The Broadridge Fourth Quarter and Fiscal Year 2023 Earnings Conference Call was held and Edings Thibault, Head of Investor Relations, welcomed everyone. Tim Gokey, the CEO, and Edmund Reese, the CFO, were also present. Thibault reminded everyone of the risks and non-GAAP measures involved before Gokey discussed the company's accomplishments over the past fiscal year, such as the new wealth platform suite and front office trading capabilities, as well as the strong financial results and record-free cash flow.

Broadridge delivered a strong quarter and fiscal year in 2023, with recurring revenue and adjusted EPS both rising 9% and free cash flow conversion improving to 90%. Despite the uncertain market environment, Broadridge was able to leverage its investments in modern technology to drive a record pipeline and help clients streamline their operations and increase their digital capabilities.

Broadridge has achieved or exceeded its three-year financial objectives, expecting to deliver strong results in fiscal 2024. This includes 6-9% organic recurring revenue growth, 8-12% adjusted EPS growth, and a 100% free cash flow conversion. Additionally, the company has increased its annual dividend by 10% and plans to resume share repurchases and pursue tuck-in M&A opportunities. This is the fourth consecutive three-year cycle in which Broadridge has delivered on its objectives, demonstrating the long-term trends driving demand for its services.

Broadridge's ICS business had a strong year due to new sales, increased investor participation, and higher interest income. Equity position growth was in the mid-to-high single digits, while mutual fund and ETF position growth was in the mid-single digits. Broadridge is driving digitalization and shareholder engagement with its omni channel wealth and focused product, and its work on voting choice.

Broadridge is rolling out pilot programs for ETF managers to capture voting preferences, helping funds adapt to new regulations, and driving revenue growth in their capital markets franchise. They are providing standardized global multi asset trading platforms, componentized solutions, unified global books, and front to back integration to simplify clients' operating models. They are also developing AI applications and a distributed ledger repo network to give clients added flexibility to manage liquidity.

Wealth and Investment Management revenues rose 4% to $560 million in 2023, driven by demand for modular solutions such as a digital marketing platform. A targeted marketing plan has been developed to expand outreach efforts and build on early demand. Despite 11 years of record sales, closed sales of $246 million were down 12% due to market uncertainty and longer sales cycles, particularly in Europe.

Broadridge had a successful year in fiscal 2023, achieving financial and operational milestones, and its pipeline is at an all-time high. The company expects to see strong sales growth, top and bottom line growth, and record close sales in fiscal 2024. It is confident in its outlook due to its differentiated core offer and innovative solutions, and is well-positioned to drive strong returns for shareholders.

Edmund Reese discussed the company's strong quarterly and full year results for fiscal 2023, including key milestones achieved such as the investment in their wealth management platform, improved free cash flow conversion, debt reduction, and a commitment to return more capital to shareholders. Recurring revenue rose 9% year-over-year on a constant currency basis, and adjusted EPS growth was in line with guidance despite lower event-driven revenue.

Broadridge reported strong financial results for the fourth quarter of 2023, with adjusted operating income increasing 22% and adjusted EPS rising 21%. Recurring revenue grew 8% organically to $1.3 billion, with growth driven by converting sales to revenue and mid-single digit position in trade growth. ICS recurring revenue grew 7% organically to $858 million, with solid growth across all four product lines. GTO recurring revenue grew 11% organically to $448 million, driven by strong growth in its core services.

Regulatory revenue grew 5%, data driven fund solutions revenue increased 12%, and issuer revenue grew 7%, all contributing to ICS's 9% growth in recurring revenue for the year. GTO's recurring revenue grew 8%, ahead of their 5-7% growth objective, driven by double-digit growth in their capital markets business. There was healthy position growth for both equities and funds in the fourth quarter, with equity position driving flat high teen growth in Q4 2022 and 6% growth for the full year. Managed accounts saw double-digit growth.

In Q4 of fiscal 2023, mutual fund positions grew 8%, with strong flows in money market funds. Trade volumes grew 3% on a blended basis, and recurring revenue grew 8% organically from net new business and internal growth. Total revenue grew 7%, with event-driven revenue providing a one point headwind to growth. Event-driven revenue is expected to return to more historical levels in fiscal 2024.

In Q4 2023, adjusted operating income margin improved by 360 basis points due to operating leverage, higher float income, and disciplined expense management. The impact of interest income offset the 30 basis point headwind from the growth of low to no margin distribution revenue. As a result of a modest restructuring, a $20 million charge was incurred in Q4 2023 that is expected to generate $50 million in annualized savings. An additional $15 to $30 million charge is expected in Q3 2024.

In the fourth quarter of the fiscal year 2023, the company closed $90 million in sales, which was 12% lower than the record fiscal 2022 sales. Despite this, the demand for the company's technology solutions remains strong and the pipeline for fiscal 2024 is at a record high. Additionally, the company generated $748 million in free cash flow in fiscal 2023, doubling the amount from the previous year. This was due to reduced client platform spend and payments from UBS. Lastly, the company has moved $600 million of software investment to intangible assets in order to market the wealth management platform components to multiple clients.

The company expects to recognize $57 million of annualized amortization expense in fiscal 2024, and has a leverage ratio of 2.6 times at the end of fiscal 2023. The Board has approved a 10% annual dividend increase to $3.20 per share in fiscal 2024, and the company plans to resume share repurchases for the first time since fiscal 2019. For fiscal 2024, the company expects mid- to high single-digit recurring revenue growth, margin expansion, strong adjusted EPS growth, and a recovery in closed sales. This includes $75 million in incremental revenues from wealth platform clients.

E-Trade's transition to the Morgan Stanley platform is expected to offset revenue growth, but event-driven revenue is anticipated to return to historical levels. Distribution revenue is expected to grow in the high single to low double-digit range. Adjusted operating income margin is expected to be up year-over-year to approximately 20% and adjusted EPS growth of 8-12% is expected. Sales are expected to be strong with a fiscal 2024 range of $280 million to $320 million.

Broadridge delivered strong Q4 results to close out a strong fiscal 2023, and with their fiscal 2024 guidance, they are expecting to deliver another strong set of financial results. They expect mid-single digit growth in equity position and mid- to high growth in funds. They are also planning to return to a more balanced capital allocation in fiscal 2024, including double-digit dividend growth, stock repurchases and potential tuck-in M&A.

The business is expected to show mid-to-high single-digit growth in equities and funds by the end of the year, and the first quarter is likely to be slightly higher than the second quarter due to delayed mutual fund proxy activity. There is a consensus that the adjusted EPS is appropriate, if not a little low. In terms of bookings, the second half of the fiscal year 2023 is expected to be similar to the U.S., with Europe being a bit weaker. There is a possibility of big and small projects, depending on the individual solution sets.

The sales ended lower than expected, due to a complex environment including war and the failure of a large European institution. This led to delayed decision-making, impacting the GTO and ICS sides of the international business. Despite this, the company has a record pipeline and is anticipating recovery with a $280 to $320 million guide for the year. The $400 million backlog has not gone to a competitor and the nature of the work and timing expectations for conversion into revenue are similar to what has been seen historically.

Edmund Reese explains that the company's guidance for fiscal 2024 is backed by a high level of confidence and that the backlog of wealth management revenue is expected to be converted to revenue within a 12-18 month cycle. He also notes that the position growth is expected to be in the mid-to-high single digits, giving them a 6-month window to react if something changes.

Dan Perlin asked Timothy Gokey for clarification on their margin expansion guidance. Gokey explained that whether a sale is finished in June or September, it won't make much difference to their results, and expressed confidence that the sales will happen in their fiscal year. Perlin then asked for clarification on the margin expansion, and Gokey confirmed that excluding distribution and traded revenues, the margin expansion would be 60 basis points, and with the removal of some of these items, they would be able to achieve 50 basis points of margin expansion.

Edmund Reese explains that two items (float income and distribution) have an impact on reported margins, but not on overall earnings. He then goes on to discuss the core operations of the business, which are expanding margins by at least 50 basis points due to scale and operating leverage, as well as disciplined expense management. These factors are allowing the company to continue to deliver earnings.

Timothy Gokey and Edmund Reese answer Puneet Jain's question about whether fiscal 2024 sales will be more back-end loaded. Gokey states that it would be his ambition for it to be less back-end loaded, but it is hard to judge. Reese states that there is a long runway for continued margin expansion. They will give an update on the year's progress on future calls and anticipate that their onboarding teams will not lack work in the midterm.

Edmund Reese explains that there is potential for margin expansion to drive earnings and create room for investment capacity. He attributes this to operating leverage, digital products, and operating efficiencies. He also mentions that initiatives taken at the end of Q4 ‘22 are having an impact on the Q4 results, and are in line with expectations.

Edmund Reese discussed the guidance for the full year baseline and noted that small dollar amounts can swing the margin in any particular quarter. Timothy Gokey then discussed the strength they are seeing in the U.S. and Europe, with the U.S. having a focus on communication and regulatory solutions, and Europe having a focus on technology solutions.

Timothy Gokey and Edmund Reese from Evercore ISI discussed the drivers of mid-single-digit stock record growth expected for Q1 FY ‘24 and mid- to high single digit for the year. They believe that the growth is based on their testing which is showing high mid-single digit results and is likely to increase as time goes on. They also noted that the growth is broad-based, with large and midsize issuers showing strong growth, as well as managed accounts and an increase in accounts versus positions per account.

Tim Gokey has provided an update on the UBS wealth management platform, which is part of a $16 billion market that is continuing to grow. Demand for the platform is mostly focused on components and modules, with some longer-term demand for foundational chunks that would be part of a longer-term transformation.

Edmund Reese and Timothy Gokey responded to a question from Patrick O'Shaughnessy about the outlook for their CapEx and capitalized software development for fiscal '24. Edmund Reese said that the free cash flow conversion is expected to be at approximately 100%, which is a significant improvement from the 48% in fiscal 2022 due to the completion of the elevated investment level in the client platform.

Timothy Gokey thanked the participants for their interest in Broadridge and invited them to their 2023 Investor Day in New York City on December 7. He concluded by thanking them once more and inviting them to disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.