Broadridge Financial Solutions Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

Key Takeaways

  • Recurring revenue grew 4% in constant currency in Q1, with adjusted EPS of $1 despite the E*TRADE deconversion impact.
  • Raised fiscal 2025 recurring revenue guidance to 6–8% and reaffirmed 8–12% adjusted EPS growth, remaining on track for its 3-year financial objectives.
  • Closed the acquisition of SIS for ~$185 million to expand the Canadian wealth business, adding over one point to growth with no material EPS dilution.
  • The E*TRADE deconversion imposed a ~170 basis-point headwind in Q1 recurring revenue, expected to lessen to a 4–6 point drag in Q2 before fully abating.
  • Achieved a record Q1 of $57 million in closed sales—up 21% year-over-year—with a strong ~$450 million backlog supporting future revenue.
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Earnings Conference Call
Broadridge Financial Solutions Q1 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Broadridge Fiscal First Quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone, and to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Edings Thibault, Head of Investor Relations. Please go ahead, sir.

Edings Thibault
Edings Thibault
Head of Investor Relations at Broadridge Financial Solutions

Thank you, Chuck. Good morning, everybody, and welcome to Broadridge's First Quarter Fiscal Year 2025 earnings call. Our earnings release and the slides to 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 interim CFO, Ashima Ghei. Before I turn the call over to Tim, a few standard reminders. One, 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. Two, we'll also be referring to several non-GAAP measures which we believe provide investors with a more complete understanding of Broadridge's underlying operating results.

Edings Thibault
Edings Thibault
Head of Investor Relations at Broadridge Financial Solutions

An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings release and the presentation. Let me now turn the call over to Tim Gokey. Tim?

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Thank you, Edings, and good morning. I'm pleased to be here with you today to discuss our first quarter results. I want to thank you all for joining, especially on election day, which reminds us all of the incredible privilege and power of voting. Stepping back, global financial markets remain robust, and the demand for what we do remains healthy, driven by long-term trends, including the democratization of investing, digitization of communications, acceleration of trading, growing importance of AI and the data that powers it, and ever-present regulatory change. At the same time, uncertainty remains high given the U.S. election and other geopolitical events.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

It's an environment in which the Broadridge business model stands out, and I'm pleased to report that we are very much on track to deliver another strong year with consistent top and bottom-line growth powered by a strong backlog of revenue from sales, continued healthy position growth, and resilient trading volumes. So let's dive into the headlines. First, Broadridge reported solid first quarter results. After absorbing the impact of the E*TRADE deconversion, recurring revenue grew 4% in constant currency, driven by our Governance and Capital Markets franchises. Adjusted EPS was $1 as we cycled through the E*TRADE impact and lower event-driven revenues for the quarter. Second, we continue to execute on our strategy to enable our clients to democratize and digitize investing, simplify and innovate trading, and modernize wealth management. That execution is driving our results in the form of continued product innovation, a growing pipeline, and strong sales.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Third, we're strengthening our business with targeted investments, including the acquisition of SIS, which closed last week. SIS will grow our Canadian business and accelerate our ability to bring wealth innovation to that market. Fourth, as I said a moment ago, Broadridge is on track to deliver strong full-year results. We're raising our fiscal 2025 recurring revenue guidance to 6%-8%, reflecting our recently completed acquisition of SIS and strong organic growth over the balance of the year. We're also reaffirming our guidance for adjusted EPS growth and strong closed sales, and we are on track to achieve our three-year financial objectives. To sum up, our business is performing well. So let's dive into that performance on slide four. I'll start with our governance business, where we continue to drive democratization and digitization, deliver innovation, and help our clients adapt to regulatory change.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

ICS recurring revenues rose 5% in constant currency, driven by strong revenue from sales and continued growth in investor participation. Looking across our product lines, we reported strong growth in data-driven fund solutions and issuer solutions. Investor participation continues to drive healthy position growth. Equity record growth for companies whose meeting was processed during the quarter was 3%. Our fiscal first quarter is our seasonally smallest quarter and is more impacted by the mix of companies hosting their annual meetings, which this quarter included fewer large-cap growth companies. Underlying trends, including double-digit growth in managed accounts, remained robust, and we continue to see mid to high single-digit growth overall for the first half, and, as Ashima will share with you, for the seasonally larger second half. Fund and ETF position growth, which is less seasonal, was 6% in the first quarter.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Underlying fund position growth trends remain stable, with continued strong growth in passive fund positions and double-digit growth in money market fund positions. With the Fed having cut rates late in the quarter, it's too soon to assess whether lower rates will drive positive fund position growth. New sales were the biggest driver of our governance revenue growth, which reflects our focus on driving innovation and enabling clients to adapt to regulatory change. During the quarter, we onboarded hundreds of fund clients onto our new tailored shareholder reporting solution, helping them communicate more effectively with their clients. That success is not only contributing to our revenue growth. It's driving growing interest in our digital composition capabilities. We also introduced our new governance client experience during the quarter, giving our broker clients a single dashboard to monitor their critical communications across proxies, fund documents, and other communications.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

This new cloud-based experience leveraged the investments we made in our Wealth Platform, highlighting the broader benefits we are seeing from that investment across Broadridge. A key factor in the success of our governance and communications business has been our ability to drive the digitization of investor and customer communications. At last year's Investor Day, we highlighted our Wealth In Focus platform, which transforms the full spectrum of wealth client communications by creating personal, interactive digital communications combined with streamlined physical statements for those that so choose. We're now lapping the first full year of client implementations, and as we scale up the volume of communications, the impact on client engagement rates has been even better than in our initial trials. We're seeing open rates 20% higher and click-through rates more than five times that of standard communications.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

That's up from the initial numbers we shared with you last year, which means an even better experience for investors. Turning to capital markets, where we are simplifying and innovating trading, recurring revenues grew 5%, driven by new sales and higher trading volumes. Since the end of the summer, markets have been driven by the interplay of growth and inflation, as I'm sure you can all attest. That uncertainty has driven higher fixed-income trading volumes. Periods of intense volatility highlight the scalability, flexibility, and reliability of our post-trade technology as markets react to sudden change. We're also continuing to deliver innovative solutions, again by leveraging the data management investments we made as part of our wealth platform. Our new TradeVerse solution enables trading firms to bring together and harmonize multi-asset class trade data throughout the trade lifecycle.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Improving data quality and accessibility will enable clients to reduce errors and unlock insights across the front, middle, and back office, and further simplify their operations. We're also helping clients adapt to regulatory changes in both the EU and the U.S. with a new resilience solution for a global post-trade platform and by adapting our distributed ledger capabilities to make it easier for firms to meet centralized clearing requirements for U.S. Treasury. Turning now to wealth and investment management, recurring revenue declined 4% as the deconversion of E*TRADE offset healthier 6% underlying growth. The onboarding of new sales remained the key driver of that growth, which is why I'm pleased to see a strong pipeline of new opportunities across both the U.S. and Canada. This pipeline includes component solutions as well as broader opportunities with larger wealth managers.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

We continue to see strong interest in solutions that drive operational efficiency and/or client and advisor engagement. Last week, we closed an approximately $185 million acquisition of Kyndryl's SIS business to further expand our wealth business in Canada. Over the years, we've built a strong Canadian technology business providing core back office functions, including clearing and settlement, serving many of the largest banks, broker-dealers, and wealth managers in Canada. More recently, we've expanded for retail bank distribution as well, and in addition, a suite of component solutions that enrich the advisor and investor experience. The acquisition of SIS gives us additional attractive clients. It also gives more opportunity for the broader set of wealth components that we're bringing to all our Canadian clients through a common integration layer, APIs, and component-based approach to drive productivity for advisors, enhance investors' experience, and streamline operations.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

A great example is a multi-year transformation we're doing for a large Canadian bank. We're working with them to create a unified one-bank experience by linking their wealth and investment accounts to the retail banking clients. We recently completed the transition of more than a million accounts as part of this implementation, creating a simplified and enhanced end-user experience and a more efficient and streamlined set of internal processes for the bank. We're excited about the potential to bring more of that innovation to an even larger set of Canadian financial services firms. I'll wrap up my review of our business with closed sales. Broadridge recorded a first quarter record $57 million in closed sales. That performance is even more impressive given our fourth quarter and fiscal 2024 results, and it underscores the breadth of our products and how our solutions are helping our clients grow and drive efficiency.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

During the quarter, we saw strong demand for customer communications and class action services and governance, and for selecting components in capital markets and wealth. I was excited to see another sale of our distributed ledger repo solution for a major bank, which is a great example of how our innovation is driving sales. Most importantly, our pipeline of new sales opportunities remains strong. I'll close with some summary callouts on slide five. First, we delivered solid first quarter results. Second, Broadridge is executing on our long-term growth plan. We're helping our clients address the growing number of new investors to drive digitization and to adapt to regulatory change. We're delivering innovation for capital markets clients and expanding our wealth management business.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Third, our plans are anchored in long-term trends that are driving the financial services industry, including the democratization and digitization of investing, the acceleration of trading, the growing importance of AI and the data that powers it, and the need to adapt to an ever-evolving regulatory environment. That long-term focus has enabled Broadridge to become a trusted and increasingly transformative partner for our clients, creating significant value for our shareholders. We have driven steady and sustainable top- and bottom-line financial results through the ups and downs of financial markets and through administrations of both parties. Fourth, our execution has us on track to deliver another year of strong and sustainable results in fiscal 2025, including 6%-8% recurring revenue growth, constant currency, and 8%-12% adjusted EPS growth.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

In longer term, we remain on track to achieve the three-year financial objectives we laid out at our last Investor Day, which will mark the fifth three-year cycle in which we've delivered on our goals. Before I turn it over to Ashima, I want to thank the 15,000 Broadridge associates around the world. Their hard work, focus on serving our clients, and success in bringing innovation to our industry is what powers our growth. Thank you. Now I'll turn it over to Ashima. Ashima?

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Thank you, Tim. Good morning, everyone. I'll begin my discussion this morning with four key callouts. First, Broadridge delivered solid first quarter results. Recurring revenue growth, constant currency of 4%, included a 170 basis points headwind from the E*TRADE deconversion. That impact will subside in the second quarter, and we expect organic recurring revenue growth to strengthen over the balance of the year.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Second, our key revenue growth drivers remain strong. Closed sales rose 21% over a very healthy Q1 2024, and our forward position growth testing, which now includes the second half of the year, continues to support our mid to high single-digit outlook. Third, we are raising our recurring revenue growth outlook for the year to 6%-8% from 5%-7%. Our increased guidance reflects both the acquisition of SIS, which closed on November 1st, and is expected to add one point to our growth, and strengthening organic growth for the balance of the year, as I noted earlier. We expect organic recurring revenue growth of 6%-7% over the next three quarters, driven by our $450 million sales backlog, mid to high single-digit position growth, and the lapping of the E*TRADE deconversion.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Fourth, as a result, we continue to expect to deliver strong Fiscal Year 2025 results, including 50 basis points plus of underlying core margin expansion, 8%-12% adjusted EPS growth, and $290-$330 million of closed sales. With that, let's get to the numbers on slide six. Recurring revenues rose 4% on a constant currency basis, virtually all organic. Adjusted operating income decreased 7%, driven by lower event driven and the impact of the E*TRADE deconversion. AOI margins were 13%, and adjusted EPS was $1 per share, both modestly above our expectations, driven by timing of investment spend. Finally, as Tim noted, we delivered closed sales of $57 million, up 21% from last year. Let's move to slide seven. Recurring revenue grew 4% to $900 million. Our growth was driven by a strong contribution from new sales, partially offset by lower growth in wealth and investment management.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Let's turn to slide eight to look at the growth across our ICS and GTO segments. ICS recurring revenues rose 5% to $493 million. Regulatory revenues rose 6%, driven by fund position growth of 6%. As a reminder, equity proxy revenues are not a meaningful driver of revenue growth in the first quarter, given the seasonally low volume levels. Data-driven fund solutions revenue increased 6%, driven by growth in our retirement and workplace solutions and our data and analytics products. M&A contributed one point to fund solution growth. Issuer revenue also grew 8%, led by strong growth in our shareholder engagement solutions, and customer communications revenue growth was 3% as we continued to benefit from onboarding new clients.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Looking ahead, we continue to expect ICS recurring revenues to grow in line with our 6%-8% recurring revenue growth outlook, driven by revenue from new sales and mid to high single-digit position growth. Turning to GTO, revenues rose 2% to $407 million. Capital markets revenues grew 5%, driven by the growth of our global post-trade capabilities, which benefited from higher fixed-income trading volumes as well as our BTCS front office solutions. Lower license revenues were a modest headwind. Wealth and investment management revenues declined 4% as we continue to cycle through the impact of the E*TRADE deconversion. Excluding that impact, revenues rose 6%, powered by growth of our back office capabilities as well as our component solutions.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

The E*TRADE deconversion impact is expected to decline from the 10-point impact in Q1 to a 4- to 6-point headwind in the second quarter, which will be the last quarter with any impact. As Tim noted, we closed the acquisition of SIS on November 1st and expect to record SIS revenues in our wealth and investment management product line. Including the benefit from SIS, we now expect overall GTO revenue growth at the high end of our 6%-8% recurring revenue growth outlook, including low double-digit growth in wealth and investment management. Next, let's turn to slide nine to take a look at our key volume indicators. Broadridge continues to benefit from the secular growth in investor participation across both equities and funds. Equity position growth was 3%, driven by managed accounts and in line with our testing at the end of fiscal 2024.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

First quarter equity position growth was impacted by the mix of companies hosting their annual meetings. This is not unusual, given the much smaller number of proxies processed in the quarter. For context, first quarter volumes accounted for only 6% of the annual total in fiscal 2024. It's important to call out that we expect first half position growth will be firmly in the mid to high single-digit range, in line with our prior testing. And looking further ahead, our forward testing is showing continued mid to high single-digit position growth during the more meaningful second half of the year as well. Mutual fund and ETF position growth was 6%, and our current testing is indicating continued mid single-digit growth. Turning to trade volumes on the bottom of the slide, trade volumes rose 10% on a blended basis, led by double-digit growth in fixed-income volumes.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

I'll wrap up my discussion of recurring revenue growth on slide 10. Revenue from closed sales remains the biggest driver of our recurring revenue growth at 6 points. As we onboard revenues from our 450 million backlog, that growth was partially offset by 4 points of losses, including the deconversion of E*TRADE, which accounted for almost half of our overall losses. Internal growth contributed one point, primarily driven by fund position growth and higher trading volumes, which more than offset lower 30e-3 regulatory fee revenues. As a result, organic revenue growth was 3%. Rounding out the recurring revenue growth drivers, the two tuck-in acquisitions we made in May and July contributed 20 basis points. I'll also remind you that the acquisition of SIS did not close until November, so it did not contribute to our first quarter growth.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

And changes in FX reduced our reported growth by 20 basis points. With the recent weakening of the dollar, we now forecast FX to be a modest positive for growth over the balance of the year. Let's close our discussions of revenues on slide 11. Total revenue was flat at $1.4 billion, as two points of growth from recurring revenue were offset by a decline in event-driven revenue and modestly lower distribution revenue. Event-driven revenues were $63 million, in line with our seven-year quarterly average, and $27 million lower than an unusually high Q1 2024. Looking ahead, we continue to expect full year event-driven revenue to be at the high end of our historical levels, driven in part by a major mutual fund proxy campaign, which is expected to occur in the second quarter. Low to no margin distribution revenues declined 3%, representing a one-point headwind to total revenue growth.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

The impact of higher postal rates was more than offset by a decline in mail volumes linked to our event-driven activities. We now expect distribution revenue growth to be in the mid to high single-digit range for fiscal 2025, driven by higher postal rates and customer communication print volumes. Turning now to margins on slide 12, adjusted operating income margin was 13%, a decline of 90 basis points from Q1 2024. This was driven by the decline in event-driven revenues, the E*TRADE deconversion, and ongoing reinvestment. Together, these factors more than offset the operating leverage we generated from higher recurring revenues and the benefits of our fourth quarter restructuring initiative. The net impact of changes in float income and distribution revenues reduced AOI margins by approximately 30 basis points in the quarter. For the year, we remain on track to generate 50 basis points plus of underlying core margin expansion.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Let's move on to sales. Closed sales were $57 million, up $10 million or 21% from Q1 2024, driven by strong demand for our governance solutions. Closed sales are the biggest driver of our long-term growth, so I'm encouraged by our strong start to fiscal 2025, especially coming off our record fiscal 2024 sales. Turning to our cash flows, I'll start with a reminder that Broadridge's cash flow generation is typically negative in the fiscal first quarter and strengthens throughout the year. Q1 2025 free cash flow was negative $158 million, a decrease from negative $76 million in Q1 2024. The decline was driven by an increase in cash taxes and severance payments related to our fourth quarter 2024 restructuring initiative, as well as lower net income. We continue to expect free cash flow conversion of 95% to 105% in fiscal 2025.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Turning next to capital allocation on slide 15, during the quarter, we invested $32 million in capital spending and software and returned $93 million to shareholders in our quarterly dividend. We also have made two tuck-in M&A investments. The first was CompSci to strengthen our issuer business, which closed on July 1st, and then we also closed the acquisition of SIS on November 1st for approximately $185 million. We remain committed to balance capital allocation. The combination of our quarterly dividend payments and the acquisition of SIS is expected to absorb approximately $600 million of our cash, giving us ample capacity to fund additional tuck-in M&A and/or repurchase additional shares over the balance of the year. Let's start to wrap by reviewing our outlook for fiscal 2025 on page 16.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

As I said in the beginning of my remarks, Broadridge is on track to deliver strong fiscal 2025 results. We are raising our recurring revenue guidance to 6%-8% from 5%-7%, and our guidance now incorporates the impact of the SIS acquisition. We continue to expect adjusted operating income margin of approximately 20%, adjusted EPS growth of 8%-12%, and closed sales of between $290 million to $330 million. Additionally, we expect 27%-28% of our earnings to be generated in the first half of the year, in line with our performance over the last 10 years. Finally, let me summarize my key messages. Broadridge delivered solid Q1 financial results. The demand and secular trends driving our growth remain strong, and our testing is showing continued mid to high single-digit equity and mid single-digit fund position growth for the year.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Last, we are on track to deliver strong Fiscal 2025 results. We are raising our recurring revenue growth guidance to reflect the benefit from the acquisition of SIS and reaffirming our Adjusted EPS and sales guidance, highlighting the strength of our business and financial model. With that, let's take your questions. Chuck.

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Daniel Perlin with RBC Capital. Please go ahead.

Daniel Perlin
Daniel Perlin
Managing Director at RBC Capital Markets

Thanks. Good morning. I just wanted to revisit the guidance there for a second. I think it's pretty clear on the raising of the recurring numbers around the acquisition and then E*TRADE's, I guess, headwind kind of abating. But not raising the EPS again kind of suggests that the incremental margins associated with what's being brought on are lower or there's something else that's offsetting it. And I think you mentioned a couple, but maybe if you could talk about some of those puts and takes to kind of reconcile why we'd get a top-line raise but not something else in earnings. Thank you.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Sure. I'll take that, Daniel. Thanks for your question. Happy to provide some color on the guidance. You're absolutely right. We're raising our recurring revenue growth guidance to 6%-8%, right, like you pointed out. It reflects the acquisition of SIS, and it also reflects our additional comfort and confidence sitting where we are at the end of Q1, given the sales activity, given the position growth, that we're specifically now targeting 6%-7% organic growth over the balance of the year. We are also feeling good about our event activity. Having said that, we think about high-margin event activity as a means to create investment capacity, so what we're really targeting is in line with our guidance, 8%-12% EPS growth and seeking the opportunity to reinvest for further growth opportunities.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

And I would just add to that, I think obviously a key part of the rise is the SIS acquisition, and in the first year, we expect that to be neutral to EPS. So it's really the other factors that Ashima was talking about in terms of the reinvestment on event and feeling good about organic, really leaves us right in that same range.

Daniel Perlin
Daniel Perlin
Managing Director at RBC Capital Markets

Got it. No, that's great. Thank you. Just a quick follow-up on M&A and your appetite here. I mean, you have done a couple of deals, relatively small tuck-ins. You clearly have a lot more capacity. And I think in the past couple of quarters, you kind of alluded to maybe the environment getting a little bit better in terms of maybe prices and opportunities that you see out in the market, that pipeline getting bigger. So just as we sit here today, I'm just curious where you are thinking you might want to place some incremental dollars this year. Thank you.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Yeah. Thanks, Daniel. Just starting with the principles that you well know, which is we're an organic growth company. Our growth is primarily there, and we have a long runway given the addressable market we have. But M&A has been an attractive way to meet the needs of our clients. And over three years, we're expecting sort of one to two points contribution to recurring revenue from M&A. If you look at where the market is right now, first of all, we're excited that we've been able to make some compelling purchases, including SIS. And certainly, we're seeing many PEs bringing things to market. We're tracking a pretty strong pipeline of opportunities. And I think, as always, the art is in finding those deals that meet a combination of our financial criteria and where we think we are really the right or the best owner.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

And that's obviously all in the context of balanced capital allocation, mid to high teens ROIC. So we're definitely looking at things. We're definitely keeping that financial framework in mind. And so if you do see us execute, it will be because we see something that we think is compelling. And if we don't see the right opportunities, we remain very comfortable with repurchasing Broadridge shares.

Daniel Perlin
Daniel Perlin
Managing Director at RBC Capital Markets

That's great. Thank you.

Operator

The next question will come from James Faucette with Morgan Stanley. Please go ahead. Great.

James Faucette
James Faucette
Managing Director and Senior Equity Research Analyst at Morgan Stanley

Thank you for those clarifications on the outlook, etc. Wanted to touch really quickly on digital and then some developments in the market generally. You've got digital revenue growing double digits in fiscal year 2024, and digital revenue on average is converting faster and the better onboarding efficacy you referred to last call. I was surprised to see customer communications growth in the quarter consistent with fiscal fourth quarter. What's the driver there, and is there still a line of sight to that business accelerating to mid single digit or even high single digit growth in this coming fiscal year?

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Yeah, James, thanks very much for that question. It's a good one, and I do want to reiterate that we really do see our BRCC revenues on track to pick up from the FY24 levels in the remainder of the year, and really, that is driven by new sales, and it's driven by growth in digital. We had a quite significant sale in the fourth quarter that was, we call it center of excellence, but it's a full lift-out of all of the print and digital capabilities of a significant financial services provider.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

That revenue was onboarded late in the first quarter, so it didn't really impact the first quarter, but it will impact the rest of the year. And it really shows the value proposition of that print to digital conversion. Also, I mentioned the script around Wealth In Focus, which we featured on Investor Day last year, generating very positive feedback and pipeline. So we're pretty confident in the outlook for higher growth over the balance of 2025, driven by that onboarding of recent sales wins, which, as I say, are already onboard. So we feel pretty confident in mid- to high-single-digit growth in BRCC for the full year.

James Faucette
James Faucette
Managing Director and Senior Equity Research Analyst at Morgan Stanley

Got it. Appreciate that. And then just more on a high-level and longer-term question. We saw an article during the quarter with one of the heads of International Post-Trade, which effectively, from at least what I took, that while it's not really an acute issue right now, he was starting to see T+1 lead to increased costs for brokers, particularly as it relates to securities lending and FX. What is Broadridge, or how is Broadridge helping to mitigate this dynamic, and what are some of the takeaways the industry has focused on before that rollout in Europe and the rest of the world?

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Yeah, James, very interesting question. And it's interesting because I think there's a bit of a dichotomy here between the U.S. and Europe. The T+1 implementation went very smoothly here in the U.S.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

The fail rates and straight-through processing rates and same-day confirmation rates all went up quite a bit, and I think people were expecting there to be some issues, and there weren't. Now, Europe has yet to do T plus one, and they're looking at when to do that, but what they're seeing is just some of the tension between the T plus one in the U.S. is not in Europe, and how is that causing sort of disconnect in some of those ancillary services and is being papered over at this point with people, and so I think we are hearing the same thing, that that's causing some challenges for people. I think in terms of how we can help, it's a little bit of a question of how quickly they'll move to T plus one and sort of eliminate that disparity in the dates between here and there.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

And in the meantime, we obviously have a managed service for our clients who are where we're doing that for them on both sides. We can help them with our BPO. And if there's going to be a significant timing gap, then it would be creating some technology to help.

James Faucette
James Faucette
Managing Director and Senior Equity Research Analyst at Morgan Stanley

Great. Thank you very much.

Operator

The next question will come from Puneet Jain with J.P. Morgan. Please go ahead.

Puneet Jain
Puneet Jain
Equity Research Analyst at JP Morgan

Hey. Quickly taking my question. So some of the consulting companies have definitely gotten more positive on outlook for financial services in the US, like the large banks, capital market clients. Are you also seeing any changes in backlog conversion into revenue or the flow of deals from pipeline into backlog? Are you seeing any change in clients' behavior as it relates to how they take decisions?

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Yeah, Puneet, thank you very much.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

If you think about project execution, we didn't see the slowdown that some other people have reported in project execution. We definitely saw, this is going back a ways now, a lengthening of sales pipeline and it taking longer to get to closure. This may be because more of the mix of the things that we do are around regulatory and cost and things that our clients feel like they really need to get done. And so once they sign, they're sort of maybe more at the top of the list for implementation. So we didn't see the same implementation delays that others are seeing. I think more broadly, though, if we just talk about the business environment out there, we were really pleased by what we're seeing in terms of sales closes.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

And that strong start to the year on the sales side increases our confidence for the full year. We're seeing that in governance and communication solutions. We're seeing in select areas in capital markets and wealth. And just while I'm on sales, a couple of things that I think are worth noting is just that we're seeing those sales in the areas where we're investing, digital communications, class actions in the front office and wealth. And the pipeline is really good. And if we compare our pipeline multiplier now to where we were last year at the same time, it's just as strong. And then with the backlog, $450 million as of August, that really gives us confidence in our outlook and provides good visibility into our recurring revenue over the medium term, giving us confidence in our three-year outlook.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Just one final comment just on that revenue to sales to revenue conversion, it is an area that we're really focused on. I think we're actually seeing improvements this year over last year. Part of that's on the client side. Part of that is on our side.

Puneet Jain
Puneet Jain
Equity Research Analyst at JP Morgan

Got it. On the other side, ICS side within regulatory business, the stock record growth came at 3%. You expect that to improve. How much visibility you have or what confidence you have that stock record growth improves from here to mid single digits?

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Yeah. Puneet, I'll start by just reminding you. I know you know this, but I'll just start off by reminding that the stock record growth that you saw for Q1 reflects the growth for those specific issuers that sent out their proxies in the July to September time period, right?

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

They typically end up being very small companies, and one or two large issuers really make a swing in the growth rate. The 3% was actually in line with what we'd expected at the end of last year, given the mix of companies that we were aware of. Just like we're expecting Q2 now to be at the high single digit growth rate, which together across the first half of the year, we're expecting to be solidly in the mid to high single digit growth rate. Our testing for equity has proven pretty reliable, right? Especially when we're looking at two, three quarters out, we have a fairly good idea of, because we do it at an issuer level, we have a fairly good idea of how it's going to trend out.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

As we sit here right now, we've started testing our much more material second half of the year as well. And it's showing mid- to high-single-digit growth. So I feel pretty good about it.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

And Puneet, I just add that I think the bigger picture here is about the broad drivers that remain very positive, especially the momentum in managed accounts, the overall market environment. As Ashima said, the testing has been pretty accurate, showing a strong full year. We're also seeing this on the fund side where it's more mid-single- than high-single-digit. And then beyond that, we have all the innovation that we've talked about with voting choice and direct indexing. And so I think overall, I think the thing we'd want people to take away is that the positive trends are giving us confidence in the year, but also in the longer-term duration.

Puneet Jain
Puneet Jain
Equity Research Analyst at JP Morgan

Got it. Thank you.

Operator

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

Patrick O'Shaughnessy
Patrick O'Shaughnessy
Equity Analyst at Raymond James Financial

Hey, good morning. Follow-up question on SIS. Can you provide the specific revenue contribution that you expect from that business this year? And absent SIS, would you have still raised your constant currency recurring revenue guide for the year?

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Yeah. Patrick, I'll start on this and let Ashima add in anything. I think, first of all, just since the number for SIS is just a little shy of $60 million for this year in this full year. But when we look at more broadly, when we look at our overall wealth and investment management business, we really like the position we have in Canada. It's an attractive market. We serve many of the leading institutions, lots of small ones too.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

We're excited to add these important new clients, but we're also excited about the opportunity to leverage our wealth platform investment into the Canadian market, and we're bringing that technology that's already built. We have a bigger base of clients to provide it to, and this really underscores our commitment to our wealth business, to being a leading technology provider to Canada. Would we have increased guidance without this? I think what we're signaling is increased confidence on the organic side. I'm not sure that it would have been so much that we would have changed our guidance, so the increase that you're seeing here is largely related specifically to SIS, but we feel what we wanted to make sure is that no one came away looking, doing all the math and saying that we think like we're weakening on the organic side.

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

That's sort of the opposite of the message we're trying to convey because we're really seeing nice trends for the rest of the year.

Ashima Ghei
Ashima Ghei
CFO at Broadridge Financial Solutions

Yeah. And Patrick, I'll also add a bit more specifics about SIS. Like you heard, we expect it's about $185 million purchase price. We expect it to add a little over a percentage point to Broadridge growth overall. To the question earlier, we do expect it to be slightly dilutive to Broadridge margins, but are not expecting any material impact to earnings as a result of this. Of course, it'll be accretive to wealth growth leading to low double-digit growth for the wealth business and GTO growth coming in at the high end of the 5%-8%. But just SIS itself, the guide is a little over one percentage point to Broadridge growth, slight dilution to margins, and no impact to earnings. Terrific.

Patrick O'Shaughnessy
Patrick O'Shaughnessy
Equity Analyst at Raymond James Financial

That's very helpful. Thank you. And then looking at your closed sales number, typically your fiscal first quarter represents less than 15% of your full year closed sales activity. But this past quarter, closed sales was closer to 20% to the midpoint of your full year fiscal 2025 outlook. Was there any unusual pull forward this quarter, or are things perhaps just trending maybe a little bit better than what you would have expected?

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Yeah, Patrick, it's always good to get a strong start on the year. I don't think I want to signal any increase in our expectation. I think that 290-330 is a really good range for us. I wouldn't call it pull forward, but there's always the timing of sort of the medium-sized deals that can fall in one quarter versus another. And so I just want you to take away that we feel like we have a good start to the quarter. We feel like we're going to have a good first half, and we're feeling good about the full year. Terrific.

Patrick O'Shaughnessy
Patrick O'Shaughnessy
Equity Analyst at Raymond James Financial

Thank you.

Operator

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

Tim Gokey
Tim Gokey
CEO at Broadridge Financial Solutions

Thank you, Chuck. I just want to thank everyone on the call for your interest in Broadridge, especially so on election day. Have a great morning.

Executives
    • Edings Thibault
      Edings Thibault
      Head of Investor Relations
    • Tim Gokey
      Tim Gokey
      CEO
    • Ashima Ghei
      Ashima Ghei
      CFO
Analysts
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