Broadridge Financial Solutions, Inc. (BR) 2024 Q4 Earnings Call Summary

Optimistic Highlights

• Record Closed Sales: Broadridge reported a 39% growth in closed sales to $342 million, marking both record sales and record sales growth.
• Strong Financial Performance: For the full year, adjusted EPS rose 10% on 6% organic growth in recurring revenues, with strong free cash flow conversion ending the year at 102%.
• Dividend Increase: Announced a 10% increase in the annual dividend, marking the 12th double-digit increase in the last 13 years.
• Resilient Business Model: Highlighted the resilience of Broadridge's business model, especially in periods of higher volatility, with a strong pipeline and resilient volume trends going into fiscal ‘25.
• Investment in Growth: Broadridge is investing in its products and capabilities, executing on its growth strategy across governance, capital markets, and wealth management.

Pessimistic Highlights

• Market Volatility: Recent market volatility raises questions about the pace of rate easing and sustainability of growth, although it's too early to determine if this represents a market turn.
• E-Trade Deconversion Impact: The de-conversion of Morgan Stanley E-Trade impacted growth in the wealth and investment management segment, expected to continue affecting growth through the first half of fiscal ‘25.

Company Outlook

• Fiscal ‘25 Guidance: Broadridge expects 5% to 7% organic recurring revenue growth and 8% to 12% adjusted EPS growth, with closed sales projected between $290 million to $330 million.
• Long-term Growth: Positioned for another year of strong and sustainable growth in fiscal ‘25, on track to deliver on three-year financial objectives, with a long runway for future growth supported by technology trends and digitization.

Q & A Highlights

• Q: What have client behaviors been in past periods of heightened volatility, and how might the business perform if current market volatility continues? (Dan Perlin, RBC Capital Markets)

  A: Broadridge's business model is resilient, with 94% recurring fee revenues and a $450 million backlog of contracted sales. Position growth has been resilient through various economic cycles, and the company is hedged on interest rates. Volatility benefits trading volumes. The guidance for 5% to 7% recurring revenue growth and 8% to 12% earnings growth reflects confidence in the business model's resilience. (Tim Gokey)

• Q: Can you revisit the key drivers behind the strength in bookings trends and areas of real demand for new bookings and closed sales? (Darrin Peller, Wolf Research)

  A: The $342 million in closed sales for fiscal ‘24 was driven by tailored shareholder reports, digital solutions, and strong growth in both capital markets and wealth and investment management. Excluding tailored shareholder reports, sales were at record levels, and growth is expected to continue in fiscal ‘25 based on a strong pipeline. (Tim Gokey)

• 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? (James Faucette, Morgan Stanley)

  A: Sales in wealth management were up 40% year-on-year, near the $20 million goal, with a pipeline of opportunities 30% higher than 12 months ago. The acquisition of Kyndryl SIS business in Canada will accelerate the ability to bring new capabilities, including wealth solutions, to the Canadian market. (Tim Gokey)

• Q: Are the advisor target and CompSci deals indicative of a shift in M&A priority towards smaller, digital-focused acquisitions? (Puneet Jain, J.P. Morgan)

  A: Broadridge views M&A as a way to meet new client needs, with a buy versus build philosophy. AdvisorTarget and CompSci are examples of acquisitions that fill product line gaps and accelerate growth. The mix of M&A going forward will continue to be disciplined and strategic. (Tim Gokey)

• Q: Can you discuss the lack of margin expansion in the fiscal ‘25 guide and the confidence in the three-year, 50 basis points per year margin outlook? (Patrick O'Shaughnessy, Raymond James)

  A: The fiscal ‘25 guidance for a 20% adjusted operating income margin accounts for impacts from float income and distribution revenues, offset by benefits from restructuring and core margin expansion. Broadridge focuses on delivering sustainable double-digit earnings growth while investing in long-term growth opportunities. (Ashima Ghei)