Broadridge Financial Solutions Inc (BR) 2016 Q3 法說會逐字稿

Good morning.

My name is Jenisa and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Broadridge Financial Solutions first-quarter fiscal-year 2016 earnings conference call.

I would like to inform you that this call is being recorded and that all lines have been placed on mute to prevent any background noise.

There will be a question-and-answer period after the speakers' remarks.

Please try to limit your questions to one per participant.

I will now turn the conference over to Brian Shipman, Head of Investor Relations.

Please go ahead, sir.

Thank you.

Good morning, everyone and welcome to the Broadridge quarterly earnings call and webcast for the third quarter of fiscal year 2016.

This morning, I'm here with Rich Daly, our President and Chief Executive Officer and Jim Young, our Chief Financial Officer.

I trust by now that everyone has had the opportunity to review the earnings release we issued this morning.

The news release and slide presentation that accompany today's earnings call and webcast can be found on the investor relations page at Broadridge.com.

During today's conference call, we will discuss some forward-looking statements regarding Broadridge that involve risk.

These risks are summarized on slide number 2. We encourage participants to refer to our SEC filings, including our annual report on Form 10-K, for a complete discussion of forward-looking statements and risk factors faced by our business.

Our non-GAAP fiscal year 2016 earnings results and fiscal year 2016 earnings guidance exclude the impact of acquisition, amortization and other costs.

These costs are significant and we believe the non-GAAP information provides investors with a more complete understanding of Broadridge's underlying operating results.

The description of any non-GAAP adjustments and reconciliations to the comparable GAAP measures can be found in the earnings release.

Rich Daly will start today's call with his opening remarks and will provide you with a summary of the financial highlights for the third quarter of fiscal year 2016, followed by a discussion of a few key topics.

Jim Young will then review the financial results in further detail.

Rich will then provide some closing thoughts before the Q&A portion of the call.

Now I will turn the call over to Rich.

Rich.

Thanks, Brian and good morning, everyone.

Let's begin on slide 4 with the key points.

I am pleased with our performance in the third quarter, which keeps us solidly on track for the full fiscal year.

Our performance was driven by strong growth in recurring revenue, as well as contributions from the acquisitions we made in the past year.

Given our solid first nine months of the fiscal year and the confidence we continue to have in our business, we are reaffirming our fiscal year 2016 guidance and narrowing the ranges, which I will discuss more in a few minutes.

Our results are aligned with the three-year objectives we discussed at our Investor Day in December of 2014.

We closed $29 million of sales in the third quarter.

This frames our year-to-date sales to $94 million and coupled with our robust pipeline positions us to achieve our full-year recurring sales plan, which I will also highlight in a few minutes.

Finally, you will see from our results that both segments are performing well, and we are excited by the significant activity across all of Broadridge.

Let's move onto slide 5, which covers the financial highlights for our third fiscal quarter.

Recurring revenue growth was 12% and 10% in the third quarter and year-to-date respectively, primarily driven by the onboarding of new business and contributions from the acquisitions we made during fiscal 2015.

Adjusted diluted EPS growth was 23% in the third quarter and was 17% on a year-to-date basis.

The strong third quarter and solid first three quarters coupled with our confidence in the business position us to reaffirm our full-year guidance.

We expect recurring fee revenue growth to be at the lower end of the 10% to 12% guidance range.

We expect total revenue growth to be at the lower end of the 8% to 10% guidance range and we expect adjusted diluted EPS to be around the midpoint of our 8% to 12% guidance range.

We also anticipate our solid year-to-date sales results will enable us to achieve our sales guidance.

Year-to-date, we have delivered strong financial results that highlight the multiple levers, including event-driven revenue that we have at Broadridge to drive growth over the long term.

A meaningful percentage of our growth has been driven by building or acquiring products that our clients need in the increasingly complex environment in which they operate.

As we integrate new products, we invest to make sure those new products are appropriately positioned for growth and meet Broadridge's world-class data security and infrastructure standards.

Next, we look for ways to optimize our cost structure.

We remain disciplined on expense management throughout the organization.

Through a disciplined combination of product investment and expense management, we again expect to exit the year with solid momentum going forward.

Jim will talk further about the specifics (technical difficulty) year-to-date performance and our expected full-year results in a few moments.

Additionally, let me reinforce our capital stewardship priorities, including a commitment to paying a meaningful dividend, the continuous reinvestment in the business through selective tuck-in acquisitions and internal product development, as well as the repurchase of our stock.

In the third quarter, we executed on our capital allocation strategy by repurchasing $75 million of our stock net of proceeds from option exercises.

Turning now to slide 6, let's look at some of the business highlights in the third quarter.

I would like to start with our solid sales performance.

Closed sales were $29 million for the third quarter and were $94 million for the first three quarters of the year.

This recurring sales performance represents the second-highest line month year-to-date sales results in our history, only exceeded by fiscal year 2015.

Looking ahead, our sales pipeline remains very healthy.

I continue to be very confident that we will achieve our sales targets for the full fiscal year and beyond.

This strong sales performance continues to add to Broadridge's momentum and gives us visibility to sustain future revenue growth within our control.

Seeing the ongoing demand for our products and solutions, which is enhanced by industry trends of mutualization, digitization and data and analytics, gives me the continued confidence that we will achieve the three-year objectives we set out on Investor Day in December 2014.

I'm confident in our sales trajectory over the long term because the large financial institutions we serve remain under intense return on equity pressure, and we represent a reliable way to address some of this pressure.

Given the environment, we continue to experience pricing pressure.

But I don't recall a time during my tenure as CEO when we didn't see pricing pressure.

Pricing pressure has been more than offset by new sales opportunities.

We are seeing an increasing willingness to outsource non-differentiating functions to reduce costs.

And increasing regulatory complexity also creates more opportunity for Broadridge as firms struggle to remain compliant and competitive within an ever-changing industry landscape.

The Department of Labor, or DoL, Conflict of Interest rule is an example of this.

The new rule is changing the standard of suitability to fiduciary standards for retirement accounts going forward.

The rule was intended to minimize conflicts of interest that may hinder a fiduciary's ability to act in the best interest of their clients.

The latest release provides more clarity; however, for our clients, this remains a very critical and fluid issue.

Although it's still early, Broadridge has already had a significant number of conversations with clients who have come to us to discuss potential communication and processing requirements.

We have been working with our clients to assess the rule and discuss how we can help address their compliance challenges, whether it be through communications or processing assistance.

Broadridge is in a unique position to offer a suite of customer communications, data and technology solutions that can help our clients provide the complex disclosures and communications to their retirement investors, enable financial advisors to efficiently meet the best interest contract and allow firms to monitor and enforce policies and procedures designed to minimize conflicts of interest.

This is another example of how Broadridge is likely to play some role in the ongoing changes that our industry regularly goes through.

As we've discussed before, we continue to challenge ourselves to be innovators, planning for the next generation of products and services to meet our clients' needs.

Creating mission-critical solutions our clients need to compete in an increasingly complex and costly environment will ensure our future growth.

We continue to invest in internal product development, as well as to drive that growth.

One example is tax.

We have just successfully completed the latest tax season in our tax managed services business and the products are really gaining traction.

We are excited by the opportunity to solve what has long been a real pain point for the industry.

Within GTO, our product strategy is to continue to expand our offerings to meet client needs.

A recent example is our investment in the securities lending platform, which complements and extends our securities lending and financing capabilities within our fixed income business.

This investment will provide Broadridge with a unique opportunity to extend our global client base and fixed income franchise.

Blockchain continues to be an area of critical focus across all of our business lines.

It seems you can't pick up an industry publication without reading about the power and potential of blockchain technology.

We are pleased with our investment in an innovative leader like Digital Asset Holdings, and will look for other ways to invest when the opportunity is aligned to our long-term strategic goals.

Last quarter, we talked about our (inaudible) post-trade processing offering and the growth opportunity we see in Europe and Asia to bring Eurasian clients onto our post-trade processing platform.

Since signing Barclays, we are very focused on successfully converting them onto the platform.

Back in the US, we are very pleased to have signed a long-term agreement with the Royal Bank of Scotland in the Americas to provide fixed income trade processing services, investor communications services and document management services.

RBS becomes the 18th primary dealer to join our industry-leading fixed-income utility.

The total number of primary dealers is now up to 23 in the US.

We continue to invest in and make progress across [our set] of digital initiatives.

Through our Inlet joint venture, we are meaningfully expanding our partnerships with leading digital consumer channels such as personal cloud drives.

Inlet now has a growing number of companies who have signed up for the Inlet service and are testing with Inlet and (inaudible).

Beyond Inlet, we are investing in a set of digital technologies, which make the content we deliver more engaging and interactive.

We've been developing these capabilities in collaboration with our clients, and believe these capabilities are a critical foundation for driving up digital adoption and engagement by investors.

As you know, digital is one of the three key strategic trends enhancing growth for Broadridge.

It is a mid to longer-term play, but we've already seen significant payback by virtue of differentiating Broadridge in the marketplace to help us win and retain large customers.

These are a few examples of areas we are investing in.

Increasing complexity within the financial services industry creates opportunity for Broadridge to better serve our clients and to create value for our shareholders.

Broadridge is a trusted brand in the marketplace and offers a strong value proposition, which should continue to support our growth over the long term.

We believe we have multiple paths to achieve our long-term objectives, and I am pleased with how we are executing on those opportunities to achieve our growth strategy.

Next, I'd like to give you a brief update on the SEC's proposed rules to require mutual funds to increase disclosure and to possibly provide firms the option of mailing a notice of a fund report's availability on a website.

This would be in lieu of mailing a complete report to those investors who have not enrolled in e-delivery.

This aspect of the proposal is opposed by consumer advocates, including the Consumer Federation of America.

The alternatives to a mail notice, which Broadridge highlighted in our comment letters, better informs investors [that are] far more cost-effective for funds to save more than through notice and access by eliminating more printing and postage.

The SEC's comment period closed in January and we have continued to discuss this proposal with the SEC and other interested parties.

If the rule is adopted as proposed, we estimate that the economics of Broadridge would likely be neutral or slightly positive given the work required to perform the additional notice and access activities.

As always, we will implement effectively and efficiently whatever new policy the SEC ultimately determines to be the best for US investors and our capital markets.

We remain confident that the SEC will ultimately reach a conclusion that best informs and protects investors in the marketplace while making the process more efficient and cost-effective through the use of technology.

Engaging all investors in the corporate governance process has always been and will continue to be a core strategic priority for Broadridge.

This past September, we relaunched proxyvote.com, our retail proxy voting website, in order to streamline the process, make it easier to use and to provide new tools and features for companies to better communicate with all of their shareholders.

Since that time, we've received over 7 million individual votes representing over 85 million shares through the online platform.

Further, over 25% of those votes were submitted from a mobile device.

With that, I will now turn the call over to Jim.

Thank you, Rich.

Good morning, everyone.

Before reviewing slide 7 and the details of our results, let me begin with a few callouts.

First, our third-quarter and year-to-date performance.

Total revenues grew 9% in the third quarter on recurring fee growth of 12%, which brings us to total revenue and recurring fee revenue growth of 9% and 10% respectively for the first three quarters of the year.

Adjusted diluted earnings per share grew 23% in the third quarter and 17% for the third quarter year-to-date versus the prior year.

The first three quarters have historically counted for less than 50% of the full-year earnings, so we still have a very significant earnings quarter remaining.

Second, our full-year guidance.

As Rich discussed, our performance year-to-date and our outlook allow us to reaffirm our full-year guidance across all metrics.

Further, we are projecting that total revenue growth will come in at the low end of our 8% to 10% guidance range, and adjusted diluted EPS growth will come in around the midpoint of our 8% to 12% guidance range.

Relative to the high end of the adjusted diluted earnings-per-share growth guidance range, the projected full-year upside from event-driven will likely not be enough to offset the foreign exchange headwind and a full-year recurring revenue growth performance closer to 10%, or the low end of our 10% to 12% range.

We currently estimate that FX will be about a 2 point drag on earnings growth, a larger impact than anticipated at the beginning of the year.

Recurring revenue growth is projected to come in at the low end of the 10% to 12% range on slightly lower-than-planned stock record and interim position growth and delayed conversions of sales.

These factors, along with continued investment and above-average expenses associated with cost optimization initiatives, are expected to result in full-year adjusted diluted EPS growth around the midpoint of our 8% to 12% guidance range.

Now I will provide you some perspective on the year-to-date performance versus the fourth quarter as implied by our latest view as to where in the guidance range we expect to finish.

I will start with revenue.

With total revenue growth third quarter year-to-date of 9%, full-year performance at the low end of our guidance, or 8%, implied fourth-quarter total revenue growth of approximately 6%.

The most notable driver for this apparent deceleration is event-driven revenue, which, as you may recall, comes in somewhat evenly over the year without a predictable pattern.

Event-driven revenue has grown 19% year-to-date contributing almost 1.5 points to the 9% year-to-date total revenue growth and is projected to be slightly down versus last year in the fourth quarter and thus a modest drag in the fourth quarter.

Similarly, distribution revenue, which is lower margin revenue primarily related to postage, has grown 10% year-to-date, but is expected to be up only modestly in the fourth quarter after zero margin distribution revenue for the Wilmington Trust acquisition annualized in the fourth quarter.

Event-driven and distribution account for just about all of the total revenue growth deceleration.

Accordingly, recurring revenue growth for the fourth quarter appears to maintain the momentum and growth levels seen in the first three quarters as the year-over-year affects of the fiscal year 2015 acquisitions run off as their anniversary dates have mostly past.

So with respect to revenue growth, the strong performance of event-driven this year elevated third-quarter year-to-date results and will likely have the effect of dampening fourth-quarter revenue growth.

Moving to our expected full-year adjusted diluted EPS growth around the midpoint of our 8% to 12% guidance range.

In addition to the revenue dynamics I just reviewed, we also expect modestly higher expenses in the fourth quarter, which will push down the fourth-quarter earnings growth rate.

These higher expenses are in part from various initiatives underway in the Company, including our ongoing efforts to find operating efficiencies, some of which Rich discussed at a high level, along with new business and technology investment.

Relative to the first three quarters, the expected modestly higher expense growth, excluding distribution expenses in the fourth quarter, combined with slightly lower fee growth is expected to result in lower adjusted operating income growth in the fourth quarter.

Finally, a higher fourth-quarter tax rate will also negatively impact the fourth-quarter earnings growth rate.

This confluence of timing factors in the fourth quarter is not representative of our ongoing earnings growth profile.

Third and final callout.

Capital.

In the third quarter, we generated $99 million in free cash flow and year-to-date we have generated $105 million.

Our free cash flow is historically back-half-weighted and heaviest in the fourth quarter.

We are on track to achieve our free cash flow guidance range of $350 million to $400 million.

As Rich said, we repurchased $75 million of shares net of proceeds from options exercised in the third quarter.

Including the proceeds from options exercised, we repurchased 1.6 million shares at a weighted average price of $54.80 for a total cost of $85 million.

We now have remaining about 8.3 million shares authorized for repurchase.

With respect to debt, we ended the third quarter with $820 million in unadjusted debt, and an adjusted debt to EBITDAR ratio of 1.8 times, even with the 1.8 times we reported for the first and second quarters.

Again, our plan is to target a long-term adjusted debt to EBITDAR ratio of 2 to 1.

As I communicated last quarter, we anticipate executing a public offering of debt securities at some point over the next couple of quarters to support our growth and capital allocation plan.

As we have said before, our investment-grade credit rating is important to us and will be considered in any of our plans.

I will now review our third-quarter performance in more detail, moving to slide 7. This table shows the components of our 9% total revenue growth and 12% recurring fee revenue growth.

Contributions from closed sales accelerated to 8 points this quarter as new business continued to be onboarded.

Client losses held at 2%, or 98% revenue retention.

Internal growth contributed 2 points with positive market factors, including stock record growth in ITS and equity trading volume growth in GTO.

And recent acquisitions that have yet to annualize contributed 4 points to recurring revenue growth in the quarter.

As you may recall, three of the four fiscal year 2015 acquisitions closed by April last year, so their impact to this line will largely go away in the fourth quarter.

The fourth acquisition, the fiduciary services and competitive intelligence unit from Thomson Reuters Lipper, closed in June and will still contribute to this line in the fourth quarter.

Now looking at total revenue growth, recurring fee drove 8 points of the 9% total revenue growth.

Event-driven revenue grew a more modest 2% after being up 31% in the first two quarters.

This growth on a relatively small base of revenue results in event-driven revenue being largely neutral to total revenue growth in the quarter.

Outside of the impact from the Wilmington Trust acquisition, distribution revenue continues to grow in line with investor communications that require physical mailings, as well as pass-through revenues associated with mutual fund trade processing.

Rounding out the 9% total revenue growth in the quarter was a 1 point drag from foreign exchange.

The negative growth impacts from FX lessened in the quarter as compared to the first two quarters as the dollar weakened a bit against the Canadian dollar and other currencies and we began to lap some of the strengthening of the US dollar a year ago.

We are currently projecting full-year negative impacts from FX to revenue and earnings growth of about 1 and 2 points respectively, which are also both headwinds relative to how we plan the year.

Finally, adjusted operating income grew 14% and the adjusted operating income margin was 15.9%, up 70 basis points from a year ago.

This margin performance is in line with our expectations and consistent with another relatively small earnings quarter.

We still expect the adjusted operating income margin to be around 18.4% for the full year.

Moving to slide 8 and our segment results.

Investor Communications Solutions, or ICS, had another strong revenue growth quarter with 15% recurring fee revenue growth and total revenue growth of 11% in the quarter.

Net new business was the largest contributor to the recurring revenue growth accounting for 8 points of the 15% as we saw healthy activity in customer communications and some of the emerging businesses.

With three of four fiscal year 2015 acquisitions made by the ICS segment, acquisitions again represented a big part of the growth with 7 of the 15 points of recurring fee growth.

Internal growth was positive on continued stock record and [earned] position growth.

Stock record growth was 9% in the quarter, but it is important to remember that the third quarter has a relatively small base of proxy fees.

The fourth quarter has historically accounted for over 75% of full-year recurring proxy fees.

We currently anticipate around 3% stock record growth, which is well below the 7% plus we've seen in recent years.

Mutual fund interim position growth was 4%, and similarly tracking below the 8% plus we've seen in recent years.

The 15% recurring fee growth in ICS translated into 8 points of the 11% total revenue growth as event-driven revenue contributed very little to overall growth and distribution accounted for 3 points of growth.

ICS earnings before income taxes grew 7% as its margin contracted 50 basis points in a relatively small earnings quarter to 13% as the fiscal year 2015 acquisitions continue to dampen margin expansion.

GTO grew revenue 7% and its net new business contributed 3 points of growth as sales continued to convert into revenue.

Internal growth accounted for the balance of the growth.

Half of the 4 points of internal growth was the result of one anomalous item.

Due to a contract modification referenced last quarter, we recognized revenue and an equal offsetting expense associated with reflecting the current terms of the contract.

As for market factors in internal growth, equity volumes were up 3% and fixed income volumes were flat over the prior year.

Rates before income taxes grew 20% as margins expanded 210 basis points to 21% with the high margin trade activity.

Moving to slide 9 and our guidance.

We are reaffirming our fiscal year 2016 guidance across all metrics.

As I stated at the beginning of my remarks, we anticipate that our adjusted diluted earnings per share growth will be at about the midpoint of the 8% to 12% range, or 10%, reflecting the full-year impacts of FX headwinds, event-driven activity returning to more normal levels in the second half of the year, lower market activity in ICS and higher investment and restructuring expense in the fourth quarter.

For your models, I will also note that our year-to-date effective tax rate is 33.4%, which was in part driven lower by some discrete items in the quarter.

Also, please note that the fourth quarter is a higher tax rate quarter given the heavier mix of US earnings.

Our full-year guidance still estimates a tax rate of about 34.8%, and at this point, we expect to be around 20 basis points below that rate.

Finally, we remain committed to our three-year objectives, including recurring fee growth of 7% to 10% and earnings growth of 9% to 11% through fiscal year 2017 on a compound annual growth rate basis.

We look forward to sharing our fiscal year 2017 outlook with you in August.

Now back to Rich.

Thanks, Jim.

Please turn to slide 10 for my summary wrapup.

I am pleased with our third-quarter fiscal results.

After the first three quarters of the fiscal year, we are well-positioned to close out another solid year.

Both segments of the business are contributing and creating more opportunity for Broadridge to succeed.

Therefore, we are reaffirming our guidance and expect adjusted EPS growth to be around the midpoint of our 8% to 12% guidance range.

Jim just gave you the puts and takes for how we see the full fiscal year playing out.

So let me now add more color from my perspective.

This will be another year where the multiple revenue streams within Broadridge netted out to enable us to create solid revenue and earnings growth.

Our goal has been to create multiple new revenue streams within our control to offset some of the revenue streams outside of our control so that when mobile market fluctuations occur we can still deliver solid results.

We saw event-driven revenue perform stronger while FX continued to be a bit of a headwind, both of which are primarily out of our control, but our continued investment in buying and building product to meet our industry's growing opportunities and challenges will enable us to generate sufficient growth.

This should all translate into four solid quarters of revenue and earnings performance consistent with our guidance.

This momentum in both revenue and earnings should enable us to continue to meet our three-year objectives, including a solid fiscal year 2017 next year to finish our three-year objectives.

Our strong sales performance through the third quarter also positions us to finish the year within our guidance range of $120 million to $160 million.

This sales growth is a proof point that our brand remains trusted in the marketplace and our products offer a strong value proposition to our clients.

The sales growth is also a strong indicator, coupled with our 98% client retention rate, that we can continue to deliver consistent revenue growth in the future despite the challenging environment our customers continue to face.

We are now past the halfway point through the three-year objectives we communicated to you at Investor Day in December 2014.

And our results remain strongly aligned with the three-year objectives, which include recurring fee growth of 7% to 10% and earnings growth of 9% to 11%.

As I just said, our focus now is on a strong finish to fiscal 2016 and planning for another solid year's performance in fiscal 2017.

The financial services industry continues to evolve driven by the secular trends of mutualization, digitization and data analytics.

Enabled by these key trends, we believe that there are multiple paths to achieving our long-term objectives.

By executing against these opportunities, we will enable Broadridge to achieve our long-term performance objectives and maintain our trajectory to continue to provide top-quartile shareholder returns over any multi-year period.

The model remains compelling.

We generate a high level of free cash flow relative to net earnings, and we have a compelling market opportunity that affords us long-term growth potential.

And we have proven again this year that we can grow over the long term through various market cycles.

Finally, I'd like to take this opportunity to personally acknowledge our highly engaged and talented associates.

Our associates enable us to have record levels of client satisfaction.

Our commitment to the service profit chain continues to prove that the most successful way to create long-term value is to have the most actively engaged and talented associates who consistently meet and exceed client expectations.

This happened every day at Broadridge whether it's successfully rolling out new products like tax, aggregation, advisor solutions, data and analytics, vetted digital content to drive e-adoption rates, FX products, securities lending, reference data products, DOL solutions, or making everything we do across both segments more efficient and user-friendly like our new proxy voting platform and our T2 conversion plans for our industry.

I could devote an entire call to innovation activities at Broadridge and not be able to adequately cover all that's going on.

I couldn't be more pleased with our associates' commitment and results and I'm proud to be one of the 7400 plus worldwide associates of Broadridge.

With that, I will turn the call back to Jenisa, the operator, and we look forward to taking your questions.

Jenisa.

(Operator Instructions) David Togut, Evercore ISI.

Good morning, Rich and Jim.

I appreciate all the helpful detail on the fourth-quarter outlook.

Recognizing it's a little early to talk about fiscal 2017, can you give us some of your thoughts on how some of the trends in event-driven and distribution revenue and some of the actions you're taking on expenses might impact FY 2017, at least at a high level?

I'm going to have Jim start.

David, when we were preparing for this call, I said, okay, Jim, you are going to be the most important guy on this call because it really is something that we wanted to give you that clarity, so I'm pleased that you recognized the effort there.

And after Jim goes, I will provide some color.

Thanks, David.

As you said, it is a little early and preliminary to talk about FY 2017.

You mentioned specifically about event-driven.

The reality is, by definition, we don't have great visibility into this, so way too early to comment on what we see other than again, over a long period of time, we've seen good growth there as record positions continue to grow, but no specifics on any of those one line items.

And no other callouts at this point other than obviously we are committed to our three-year objectives.

Would certainly give you some idea of our expectations for fiscal year 2017.

Understood.

And even beyond that, so the thing that I tried to emphasize, David, beyond giving you specifics that you could use as you think about the rest of this year and 2017 and what Jim discussed, is that the sales revenue, I did call out specifically that I am pleased with, and we traditionally have been a back-end company, a back end of the year Company in terms of sales performance.

So my cardiologist is pleased with this year's performance to date, as well as last year's performance.

As you know, we went into certain years where we really had to do it seemed like the majority of the activity in the fourth quarter.

So sales will clearly be one of the things that I look to next year and the ability to convert the backlog we have and conversion right now, as well as new sales converting to some degree, it feels good in terms of the revenue we can control.

There's still lots of activities within the industry and I tried to highlight that as well where I think Broadridge will continue to play a role as we go forward.

And again, that's revenue growth within our control as well.

Event-driven for the year will be slightly better.

It's still creeping up to what we expect the new norm to be with about, I don't know, somewhere around 15% or so of positions requiring a proxy, at least in the mutual fund space, which is what our data still tells us we should be expecting simply because mutual fund directors don't live forever and don't serve forever.

At a point in time, you need to go out there and reaffirm by the shareholders the majority of the directors when you drop down below two-thirds.

As far as expenses go, Dave, we did call that out as well, and we specifically did that because we always explain at Broadridge, when we do acquisitions, the first thing we go in there is we really needed to get to our standards in data security and processing.

It's very rarely at that level.

Last year, we were very pleased that we had some very solid transactions, but we knew we would be investing in that.

That gives us the normal cycle and activity of looking for efficiencies slightly at a higher level right now, and Jim called out you are going to see some of that reflected in expense getting ready for that in the fourth quarter, but we expect that to be a benefit as we go forward into next year as well.

That's very helpful.

Thank you for the perspective.

You mentioned closed sales I think being second-strongest on record for the first nine months.

Can you talk about some of the drivers of new sale strength?

Is this mostly emerging and acquired?

And then also how do you see the pipeline for next year?

David, it's pretty balanced.

Without question, had we not done really the largest investors are calling out to do, which is to continue to invest in your business in good times and bad, had we not done that, we would not be in the position of strength we are in.

You should expect us to continue to invest in product as we go forward.

The dynamics of our industry -- I'm sure that, I don't know, maybe they are making batteries for cars or something, the dynamics are equally complicated and opportunistic, but the dynamics of our industry right now where the ROEs of our clients are clear, and this isn't Daly's view; this is every industry publication talking about there needs to be more focus on getting costs out and finding overall utility-like solutions to drive these activities to really place to Broadridge.

And Dave, that's why I highlighted that it's amazing to me at times the pricing pressure which is understandable given the ROE challenges, but it wouldn't be fair for me to call that out as just a problem because it's more than offset by the opportunity we have by driving more solutions into the industry.

And so we feel good about the product set, which continues to expand.

We feel very good about the activities that are going on.

We feel good about the investments we made a couple of years ago in sales leadership and sales management activities, which are still ongoing at Broadridge.

And so we believe that what we set out to do, we are better positioned than ever, which is control more of our destiny.

So as I said in the script, in normal market fluctuations, including some things we saw this year, we have enough control within our destiny to put enough points on the board to maintain that trajectory that we are on right now.

Thanks.

That's helpful.

And just a quick final question, Rich.

I don't think you called out the progress on the Soc-Gen processing contract with Accenture.

Can you just update us on how that's going?

And you had mentioned a few other bookings on that JV I think in prior calls.

Can you bring us up to date on how those are coming onstream?

Well, Soc-Gen is live in London.

So that we believe was a proof point that large clients like Barclays needed to see.

It's certainly aided in that transaction closing.

There is another entity, which we still can't publicly discuss, who is right in the sweet spot of going live.

And so Barclays clearly is going to add so much size and scale to that.

There has been lots of dialogue that have been driven by that.

Our primary goal right now is to make sure that conversion goes seamlessly and as quickly as possible, recognizing it's a pretty complex transaction.

At this point, I'm not willing to give you a date in terms of it, but transactions like that generate momentum for us in terms of sales dialogues around the globe.

Darrin Peller, Barclays.

Thanks, guys.

Just want to start off with one of the underlying trends I think you heard you call out, that stock position growth was low single digit, mid-single digit kind of trends.

I think last year it was more of a high-single digit growth rate.

Just maybe you could touch on the trends there again in terms of what you'd expect we should see, any type of return to a slightly higher growth rate.

I've been involved with stock record growth since 1979, and with all of the effort we do, it's never easy to say that it's going -- to the percentage point, this is what will or won't happen.

Let me give you a couple of thoughts here.

I was not particularly pleased when the market was getting more than squirrely at the end of January going into February when the largest companies' record dates started to fall.

So with that said, it takes a lot of activity, good or bad, to dramatically impact stock record over a short period of time.

Very, very different than trading activity.

On the mutual fund side, that's also had us saying, okay, so what might be different, and candidly, we weren't the ones who came up with this, but in recent dialogues with one of the largest wealth managers, particularly with funds being their vehicle that they have their clients invest in, they pointed out to us that their FCs are very hesitant to be changing investments in retirement accounts, which are about a third of the retail accounts out there because of what's going on in the DoL rules.

I don't have any ability to say that is or isn't the case.

What I do believe is the following, Darrin.

Having done this now for 3.5 decades, I will tell you that investors need places to invest and fund products, whether it be traditional funds or ETFs, continue to meet that need for lots of retail investors and if you are looking to save, heaven knows you are not going to use a money market fund that will pay you a basis point.

And I don't even know, barring a 10-year treasury, gives anyone the ability to build wealth at the level we need do, whether it be to retire someday or fund the kid's education.

So because I've been doing the stock record piece for so long, even though it's not a variable within our control, that's not one of the variables and as I think about the long term of Broadridge that keeps me up at night.

Okay.

So there's nothing structural that you see right now that should have an adverse impact on the next year, let's call it?

There's really no clear insight.

When we were back in the financial crisis, certainly on the equity side, we would have killed for this year's stock record activity.

All right.

Okay.

Let me ask you a quick follow-up.

When I look at the ICS segment, the growth has been strong partly because of that underlying trend, but you've also done a lot more buildout and investment in the analytics side of the business, utilizing what you guys have for more and more revenue.

And part of that has been tuck-in acquisitions too.

Can you help us understand how much that contributed to your story this quarter and then how much that can help next year, more or less?

Darrin, Jim can take the first shot at this.

We may need you to clarify some things.

You are coming through just slightly garbled.

Darrin, I think -- I think I heard you; you can correct me if I am wrong.

The underlying drivers of the sustained growth in ICS, which obviously up 15% --

Yes, specifically -- Jim, I guess I was trying -- maybe you can hear me better now -- I was trying to get at what the underlying sustainable growth is and the contribution from the data analytics side of your investments in this past quarter and potentially in the next quarters.

Yes.

Darrin, the way I would look at it, I would break it down is -- and this quarter is fairly representative.

7 points of that 15% recurring growth is coming from the acquisitions.

If you take that out and you are really looking at 8 points, almost all of that coming from our net new business, so really a sales story.

And then within that, Darrin, rough estimate, maybe half of that is coming from some of those newer businesses, specifically data and analytics, are also still getting good contributions from what are considered some of the more legacy business like customer communications, which continues to onboard new business.

So maybe half of that organic growth coming from those emerging businesses.

So they obviously continue to have good runway.

Obviously execution is always critical, but good opportunities in front of the team.

Okay.

That's helpful.

(multiple speakers)

The only other thing I was going to add was to net it out, that's why I keep referring, Darrin, to we have multiple levers.

And our senior management team on a very recurring basis sit down and discuss do we have what we need to control enough revenue growth within our own destiny.

And that's why the build/buy strategy we believe is so critical to where we are today and as we go forward.

Okay.

I guess what I was getting at is the overlying size of the analytics investment is still relatively small in the scheme of things, but the outsized growth is actually having an impact now.

That's right.

As we've talked about before, Darrin, and maybe I will [take] you at the end of this year, but in the past couple of years, maybe two years ago, last time we gave an update, those SG&A portions, the emerging/acquired of ICS, was driving close to 50% of sales; some years 40%, some years as high as 50% for overall Broadridge.

So then as you put that into just the ICS segment, it makes sense that it's driving a fair amount of growth.

And whether it's this quarter or over the next couple of quarters, those sales start to come to fruition in our revenue growth.

All right.

That's great to hear.

Just very last question, Jim, for you on the margin side.

Last year, obviously, this year in general, you are talking about the investment being made causing a flatter margin than what we've been seeing actually, which is better.

I understand fourth quarter there's more investments.

But as we look into 2017, I know David may have touched on this with you guys earlier, but as we look into the next year, as you've had these deals you've already done now for some time, are we talking about the same level of expansion investment as a percentage of revenue, and should we see less of a drag on the margin given that?

It seems like there's a natural tendency for upside to the margin.

What was that last part?

Do you see a natural tendency for what?

For the margin to expand, just given what we saw in the prior years and even what you are seeing this (technical difficulty).

Right.

Again, I would anchor back to our three-year objectives, which had 50 to 60 basis point margin expansion.

Obviously, this year flat to down 10 basis points.

So if we stick with that, that means we return to more margin expansion next year, a bit more than the average.

So we do still see that capacity for margin expansion.

Investment relative to expenses, maybe this year is maybe a little higher than average, but nothing that wouldn't be normal course for us.

So I guess, generally speaking, Darrin, the answer is we still have the same outlook for continued margin expansion, and what we achieve in one given year, I don't know.

But certainly over that three-year period, we still expect to achieve that 50 to 60 basis points per annum expansion.

Okay, guys.

Thanks very much.

Peter Heckmann, Avondale.

Rich, I had a question on the fiduciary rule and the continuing move to fee-based accounts.

How do you think that affects Broadridge's business?

Do you have that functionality, or is that allowing additional vendors to put their toe into the broker-dealer arena?

Pete, it's -- the latest release added I will call it one could argue more flexibility, but there are legal aspects of it, and I am being told by virtually everyone that until that's better understood, it's not providing the complete clarity that certainly I think the industry would have desired.

That's what I said in the script; it remains very fluid.

There will likely be needs to communicate with clients, and we certainly, given that we do the vast majority of communications with people already, we are talking with people about what that could mean.

In terms of processing capabilities, we have level comp solutions out there.

We've got other solutions out there.

I'm not sure to what degree with the BIC or the best interest contract out there, I'm not sure to what degree this is going to create dramatically different processing activities out there.

But, Pete, clearly, don't view Rich Daly as the expert in this.

We have people here, I just met with them last Friday, to walk through -- and it's a number of our strategy people -- to walk through the complexity of the rule, the various components in it.

We are out there with I think it's eight points that you need to know about this rule that we sharing with clients right now from our perspective and discussing with them what they need to do first, from their perspective, before we come back with can we help or can't we help from our perspective.

Okay.

But, in general, if we continue to see a shift to fee-based accounts over commission, would you consider that to be a negative trend for Broadridge, or is that revenue-neutral?

I don't see how that really impacts us.

We don't have a fee-based activity at Broadridge in terms of our processing and GTO, and communications are tied to positions, not to fees, not to commissions, not to any of those activities.

We have a fee-based business in Matrix, where we do have a level comp solution, and we do have an open architecture solution, which enables for retirement, large and small broker dealers to service small retirement accounts very, very cost effectively.

And we do see the focus on fees and our retirement is (k), 401(k), not IRAs, but we do see the pressure on fees and the exposure on fees in the case base as well making our solution there more attractive.

And so we continue to be pleased that we have those capabilities and we also believe that, in that business, there will be pressure on fees even though we are working on a very, very low number of basis points right now.

And that's why I tried to elude not just in whether it be retirement, but across everything that everyone does, pricing pressure does remain a reality in the market.

But I did want to call out again, I don't recall a time since I've been CEO, and if I look back in my career, I probably don't recall a time then when pricing pressure didn't exist.

Okay.

That's helpful.

Then just I was curious, any exposure to -- a relatively larger independent broker-dealer filed bankruptcy within the last couple months.

I don't think Broadridge has a lot of exposure there, but just curious.

Did you say exposure to broker-dealer bankruptcy?

Yes, yes, RCS.

I don't think Broadridge had any material exposure there, but I was just checking.

Well, first of all, we really have such a diverse client base out there.

I'm not going to talk about any specific firm.

I'm not aware of anything and I just went through this in the audit committee meeting.

Our receivables continue to be very impressive.

It turns out Jim and his team always find ways it seems to accelerate the payment cycle.

So I'm not aware of anything that we are talking about any degree with any exposure that would be noteworthy.

And one other thing, Pete.

My experience has been -- the things I've worried about in these cases rarely are the ones that come to me.

It's the ones I wasn't worried about that seem to show up.

So my view is that our clients overall are performing in a healthy manner.

Good, good to hear.

I appreciate the comments.

Chris Donat, Sandler O'Neill.

Good morning.

Thanks for taking my questions.

Wanted to just ask about the pace and the cadence of closed sales.

Richard said it's been the second best year to date.

Is there anything that makes you think we are going to be higher in the fourth quarter like we had been in the past, or you think this one is more spread out than prior years, more of an even distribution of quarterly closed sales?

The great scholar philosopher, Yogi Berra, is right; it's not over till it's over, Chris.

So the other thing I always emphasize, and even though we sweat a specific number in a 12-month period, if something closes in June or something closes in July, candidly, to me, is irrelevant.

What's relevant is how quickly it converts to revenue.

So I'm pleased with where we are year-to-date.

I'm pleased with the product set we have.

We are always looking for ways to expand the product set.

You heard us talk about continued investment in the business.

We think this is the right way to run Broadridge for the long term.

We are absolutely running it for the long term and so, all in all, I'm pleased that we are where we are year-to-date and Chris Perry and his team are going to continue to work very hard through the last quarter, maybe take the night off on June 30 and get back on it on July 1 and continue to push.

Okay.

And then related to that, last week, you announced a Solutions Partner program and a new hire.

Is this something different from a consultative sales approach you've been talking about for the last year or so, or is this really just an extension of what you've been doing?

I call it a little of both.

Because we were so focused on not wanting to be in a nonrecurring activity, we probably passed on more opportunity than we should have.

And the way we passed on it was we weren't staffed or resourced for it.

So we find now that in a lot of the larger conversions, some of which are going on right now -- I don't want to call out specific names -- but by having either professional service capability -- not one that competes with the mega-consultants, but one that really goes to our sweet spot of expertise, as well as bringing partners into the transaction, we can really enable our clients who need the resource to get to some of these activities and take the costs down.

We really can enable them to do it better and we find that it aids the selling process.

So you could say that this is a result of the consultive selling approach we've been taking and it's definitely related to that.

But it's an evolution; it's not a revolution.

Got it.

Thanks very much.

Stephanie Davis, JPMorgan.

Thanks for taking my questions.

Given the pace of margin expansion, you guys are approaching the fiscal 2017 margin target given at your Investor Day.

Can we expect continued expansion beyond this level, or is the 18% target more of a steady state where you can focus on other items?

Thanks, Stephanie.

One thing just to clarify, when I'm talking about margin today, we are talking about an adjusted operating margin, which is slightly different than the EBIT margin that we talked about at Investor Day.

We will true that out, but if I look at the delta off of the beginning base, it's very much the same.

So up last year about 80 or 90 points; this year, about flat, so averaging close to 45, 50.

We are still targeting that 50 to 60 basis points, so it's really that change versus the absolute.

So we again still see it and obviously that would mean a bit more margin expansion next year to get us on average to that 50 to 60 basis points that we are targeting over that three-year period.

All right, thanks.

That makes sense.

Then given recent volatility in the markets, I was a bit surprised at the equity volume growth for the quarter.

Could you maybe talk about the puts and takes of this and how much of it was driven by the shift in contract structure?

Certainly not attributable to contract structure.

And Stephanie, as you know, we don't always track any broader indices, and obviously, we saw different growth patterns if you are talking about retail versus institutional, Canada versus the US.

But on balance relative health because, as you know, that metric that we provide is a same-store sales metric, so looking at the same clients year-over-year.

So relative health for our mix of business.

All right, thanks.

And one last one from me.

You guys have been talking about the opportunity in post-trade processing and recent wins for the past few quarters.

Going forward, how should we think about the revenue conversion through 2017 and 2018?

Specifically, as we think about Soc-Gen, London is obviously live and so some of that is flowing through the P&L today.

As we think about Barclays, it's a much longer ramp, really two and three year in nature.

That said, we do have some modest revenue and expense flowing through in fiscal year 2016.

We will have a bit more in 2017, but it's really 2018 and beyond where that starts to become a meaningful number.

So that's one of those good wins and it'll just take time to start showing in a meaningful way.

All right.

Thank you.

(Operator Instructions).

Patrick O'Shaughnessy, Raymond James.

Good morning.

So the first question is on segment margins.

It looks like the margins in the ICF segment are trending maybe a little bit below your full-year guidance and in the GTO segment, they are trending above.

Can you talk about the sequential uptick in spend in the fourth quarter.

Is that going to be weighted towards GTO, or might the current year-to-date trends hold true for the full year?

So on the investor communications side, let me take it in two, kind of what we are seeing.

So you are seeing down year-to-date 30 basis points year-over-year on margins for ICS, so two things.

As we said, three of the four acquisitions that we did last year are in that segment.

Those we know are an overall drag to Broadridge margins this year, so you're seeing more pronounced in the ICS segment.

And then probably most importantly, as you know, the fourth quarter is where all the margin is made.

So for a 10.7% year-to-date and targeting something in the high teens for the full year, it's really the fourth quarter that will tell us whether we are on track.

And right, now we believe we are.

GTO, you are seeing a little bit of the benefit.

On balance, healthy trading activity, which comes in at pretty high margins.

So that's the year-to-date performance.

With respect to any Q4 investment or restructuring spend, probably premature to tell you exactly where that falls, although expect activity in both of our operating segments.

But it's just as likely to also show up in other, which is our -- think about as unallocated corporate cost, so no discrete guidance for you on where that will fall.

Got you.

And then last one from me.

We saw some nice sequential growth in your emerging/acquired revenue bucket within investor communications.

Can you maybe just touch on a little bit further what some of those wins were you had during the quarter?

I will just talk maybe a little bit about some of the trends that we saw that probably suppressed a little bit of E&A growth and that is there is a little bit of internal growth in there that relates to our assets under administration fees, Rich referenced earlier, with Matrix.

And as equity values were under pressure, that hurt a little bit.

As that stabilizes a little bit, we are seeing growth.

Otherwise, obviously, a big chunk of that growth is the acquisitions that are still annualizing into that line item.

Generally speaking, and obviously Rich can add to this, but I think what's impressive is even the businesses that we just bought in the last year that will hit this E&A area continue to perform well out of the gate with healthy sales, whether you are talking about Direxxis or FIS, our Fund Information Services.

So we continue to see the traction that we expected in the first year of our business cases.

Overall, the E&A aspect, which I highlighted a few times during the script, as well as during the Q&A, I put it in the category of investing in our business buying a building.

But specifically on the acquisition portfolio, we set out on the tuck-in path a couple of years after being a public company when we paid down the debt to an acceptable level from the spin, you are always concerned about, okay, what happens if you don't make the numbers.

Having the number of acquisitions we have out there right now, and really tracking very close to the very high IRR standard we've set, and I said that more for an internal reason than an external reason because if you say you have a 20% hurdle, you are more likely to get to 15%, which is a very, very attractive and acceptable number.

So all in all, the acquired products and the Broadridge halo of putting these products under Broadridge, and Direxxis I think is a great example of that, and I'd put virtually everything else we are doing under that category as well where being at our level of data security, being at our level of reliability, being at our level of infrastructure, having the certifications we have, doing the SSAE-16s on these services, where we can truly demonstrate to people, we have a document with an outside third party confirming that we have compliance, really has given a credibility, and it is a big part of our [civil] of activity, and you should expect us to be looking to run the business this way going forward.

All right, great.

Thank you.

At this time, I'm showing there are no further questions.

All right.

Well, first of all, thank you for your participation, and Jim, Brian and I will be looking forward to seeing hopefully many of you at our upcoming Investor Day lunch in New York City on May 10.

As always, we look forward to hearing your thoughts and comments and although it's been a bit of a rainy run here, we are all going to choose to have a great day here and we hope you do the same.

Thanks so much for your participation.

This concludes today's call.

You may now disconnect.