Matthew Roswell

Matt Roswell asked for a detailed breakdown of the factors influencing the Adjusted EBITDA and Adjusted EBITDA margin guidance, including the impact of accelerated investments and the ODM transition. He also requested an update on the status of the Worldpay agreement concerning payments.

Answer

CFO Brian Webb-Walsh detailed that the projected Adjusted EBITDA range implies a 3.5-4 percentage point margin improvement year-over-year. He attributed 250-300 basis points of this to the ODM model transition effective April 1st, with the remainder from ongoing cost containment. Webb-Walsh clarified that accelerated investments were a prior-year CapEx item, not impacting current EBITDA, and noted that while EBITDA growth (4-7%) outpaces revenue, it's tempered by the absence of prior-year TSA fees. CEO James Kelly confirmed that the Worldpay agreement, signed in 2025, is complete, with the JetPay migration finalized. He stated the current focus is on acquiring new customers, having successfully onboarded 100% of the SMB market and many mid-market clients. For enterprise, Kelly explained a strategic pivot from retrofitting legacy applications to integrating payments holistically with new platform sales, leveraging modernized applications for new sale opportunities.

Matt Roswell, filling in for Dan Perlin, asked for details on the puts and takes around the Adjusted EBITDA and Adjusted EBITDA margin guidance, specifically mentioning accelerated investments and the ODM transition. He also inquired about the current status of the Worldpay agreement in terms of payments.

Answer

Brian Webb-Walsh, CFO, explained that the Adjusted EBITDA range implies a 3.5-4 point margin improvement, with 250-300 basis points from the ODM shift (effective April 1st) and the remainder from cost containment. He clarified that accelerated investments were CapEx, not impacting EBITDA, and noted the company is overcoming the loss of prior-year TSA fees. James Kelly, CEO, confirmed the Worldpay agreement was signed in 2025 and the JetPay migration is complete, with the current focus on new sales integrating payments holistically with modern architecture rather than retrofitting legacy applications.

Matthew Roswell asked about the relationship between hardware sales and software/services growth and how the ODM contract will alter it. He also inquired about the extent of remaining expense savings and their expected impact on the P&L.

Answer

CFO Brian Webb-Walsh clarified that non-recurring installation services (20% of services) are tied to hardware sales. CEO David Wilkinson added the company is strategically decoupling software from hardware. Webb-Walsh confirmed the $105 million cost-cutting program is largely complete, with further non-payroll savings planned for next year across all business areas.

Matt Roswell inquired about the organic growth trajectory of the wealth and investment management business, particularly the recent tick-up, and the company's outlook on the M&A environment, including asking prices and availability of large acquisitions.

Answer

Bill Stone, Chairman and CEO, expressed optimism for the wealth management business, highlighting the Black Diamond platform's industry leadership, significant AUA, and successful migration of Morningstar clients. Regarding M&A, Mr. Stone noted the Calastone acquisition's size, confirmed they are actively seeking large, accretive opportunities, and emphasized SS&C's strong financial position and operational advantages.

Matthew Roswell asked about any observed changes among Capital Markets clients regarding their legacy systems and the competitive landscape, specifically concerning clients considering in-house solutions or traditional competitors. He then inquired about any timing differentials to consider between the fiscal third and fourth quarters, specifically recalling how Easter's timing impacted the proxy business last year, and asked about other potential factors.

Answer

CEO Tim Gokey stated that Broadridge feels well-positioned against traditional competitors, who have been disinvesting in the Capital Markets area. He noted Broadridge's continuous investment in globalizing and evolving its platform, leading to significantly higher functionality and utility, particularly in cash securities. Gokey mentioned that while some players have internal systems, Broadridge has not observed any broad new efforts by clients to internalize or self-build in this space. CFO Ashima Ghei highlighted two main timing impacts: half of the regulatory business timing benefit from Q2 is expected in Q3, and term license impacts on the GTO business. She specified a 7-point headwind in Capital Markets in Q3 and a more modest 1-point impact in Wealth in Q4 due to term license swings. Ghei also noted that event-driven revenues are expected to return closer to the seven-year average of approximately $60 million in the second half, with no large mutual fund proxy or tentpole events currently anticipated. She added that increased investments from strong first-half growth would impact Q3 and Q4 margins.

Matthew Roswell inquired about any timing differentials to consider between the fiscal third and fourth quarters, specifically mentioning the impact of Easter on the proxy business last year, or other factors.

Answer

CFO Ashima Ghei highlighted two timing impacts: half of the Q2 regulatory business timing benefit is expected in Q3, and a 7-point headwind in capital markets (Q3) and a 1-point impact in wealth (Q4) due to term license swings. She also noted that event-driven revenues are expected to return closer to the 7-year average of approximately $60 million, with no large mutual fund proxy or tentpole events currently anticipated.

Matthew Roswell asked about current trends in win rates and pricing, particularly for contract renewals, and whether DXC has worked through most of its unprofitable legacy contracts.

Answer

CFO Rob Del Bene described pricing dynamics as stable and confirmed that win rates improved during the third quarter, reflecting the success of new go-to-market strategies. He stated that for renewals, DXC is successfully targeting and achieving better economics and terms on a contract-by-contract basis, aiming for a win-win outcome with clients.

Matthew Roswell of BTIG asked if the growth in Latin America is due to clients shifting work from the Philippines and whether the stabilization of headcount at large tech clients is a growth driver.

Answer

CEO Bryce Maddock clarified that the strong demand for nearshore delivery in Latin America is driven by clients moving from the U.S. for cost savings and by others seeking geographic diversification away from the Philippines. He noted that the stabilization at tech clients after the 'year of efficiency' has helped, as clients have now optimized costs and are freeing up investment for new areas like GenAI, which TaskUs is capitalizing on.

Matthew Roswell asked management to differentiate how much of the company's improved performance is attributable to broader industry trends versus TaskUs-specific execution, such as vendor consolidation.

Answer

CEO Bryce Maddock attributed the performance to a combination of both factors. He noted that TaskUs's high-growth tech clients are recovering faster than the broader industry. He also highlighted company-specific success, stating that TaskUs won 'tens of millions of dollars of business' from competitors in Q1 due to superior performance, directly contributing to growth.

Asked about the risk of over-cutting in the restructuring, the source of additional savings, and the degree of control over improving onshore utilization.

Answer

The restructuring is not seen as over-cutting but as a realignment to support growth in high-demand areas like offshore and data. Extra savings are from non-client-facing areas, office rationalization, and vendor expenses. About 80% of the utilization improvement is considered to be under the company's control.

Asked about the 2024 free cash flow outlook and the state of client readiness for GenAI adoption.

Answer

Executives expect increased free cash flow in 2024. Regarding GenAI, only a small fraction of clients (<15%) are ready for large-scale implementation; most are in the proof-of-concept or preparatory stages. While some GenAI projects require long-term investment, others can provide near-term ROI.

Asked for more detail on pricing pressures (whether client- or competitor-driven), the impact on win rates, and the outlook for Q4 and FY24 free cash flow, considering restructuring charges and working capital.

Answer

Pricing pressure comes from both existing clients seeking discounts and aggressive bidding from competitors on new deals. Win rates have remained stable as Thoughtworks is also being commercially aggressive. Q4 free cash flow is expected to be similar to Q3, impacted by remaining restructuring payments. FY24 cash flow should improve due to the absence of these one-time charges and an improving margin profile.