Broadridge Financial Solutions, Inc. (BR) Earnings Call Transcript & Summary

Good afternoon. This is Pete Heckmann. I'm one of the research analysts on the tech team at D.A. Davidson. Thanks for participating in our Software and Internet Services Conference. Today, we have an interactive chat with Broadridge. We're pleased to have the company's CEO, Tim Gokey; as well, Edings Thibault, Head of Investor Relations, is also participating in mute mode. Good afternoon, Tim.

Hi, how are you? Good to see you.

Yes. Good to see you as well. Thanks for participating. Would you like to make any opening comments?

Yes. Why don't I start. I know that you have a lot of questions, but let me just take a couple of minutes for those that are just tuning into the Broadridge story just to get oriented. We are, as you know, Pete, a global fintech leader, focused on creating industry solutions for critical, but non-differentiating activities in financial services, capital markets, wealth management, asset management firms. And we think we have a lot of opportunity ahead, very, very good long-term outlook. We believe we're in the midst of a multi-decade trend towards financial services firms, leveraging industry solutions. And the ops and tech spend amongst our clients is on the order of $100 billion. Just amongst the solutions that we have, the market is over $40 billion, relative to our $3 billion in fee revenues, is basically a lot of runway for us. The growth platforms that we'll talk about, governance, capital markets, wealth and investment management. And in governance, as you know, we connect every investor, broker-dealer, fund complex and public company. And then that allows us to provide a lot of other solutions to that client set. Capital markets is Software-as-a-Service technology platform is largely back office. And similarly, wealth management, we're going more front-to-back now with that. What we do is we provide an essential service for an industry that is essential. And the COVID crisis really has reaffirmed the essential nature of what we do, powering the infrastructure behind investing, governance and communications. And as we went through the crisis, the -- we really saw our technology platforms performed well. We processed record volumes to support both capital markets and wealth management clients, enabling investors to buy and sell securities, generate liquidity, fund new investments, participate in markets with timely statements, which is baked in corporate governance, enable companies to continue corporate governance through the crisis. So the business is very resilient. It performed very well operationally. Production team has managed well. We had proxy season right in the heart of the crisis on the East Coast. Public companies rapidly shifted from in-person annual meetings to virtual annual meetings. We did 300 virtual annual meetings a year ago. This year, we did 1,500. So as a result of all of that, we have continued to perform soundly from a financial perspective. Our fiscal year, which ended in June, we had 10% recurring revenue growth, 8% earnings growth, record closed sales. We raised our dividend for the 14th consecutive year. We've raised it every year since we became a public company. And as we look forward, we see a strong outlook. So despite the uncertainty in the macroeconomic environment, we are calling for continued organic growth, and that is anchored by a record backlog of signed contracts to be on-boarded as well as really trying to balance cost discipline with investment for the future. And we think that will really position us to take advantage of [ return ]. So our guidance for fiscal '21, which we just started is a little bit wider, reflecting that economic uncertainty, and it's modestly lower than what would be our normal sort of multiyear growth algorithm. And that guidance really incorporates the impact of recession, delivering good returns to shareholders, continuing to invest for the long term and really managing that balance of disciplined cost on one side and reinvesting for the future on the other side. Longer term, we think COVID is really accelerating existing trends, is causing some very fundamental changes about how people think about resilience. It's not just I might lose a facility, I can lose the globe. And so the investment for that, it really is extension of the case for mutualization as well as digitization. We are focused on long-term growth. And as you think about us, we're really -- think about us as an annual company because the results are fairly seasonal. So we don't focus much on the quarter, we focus on the year, and we focus on 3-year periods. We've just finished a 3-year period in which we met or exceeded all of our primary financial objectives. And that's the second time we've ever done that, so 6 years. I will be announcing our new 3-year objectives at our Investor Day in December. So that's a quick rundown. I just wanted to hit those points. So just the basics, to be able to tune in as we move on to the questions.

That's very helpful, Tim. And as we've talked about with investors, we thought that Broadridge is really well positioned to weather the impacts of the pandemic and the related economic slowdown. You've given a high level of fixed recurring revenue. There's a couple of pockets of variable recurring revenue. But just as you said, finished fiscal 2000 very strong, gave good guidance for fiscal '21. And even bookings, strong bookings in the June period. Bookings for fiscal 2020, I think, were up about 2%, but that was impacted by a real tough comparison. So it kind of downplays how good the bookings were. Can you talk a little bit about -- when you look at those themes, you talked about earlier mutualization, governance, outsourcing, what areas are contributing to bookings today?

Yes. We really saw strength across our business, which is interesting. I guess maybe the common thread across all of our businesses is this theme of mutualization. So next-generation governance, there is a lot going on this year. Shareholder rights directive in Europe was a big thing for us as well as this move to virtual annual meetings. So those 2 things really helped our governance side. Also sort of broadly into the governance umbrella, our data-driven solutions for fund companies, had a very good year. And we had some very strong sales actually in customer communications as well. And that's one that we've been working on for a while, but it's that theme of as things go more digital, large players lose scale in their in-house facilities and turning to outside help for that. Also on the capital markets side, we added a large European bank. We had not a big sale, but an important one for us. We had the first sale of our blockchain-based solution for repurchase agreements or repos. And then on the wealth management side, lots of sales, and in particular, we did a couple of acquisitions last year, particularly RPM in Canada, that had a very, very strong sales year, way out ahead of its business case and really contributed to a nice year on the wealth management side. So we think, and I said in my open that the COVID pandemic is really reinforcing the long-term trends that are driving our business, including mutualization, digitization, importance of data and analytics. And so we're seeing that impact across the business.

That's great. That's great. And as you know, your bookings can be lumpy, and you provided some guidance for 2021 that had a little bit wider range on both revenue, earnings and bookings, but with a very strong new business backlog, I think $300-plus million. If there are any temporary delays in bookings in the back half that you -- I guess our view is that, that really shouldn't affect your fiscal 2021 guidance or really the timing of when eventual deals go live.

I think that's right. I think it is -- there's always a fraction of what we do that are nearing kinds of things where we might contract with someone and implement it in the same year. So if there were a decline in bookings, it could potentially have some revenue impact, even though we have that big backlog. That said, going into the year was sort of more than a year's worth of expected growth sort of already signed, is one of the things that makes me sleep just a little bit better at night. And I feel really good as we have been really scaling up our implementation capabilities. And you always hear me talk about improving our product and technology capabilities, and we're beginning to see that in greater flow-through on the implementation side.

That's great. That's great. And so to your point, within the backlog, there are some deals that may take 15 months, 18 months or longer to implement. One of those is the real significant deal that you signed with UBS Wealth Management to build a next-generation adviser desktop. Can you talk a little bit about that deal? Kind of how long it took you to secure it, some of the things that you're doing to build those capabilities, and your time line -- your remaining time line to get that contract live.

Yes. Pete, it's really one that came together -- it did come together over a couple of years as we were shaping our strategy and UBS was shaping its strategy and did a pretty comprehensive look across the entire technology landscape in terms of who it could partner with. And it was actually one of the things that crystalized our strategy in the sense that they didn't find anyone. And the issue is there's really no scale technology player serving the wealth management industry. So you either have to build it all yourself, of which really no one wants to do that. We have to buy a whole series of piece parts and put them together. And the whole objective of this ecosystem that we're creating with UBS as the first client, but others behind it, is to leverage our back office, but modernize very open data layer, all the market type connectivity, put an integration layer on that. And using modern technology with APIs and micro services, have a series of apps on that -- on top of that, some of which will be run by us, some of which will be UBS, some of which will be third parties, all inside of our modern container that allows context passing as all the security, all of those things that are really common across all of those apps. So that vision is really, I think, pretty exciting for UBS. It's giving us something very modern. It's really upgrading our capabilities around managed accounts, around performance reporting and goal-based investing, but in many other ways as well. And that's going to be, I think, very applicable to really any of the top 20 broker-dealers.

Great. Great. And while UBS may wind up being one of your larger wealth management clients, you've been building a collection of solutions for the wealth management sector for a number of years, both through acquisition and then through further internal development. Can you talk about -- right now, you continue to break down the business into 2 primary segments, investor communications and global technology and outsourcing. But within that, can you kind of quantify about how much wealth manage would be? And what do you see as the vision in that space?

Yes, absolutely. It is -- as you said, it's -- the strategy is a combination of a holistic platform, but also the individual components that can be consumed individually. And we've been building that both organically and through acquisitions. We've made more than $400 million of acquisitions in the wealth management space. If you -- and we will be giving a sweet preview of this on our Investor Day, so reason to tune in, in terms of more detail about the businesses underneath the 2 big segments. But if you look at wealth management today, it's between $400 million and $500 million. It's been growing very nicely, both organically and with the acquisitions. And I think when you look -- we announced really at our last Investor Day, our strategy of really creating a much more substantial business in wealth management. And you're going to really see, I think, a nice trajectory there as we show sort of where we were and where we are now, and then where we look forward to. And I think this can be certainly above our typical organic growth rate for a long time to come. And that will become an increasingly important part of our business.

That's great. That's great. And just in terms of you talked about really not seeing another competitor at that level with the top 20, top 30 capital markets firms that could have those capabilities. But as you go along, do you see yourself becoming -- who else would you be competing with as you continue to grow the wealth management space? Would it be the SS&Cs or Thomson Financials or Envestnets of the world?

Yes. I think everyone has a little bit different flavor. SS&C is very focused on the buy side. Envestnet is really -- and they're probably the closest thing to someone as a technology provider to wealth management space, but they're a very much investment management firm. So it's a very different business model than our business model. And Thomson, their -- which is now Refinitiv and now LSE, and sort of their commitment to this business in the U.S. wealth management has been something that has sort of come and gone over time, and we'll see as they evolve whether that grows or sort of -- I think the stability of sort of just where the piece that was Thomson, that then was Refinitiv, that now is LSE, and how does it feel with LSE. So I think it's a little bit unclear when that will end up.