to EPS in the first year, and high-margin event activity is being used to create investment capacity for future growth.
Q: What is Broadridge's approach to M&A, and how does it fit into their growth strategy?
A: Timothy Gokey, CEO, stated that while Broadridge is primarily an organic growth company, M&A is used to meet client needs and contribute to recurring revenue. They are tracking a strong pipeline of opportunities and will execute deals that meet financial criteria and where Broadridge can be the best owner. They remain comfortable with share repurchases if suitable opportunities do not arise.
Q: How is Broadridge addressing the challenges posed by T+1 settlement in Europe?
A: Timothy Gokey noted that while T+1 implementation went smoothly in the US, Europe is facing challenges due to the disparity in settlement dates. Broadridge can assist clients with managed services and potentially develop technology solutions if there is a significant timing gap.
Q: What is the expected revenue contribution from the SIS acquisition, and would Broadridge have raised guidance without it?
A: Timothy Gokey mentioned that SIS is expected to contribute just under $60 million in revenue for the year. The guidance increase is largely due to SIS, but Broadridge also has increased confidence in organic growth trends.
Q: Why did closed sales in the first quarter represent a higher percentage of the full-year outlook than usual?
A: Timothy Gokey explained that while the strong start is positive, it is not indicative of a change in full-year expectations. The timing of medium-sized deals can affect quarterly results, but they remain confident in their full-year sales guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
