Q2 2024 Earnings Summary
- Strong Sales Momentum and Record Pipeline: Broadridge reported 12% growth in closed sales for the first half of the fiscal year, totaling $106 million, with continued strong sales activity in January ,. The company has a record pipeline, increasing confidence in meeting the full-year closed sales guidance of $280 million to $320 million , ,.
- Innovation Driving Growth in Digital and AI Solutions: The company is experiencing strong growth in high-margin digital revenues, offsetting declines in lower-margin print revenues ,. Broadridge successfully onboarded one of the largest U.S. wealth managers to its Wealth InFocus platform, delivering lower costs and increased investor engagement. Additionally, the launch of OpsGPT, an AI solution leveraging generative AI, positions Broadridge as a leader in AI within financial services.
- Positive Financial Outlook and Capital Return to Shareholders: Broadridge delivered 9% total revenue growth in Q2 , , with 6% organic recurring revenue growth ,. The company expects to achieve 100% free cash flow conversion in fiscal 2024, enabling higher capital return to shareholders through increased share repurchases totaling $700 million to $800 million. Broadridge reaffirmed guidance for 6% to 9% recurring revenue growth and 8% to 12% adjusted EPS growth, indicating strong confidence in future performance.
- Client losses, particularly the transition of E-Trade to Morgan Stanley, led to a 3-point drag on recurring revenue growth in the wealth segment.
- SG&A expenses increased more than revenue due to investments supporting event-driven revenue, which could pressure margins.
- The company lowered its equity position growth expectations from mid- to high-single-digit to mid-single-digit, indicating potential slowing growth.
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Revenue Guidance and Margins
Q: How do headwinds and tailwinds affect revenue and margins?
A: Edmund Reese emphasized confidence in meeting full-year guidance, with strong event-driven revenue expected to continue, possibly exceeding historical averages of $230–$250 million. This provides a tailwind, allowing Broadridge to invest more while still targeting an approximately 20% AOI margin. Despite higher SG&A expenses to support event-driven activities, they expect to remain within the 8–12% guidance range. -
Wealth Segment Growth
Q: What's the outlook for the Wealth segment after E-Trade's transition?
A: Despite transitioning E-Trade to Morgan Stanley, the Wealth segment is expected to maintain growth. The loss of E-Trade was offset by over $75 million in incremental wealth revenue. Timothy Gokey stated they don't anticipate a step down in revenue and expect similar balance going forward. They project both Capital Markets and Wealth Management to grow within the 5–8% long-term objectives. -
Sales Outlook and Demand
Q: Can you elaborate on the strong sales outlook?
A: Broadridge feels confident in achieving their sales guidance of $280–$320 million. Growth is driven by investments in areas like Front Office and Wealth Management. Despite extended sales cycles and previous European tech weakness, they are seeing clients willing to spend on solutions that drive revenue, lower costs, or meet regulatory needs. -
Capital Markets Growth and AI Initiatives
Q: What's the state of the Capital Markets and AI projects?
A: Capital Markets experienced growth from double-digit increases in Front Office capabilities and strong fixed income trading volumes. Investments in AI, such as OpsGPT and BondGPT, are leveraging client-owned data to automate processes and drive efficiency. They expect Capital Markets to contribute to their 5–8% growth objective. -
Tailored Shareholder Reports Opportunity
Q: How is Broadridge positioned for Tailored Shareholder Reports?
A: Broadridge anticipates replacing more than the $30 million revenue headwind from the move away from Rule 30e-3. Their ability to consolidate multiple reports into a single envelope and offer unique composition solutions positions them strongly, attracting many funds to their services. -
Investment Spending Adjustment
Q: How are you adjusting investment spending with higher event-driven revenue?
A: They are using the additional revenue to invest more deeply in ongoing projects, primarily through external providers, without adding long-term associates. This allows them to accelerate initiatives while staying within their margin guidance. -
Customer Communications Business Outlook
Q: What's the growth outlook for the Customer Communications business?
A: The long-term strategy is to leverage scale and technology to be the low-cost provider, consolidating print and driving digital adoption. They expect low single-digit top-line growth over time, with expanding margins and low double-digit earnings growth.