Broadridge Financial Solutions Inc (BR) 2020 Q4 法說會逐字稿

Good day, and welcome to the Broadridge Fourth Quarter and Fiscal Year 2020 Earnings Conference Call.

(Operator Instructions) Please note, today's event is being recorded.

I would now like to turn the conference over to Edings Thibault, Head of Investor Relations and Corporate FP&A.

Please go ahead, sir.

Thank you, Rocco.

Good morning, all, and welcome to Broadridge's fiscal year 2020 earnings call.

Our earnings release and the slides that 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; our CFO, Jim Young; and Matt Connor, our incoming interim CFO.

Before I turn the call over to Tim, a few standard reminders.

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.

We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results.

An explanation of these non-GAAP measures and reconciliations to their comparable GAAP measures can be found in the earnings release and presentation.

Let me now turn the call over to Tim Gokey.

Tim?

Thank you, Edings.

3 months ago, I spoke to you about the twin challenges of the global health and economic crises, and in particular, about the impact COVID has had on so many in the greater New York area.

Since then, while the environment is better in many respects, the outlook remains highly uncertain and now includes an increased focus on racial justice.

In this complex environment, I remain incredibly proud of how Broadridge's more than 12,000 associates are continuing to step up, supporting our clients, coworkers and families while staying engaged in our communities.

As COVID continues, our first priority remains the health and safety of our associates.

We continue to deploy extensive safety protocols for essential workforce, which include temperature checks, social distancing and the use of personal protective equipment.

Our non-production offices have remained closed, and no associates will be required to return before January, a date we continue to assess.

Despite those challenges, Broadridge has not missed a beat in serving clients, closing sales and developing new products.

We've continued to process high trade volumes and record numbers of shareholder communications.

As a result, Broadridge delivered a very strong quarter that drove strong fiscal year 2020 results, including 10% recurring revenue growth, 8% EPS growth and record closed sales.

Our outlook for fiscal '21 calls for continued top and bottom line growth, 2% to 6% recurring revenue growth and 4% to 10% adjusted EPS growth as well as increased investment in our people, platforms and technology.

More importantly, I'm confident Broadridge is meeting the moment posed by these times, including the near-term challenges of the pandemic and the longer-term opportunities created by the acceleration of the key trends driving our growth.

Turning now to the quarter.

Broadridge reported an exceptional fourth quarter.

Performance was driven by strong stock record growth, increased demand for virtual shareholder meetings, and elevated trading volumes.

Strong recurring revenue growth was coupled with a rebound in event-driven activity, leading to 250 basis points of margin expansion and 25% adjusted EPS growth.

Couple that with near record fourth quarter sales, and all in all, an excellent performance in our seasonally largest quarter.

Broadridge's performance since the onset of the pandemic highlights the strength of our business model and the importance of what we do across governance, capital markets and wealth and investment management.

In governance, we have ensured that annual meetings could take place and shareholder governance continue by keeping open the lines of communication and facilitating 1,500 virtual shareholder meetings.

In GTO, our scalable and resilient technology platforms flawlessly process record trading volumes during periods of peak volatility in March and April, enabling markets to settle and investors to price in the impact of a worldwide shutdown of economic activity.

Broadridge, our associates and our technology played a critical part in keeping our markets open, and every Broadridge associate and shareholder can be proud.

Moving to the year.

Our full year recurring revenues rose 10% to $3 billion, driven by organic growth and strong performance from recent acquisitions.

Event-driven revenues declined to a 5-year low, and our low to no margin distribution revenues slipped 1%.

Adjusted EPS rose 8%, as the strong growth in recurring revenues was offset by event-driven declines.

Closed sales of $239 million were a new record due to our second strongest sales quarter ever.

Keep in mind that our 2019 closed sales were buoyed by our hallmark wealth platform deal with UBS.

Excluding net result, closed sales this year rose more than 25%.

All in all, a strong year, especially considering the impact of a sharp fall in the event-driven revenues and the impact of the COVID pandemic.

Thanks to those strong results, our Board approved an increase in our annual dividend to $2.30 per share.

Broadridge has now increased its annual dividend for 14 consecutive years.

Every year, we've been a public company.

Let's move to a review of our ICS business on Slide 4. ICS recurring revenue rose 6% in fiscal '20 driven by strong growth in our core governance products and aided by our recent acquisitions.

We benefited from 10% full year stock record growth and strong demand for virtual shareholder meeting solutions.

We also continue to benefit from strong demand for fund data and analytics.

We made 2 meaningful acquisitions in fiscal '20, which also contributed to growth.

Broadridge Fi360, which leverages our strong relationships across the mutual fund and retirement ecosystem and adds to our data and analytics suite and FundsLibrary, which represents another step toward creating a leading European fund reporting business.

I'm pleased with the integration of both and expect them to contribute to organic growth next year.

After 2 exceptional years, event-driven revenues declined by $66 million.

Activity levels over the first 3 quarters of the year were historically low levels before rebounding in the fourth quarter.

Looking ahead, we expect event-driven activity in '21 will remain at muted fiscal '20 levels.

Fiscal '20 was also a strong year for our GTO segment.

GTO revenues rose 18% driven by a combination of strong organic growth and very strong performance from our 2019 acquisitions.

The story of GTO's growth was really a tale of 2 halves.

In the first half, we saw strong onboarding growth, offset by lower trading volumes and a decline in consulting revenues, which held organic growth to 3%.

In the second half, we continue to make very good progress in onboarding clients, and trading volumes grew dramatically to unprecedented -- due to unprecedented market volatility.

Second half organic growth was 10%.

Not captured in organic growth was very strong performance from our recent wealth management acquisitions, RPM and Rockall.

Both delivered results well ahead of our acquisition case, as clients have been willing to expand the scope and length of contracts because of their confidence in Broadridge's ability to support their needs.

I couldn't be more pleased with the traction we're seeing in the marketplace.

Let's turn our focus to closed sales on Slide 5. Broadridge reported closed sales of $239 million, up 2% from our FY '19 record.

I'm really pleased by the breadth of sales across our major growth opportunities.

We're seeing a lot of demand for our next-generation governance products with strong sales of virtual shareholder meetings and our Shareholder Rights Directive solutions.

We're also especially active on the capital markets front, with recent client additions, including a midsize European bank, the sale of a derivative solution to a major futures brokerage, and earlier in the year, a sale of our global post-trade platform to another major European bank.

Another highlight was the first sale of our blockchain-based repo solution.

I was also pleased to see strong sales momentum in BRCC, which bodes well for a return to growth.

Our record sales highlight the breadth of our product portfolio and deep client relationships.

They're also a testament to our ability to close on our sales pipeline despite the challenges our clients faced and the challenges of working remotely.

Looking forward, we're taking a slightly cautious view of sales growth in FY '21.

That view reflects the uncertainty faced by our clients as a result of the global recession and the challenges that may emerge in building a pipeline of new opportunities in a world in which client outreach is more limited.

Importantly, we don't need to grow sales to grow revenue in '21.

Our strong $355 million backlog gives us enormous confidence in our ability to grow our top and bottom line and continue to invest in fiscal '21 despite macroeconomic uncertainty.

Frankly, it's a great security blanket for a CEO.

Let's turn to Slide 6 to review our performance against the 3-year objectives we laid out at our 2017 Investor Day.

I'm proud to report that we achieved our objective against all the most meaningful metrics, including recurring revenue growth, organic revenue growth, adjusted operating income and adjusted EPS.

Our adjusted EPS has grown at a 17% CAGR, putting us at the high end of our 14% to 18% objective.

One target in which we fell short was total revenue growth, which was impacted by a decline in low to no margin distribution revenues.

Since our strategy is to drive distribution revenue down over time through digitization, I'm not at all concerned that distribution was lower than expected.

These targets were anchored in our strategy of growing our governance and capital markets franchises and building a wealth management franchise, both in North America and internationally.

They're also grounded in a strong conviction that our growth is being propelled by long-term trends around mutualization, digitization and the importance of unique data and analytics.

I'll talk more about our outlook in a moment, but our success in meeting our 3-year objectives despite the pandemic and lower event revenue is a clear indicator that our strategy is on track and that the long-term trends driving our growth are very much intact.

Before I turn to our outlook for fiscal '21 and beyond, I want to provide an update on the modernization of regulatory reporting for the fund industry on Slide 7.

Last week, the SEC voted 4-0 to propose a new rule, 498B, that would mandate the distribution of summary annual and semi-annual reports in place of the current long-form version of those documents.

The rule provides guidelines to the proposed summary documents and also encourages interactive, clickable content.

It retains the paradigm of 2 communications per year directly to investors through the channel of their choice and meaningfully simplifies the information, fund and ETF shareholders receive by creating summary documents and by eliminating the annual prospectus, which has high overlap with the annual report.

If enacted as proposed, the new rule would have an impact on the roughly $60 million recurring fee revenue we received today for distribution of annual fund prospectuses.

At the same time, it will also create a significant opportunity for Broadridge to help our fund and ETF clients comply with the new rules.

We believe that opportunity is as large or larger and will create a stronger and deeper relationship with the fund industry.

We view this proposal as a positive step for the industry, investors and Broadridge.

We know investors are more engaged by concise summaries that contain the key information they need.

Our research, which was cited extensively by the SEC, has shown that providing mutual fund and ETF investors with easily digested summary information will keep them better informed and more engaged.

It also creates a format that works well digitally on a smartphone or tablet.

Broadridge has already eliminated more than 70% of fund paper communications.

Providing easily digested summary information to those digital investors will both keep them informed and will also lead to even more investors going digital in the future, further lowering costs for the fund industry.

The proposal aligns Broadridge with its clients and creates a sustainable long-term paradigm for these important disclosures with better informed investors and more cost-efficient communications.

No one is better positioned than Broadridge to make this vision a reality given our ability to reach all investors and our investment in digital capabilities.

It's important to keep in mind that rule proposals like this historically take years, not months to implement.

It's a significant change, which means final passage is uncertain, even more so with the new administration at the SEC, irrespective of the election.

If a proposal does go forward, we anticipate the process would take 2 to 3 years to finalize and implement.

So 498B represents an important potential step in modernizing fund communications.

Its final form and timing remains uncertainty, but it's an important affirmation of the importance of what we do for the industry and retail investors.

And it's an exciting opportunity for us to work more closely with funds and ETFs to help them better engage with and educate the investors.

Turning now to our outlook on Slide 8. We are seeing that the trends driving our growth are being accelerated by the pandemic.

The pressure on financial services firms to simplify their operations and reduce costs through mutualization has only grown.

Our extra time at home has been a crash course in digital for us all.

And the need to adopt new technologies and incorporate national data continues to grow.

This urgency around next-generation resiliency, mutualization and digitization is already starting to show up in our discussions with clients.

Clients used to worry about losing a facility.

Now they need to worry about losing a country or the globe.

The investment required to build the needed resiliency across their entire technology estate significantly increases the logic for mutualization.

Digitization and next-generation technology are also in increased demand.

Therefore, as we move into fiscal '21, we are upping our investment in our people, platforms and technology to be ready to further support our clients.

As Jim will describe, we're taking a careful view of cost, enabling us to free up resources to invest in our own resiliency, product and technology.

Our strong fiscal '20 results were due in significant part to our track record of investing in our business over time.

We created the virtual shareholder meeting 11 years ago and scaled it this year from 300 meetings to 1,500 meetings.

Some of our more recent investments are just beginning to bear fruit, like our AI-enabled fixed income trading platform, which launches this fall, and our investment in blockchain, which is starting to drive the sales of DLT-enabled products like our repo and Shareholder Rights Directive solutions.

I'm confident these investments will leave Broadridge better positioned than ever to take advantage of the post-pandemic recovery for the long term.

So while we are cautious about the uncertain outlook in the near term, I can say that the long-term growth opportunities for Broadridge have never been better.

We look forward to sharing more details about these trends and our investments when we host our next Investor Day in December.

Looking closer ahead to fiscal '21, Broadridge is positioned for continued top and bottom line growth.

Underlying our forecast is our assumption that the pandemic will continue to weigh on economic growth for the balance of calendar year '20 and well into calendar '21.

Despite that headwind, we expect continued organic growth and a modest contribution from acquisitions we made in FY '20.

As I just mentioned, our outlook for fiscal '21 also calls for increased levels of investment in key areas, including improved resiliency, new technology and bolstering product development.

We're also continuing to invest in our digital capabilities, our LTX fixed income trading platform and our wealth and global post-trade technology platforms.

Our ability to fund these growth investments, even in a challenging year, is a testament to the strength of our business model.

We will emerge from the pandemic with greater platform reach, an even stronger product development organization and with new digital capabilities and enhanced technology and operational resilience.

We will also emerge with a stronger culture.

A core part of our long-term competitive advantage is our focus on the service profit chain that emphasizes highly engaged associates providing excellent service to our clients, which, in turn, creates additional growth opportunities and returns for our shareholders.

As we look ahead at the future of work, we're focused on making Broadridge a great place for the most talented associates.

We are making our work more flexible and engaging, and we're investing in the next-generation diversity and inclusion that will engage our associates and clients alike.

All of this is good for shareholders.

As I close my prepared remarks, I want to take time out to address my fellow associates.

Even in a normal year, it's your commitment and passion for serving our clients that sets us apart.

This has not been a normal year by any stretch of the imagination.

So I want to say a special word of thanks.

It has not been easy.

For all of you engaging in social distancing and getting your temperatures checked when you come to work, for all of you balancing parenting and family responsibilities while still providing world-class service to our clients, thank you for everything you're doing.

Finally, before I turn the call over to Jim Young, I want to thank him for his contribution to Broadridge the past 6 years.

Since he joined us from Visa in 2014, he has been a strong partner in helping run the business and equally, a good friend.

I'm sorry to see him go, but excited for him to make an equally meaningful mark in his new role.

Jim is leaving Broadridge in good hands.

I've worked with Matt Connor closely the past 10 years as he served important operating and financial roles and played an important part in the reinvigoration of our GTO segment.

His hands-on ability to balance business, financial and long-term strategic goals have been exceptional.

I know he will continue to be a strong voice in his new role.

Jim?

Thanks, Tim, and thank you for the kind words and your mentorship and partnership.

It has been an honor and a pleasure to work so closely with you over the past 6 years.

It is bittersweet to be in my last earnings call as Broadridge's CFO.

I'll begin my comments with several callouts on Slide 9. First, the strong finish.

This was an exceptional fourth quarter, highlighted by near record sales and 10% organic growth, translating into 6% organic growth for the all-important second half of the year and 4.5% organic for the full year.

Second, event-driven revenue.

This is the highest event has been all year, but even with a 33% increase this quarter, we still closed fiscal '20 with well below average event-driven revenues.

Third, closed sales.

Our sales team stood and delivered an impressive quarter and another full year record performance, demonstrating the strength and resilience of the Broadridge business model.

This leads to the fourth callout, backlog.

The recurring revenue backlog stands at $355 million or 12% of fiscal '20 recurring revenue, which gives us fantastic visibility into future growth.

Fifth, a strong balance sheet.

We exited the year right in our long-term target leverage ratio and with ample liquidity.

As we think about uncertain macroeconomic climate we are in, it is great to be in such a strong position.

Final callout, guidance.

Our fiscal '21 guidance calls for another year of top and bottom line growth even in the face of a pandemic and global recession.

Importantly, embedded in our guidance is meaningful investments to ensure we are well prepared for the recovery and continued long-term growth.

Let's turn to Slide 10 to review our revenue growth drivers.

Total revenue grew 14%.

The biggest driver of this was 10% organic growth, and in particular, revenue from closed sales, which contributed 7 points to our growth.

We saw continued strong onboarding activity and meaningful sales of our virtual shareholder meeting solution.

We also benefited from strong internal growth driven by strong proxy volumes and equity trades.

The quarter was also boosted by the shift of some property volumes from the third quarter to the fourth quarter, which added 2 points to our growth.

Looking through the impact of those delays on both the third and the fourth quarter, we saw an overall 6% organic growth and a more significant second half of our year.

All in for the full year, organic growth was 4.5%.

Let's turn to Slide 11 for a closer look at ICS revenue growth.

ICS' recurring revenues rose 12% in the quarter.

On an organic basis, recurring growth was 10% or 6%, excluding the impact of the COVID-related timing shift.

After a slower start, ICS' organic growth picked up nicely in the second half of the year to greater than 4%, which highlights the importance of proxy season and strong record growth.

Overall, the economic impact of the pandemic on ICS was mixed.

On the positive side, we saw strong demand for virtual shareholder meetings, and market volatility boosted demand for post-sale prospectuses as mutual fund investors rebalanced portfolios.

On the other side of the ledger, we were negatively impacted by lower interest rates on cash balances we hold for retirement accounts and by lower overall asset values of those accounts.

Mutual fund interim communications also slowed, likely as a result of the record withdrawals from funds and ETFs in March.

Turning to Slide 12.

Our governance business also benefited from a welcome rebound in event-driven activity.

Event-driven revenues, which have lagged all year, grew 33% in the fourth quarter.

The key takeaway here is we are not seeing any structural issues.

Event activity is cyclical.

Looking ahead, we have no visibility into a proxy campaign by major mutual fund complex and expect another below average year with overall event-driven revenues essentially flat to fiscal '20.

Let's turn to Slide 13 for a review of our GTO segment, which also reported strong fourth quarter results.

GTO revenues rose 19% driven by a balance of organic growth and acquisitions.

While volatility declined from March peaks, it remained elevated throughout the quarter, driving a 27% increase in equity trades, similar to the third quarter and contributing meaningfully to our organic growth.

I'm also pleased to report that we're able to continue to onboard new clients with no delays, even with our associates working from home.

We also saw strong performance from our recent acquisitions, which have outperformed their acquisition cases.

And even with a modest growth headwind from comping high license activity in fiscal '20, these businesses are expected to continue to outperform their acquisition cases in fiscal '21.

Let's move to Slide 14.

Strong revenue performance in the third quarter led to 25% growth in both adjusted operating income and adjusted EPS.

Higher revenues from both segments were only partially offset by COVID-related expenses and our commitments to support COVID response and social justice initiatives.

Overall, the earnings result exceeded the guidance we provided in May, and the 8% adjusted EPS growth for the full year matched the low end of the guidance range we provided at the beginning of the year.

Moving to capital allocation and our balance sheet on Slide 15.

Broadridge generated approximately $500 million of free cash flow in fiscal '20, down from $544 million in fiscal '19.

This is driven by a notable step-up in net conversion costs related to several significant platform builds we are executing simultaneously.

Our uses of cash highlight our commitment to balance capital allocation.

First, between CapEx and client platforms and conversion work, we deployed over $250 million in fiscal '20 to support our organic growth.

Over the last couple of years, we have ramped up our platform development and new client conversions.

A significant portion of this increase is attributable to UBS and the continued development of our global post-trade technology platform.

Linking these product development efforts to long-term client contracts gives us the confidence and ability to accelerate our product development effort.

In conjunction with our revenue backlog, we view this spend as a positive sign of our growth and future cash flows.

We expect this area of investment to rise modestly in fiscal '21.

Our CapEx of $99 million represents another year of spend at around 2% of revenue and capture some early savings from our private cloud initiative.

We expect to stay at similarly low levels next year.

The biggest use of cash was for M&A, where we invested approximately $339 million this year alone.

We made acquisitions across our governance, capital markets, wealth and investment management businesses, broadening our product line, adding new capabilities and extending our global footprint.

Lastly, we returned $269 million to our shareholders in the form of dividends and buybacks.

The commitment was underscored by our decision to raise our annual dividend 6%, the 14th consecutive year with an increase.

We closed fiscal '20 with an adjusted gross debt leverage ratio of 2x, right on our long-term target.

Our free cash flow, balance sheet and over $1.6 billion in liquidity positioned Broadridge well for a seamless repayment of our $400 million September maturity and continued balanced capital allocation in fiscal '21 and beyond.

Let's turn to Slide 16 to look ahead into fiscal '21 and our last callout of the day.

One of the great strengths of the Broadridge business model is its recurring revenue, backed by strong backlog.

Our revenue backlog, which represents an estimate of first year revenue from closed sales that has not yet been recognized, sits at $355 million, equivalent to 12% of fiscal '20 recurring revenue.

The visibility that gives us is a key reason we are confident in projecting continued revenue growth despite the uncertain macroeconomic outlook.

Our planning for fiscal '21 assumes that we are in a challenging recession with tough macroeconomic conditions extending through the fiscal year.

We view this as the right way to approach the year while continuing to invest in a still significant opportunities ahead of us.

You will notice that we've also modestly widened our range to reflect an increased level of macro uncertainty.

All that said, Broadridge is positioned for another year of top and bottom line growth in fiscal '21 despite the recession.

Let me walk through our key guidance points.

We expect the recurring revenue growth will be in the range of 2% to 6%, which includes about 1 point of growth from the annualization of fiscal '20 acquisitions.

We expect both ICS' and GTO's recurring growth to be at similar levels, driven by strong new client onboardings offset by the tough trading and post-sale comparables we faced in the second half of fiscal '21.

In ICS, we expect low single-digit full year position growth, continued demand for our data analytics products and customer communications to contribute to organic growth.

These are expected to be partially offset by lower revenues from our mutual fund retirement business as a result of lower interest rates.

Regulatory post-sale volumes are also expected to be a drag.

Our GTO business should continue to benefit from strong new client additions and increased trading volatility over the first half of the year.

The benefits of higher volumes are expected to turn negative in the second half of the fiscal year as we start to lap the volume spikes from the peak of the pandemic in March and April.

As I mentioned earlier, lower license activity following a strong fiscal '20 will result in a drag on growth also.

Next, we expect total revenue growth to be in the range of 0% to 4% as recurring fee revenue growth is offset by other items.

As a reminder, total revenue is not a particularly meaningful metric for us given the long-term shift to more digital delivery.

And we expect that low to no margin distribution revenues will be flat to down again.

We also expect event fees to be roughly flat, even accounting for what we believe was a near cyclical low point this past year.

FX is expected to be a 1 point drag.

Third, we expect our adjusted operating income margin to increase about 100 basis points from fiscal '20 level of 17.5%.

Given the uncertain economic outlook this year, we have kept a tight rein on expense growth, enabling us to plan higher margins and simultaneously increase investment.

As part of our expense reduction initiatives in response to the work -- new work environment, we plan to rationalize our real estate footprint by closing some offices around the world.

While we're still in the planning phase, we expect these lease termination costs, along with other related actions, to result in a charge of approximately $20 million to $40 million in Q1.

We expect to exclude this expense from our adjusted results.

On the investment side, and as Tim noted, we are increasing our spending and building out our product development team and our technology infrastructure.

We have also set aside money to increase our diversity efforts.

I am proud that, as a company, we are committed to investing in the long term, year in and year out, no matter the environment.

Moving down the income statement.

Our overall tax rate should tick up slightly to 21%.

And our core tax rate, which excludes the excess tax benefit, should remain at about 23%.

We are projecting ETB of $12 million in fiscal '21, a $4 million decrease from fiscal '20.

As a result, we expect adjusted EPS growth to be 4% to 10%.

And we expect closed sales to be in the range of $190 million to $235 million, reflecting both caution in this challenging environment and continued confidence in our value proposition.

Finally, as you think about quarterization, our earnings growth will once again be very uneven, caused in part by small earnings quarters in the first half, the unpredictability of event fee timing in this year, tougher recurring revenue comps in the second half.

Specifically for Q1, our forecast assumes event fees will be around $30 million, down roughly 20% from last year.

That should push our adjusted EPS to the low end of 11% to 14% of annual EPS we typically record in Q1.

Before I turn the call to Matt, please allow me to share a couple of quick thoughts.

It's been a privilege working with such an exceptional team here at Broadridge, and a decision to step away from my role during this exciting and dynamic time of growth for the company has not been an easy one.

However, I take the step knowing that Broadridge, led by Tim and the team, will continue to be successful for years to come.

We are well positioned, and the longer-term opportunity for Broadridge has never been stronger nor more clear.

I want to thank all of our shareholders for their support over the years and say a special thank you to our research analysts who have kept our terrific IR team, and you all know how good Edings is, and me on our toes.

And now over to Matt, in whose capable hands I'll leave you.

Having worked really closely with Matt, I know firsthand what a strong and talented steward Matt is of Broadridge's business, financial strength and strategy.

Over to you, Matt.

Thank you, Jim.

Thanks for your leadership and friendship over the past few years, and best of luck in your new role.

I know you will do great things at Indigo Ag.

I'm excited for this new interim role, and I'm looking forward to meeting all of you.

Broadridge is exiting fiscal '20 in a strong position and poised for additional growth.

We have a strong plan to drive growth, and my goal is to maintain our focus on disciplined cost management to fund additional investments.

We have a lot of momentum, and our primary goal is that we continue to put ourselves in position to continue that momentum across each of our major verticals.

And we look forward to sharing what that will mean, not just for fiscal '21 but for our next set of 3-year objectives that we will share with you at our Investor Day this December.

Rocco, let's go to Q&A.

(Operator Instructions) Today's first question comes from Darrin Peller with Wolfe Research.

Jim, first of all, I just want to say congrats to you.

We're going to -- obviously going to miss you, but all the best to you.

Guys, when we think about the structural opportunities you're seeing from this environment, and what we saw last quarter was obviously strong position growth and a very real demand for your GTO business given just demand from financial institutions, I think, and volumes obviously helped.

But when we look at your guidance, obviously, you're still suggesting 2% to 6%, which is a decel from now, and I know there's tough comps.

What I guess I'm trying to figure out is what's already done by bookings, what's already -- what you already know about.

And then when we consider what could be sustainable, couldn't position growth, being strong, be sustainable now in the environment we're in given how many more retail investors, fractional shares, free trading?

So maybe just start there if you can.

Yes.

Sure.

Darrin, it's Tim.

Thank you.

Thank you very much.

We feel very good about -- let me just step back for a second.

We feel very good about the long-term trends supporting our business and supporting our organic growth and our overall growth strategy, and we'll talk about that in December.

And definitely, as we were looking pre-crisis at our preliminary plans, we had a growth rate that was more in the 6% range.

And as we have evaluated things and looked at where we are now, we see a few different factors knocking a couple of points off of that.

One is a more cautious view on stock record growth.

That is definitely baked into our plan.

We can come back and talk about it in a second.

The other is interest rates, which affect our matrix unit.

And the third is a little bit lower revenue from sales, not because we don't think our sales will be strong, but just focused a little bit on the pace of client implementation.

And so those 3 factors, just about equally weighted, account for about 2 points relative to what we would have thought was our initial plan.

And we think that is prudent and that we will be in a very good position.

I think that positions us well to invest, and it positions us well to really undertake any variety of scenarios.

I think also, on the event side, we're being -- saying that's flat to this year, which is pretty muted.

And so I think that takes a lot of risk out of this plan, but it really enables us to focus it on the investment.

Tim, maybe just to quickly follow on to that.

I mean the position growth or the record growth itself, I mean it looks like we're in this environment where retail investors are obviously more involved.

And I think just it's easier to buy, whether it's free trading or fractional shares.

So I guess I'd be curious why you're assuming a low single-digit growth rate there.

And then just broadly, I guess what I was really looking for is, structurally speaking, given the environment we're in now with more digital transformation, what do you point to as where Broadridge is benefiting from this environment now?

Because it can provide the needs for clients, whether it's banks or customer communications.

Yes.

Absolutely.

So first of all, on the stock record growth, we don't have a crystal ball.

What we saw was certainly a good stock record growth this year, lower interim record growth.

So when you average those 2 together, this year, it was about 5%.

And we're going into the next year looking at something that's a little bit lower than that.

On the -- how we benefit from the increased digital demand, we see it really both on the communications side.

We're seeing good growth in our digital communications.

We're seeing it on the data analytics side.

We're seeing it -- we're very excited about the launch of our digitally based fixed income trading platform.

So we're seeing it really across lots of different arenas, Darrin.

The -- obviously, the strong growth in virtual shareholder meetings, which we expect to continue this year, that was a real nice pickup for us.

And so it's really across the breadth of our product areas.

Our next question today comes from David Togut with Evercore ISI.

All the best to you, Jim, in the next chapter.

Good to see the 55% new sales growth in the quarter.

And you did call out strong sales, in particular, in capital markets.

Can you talk about the propensity of big banks to outsource in this environment given some of the headwinds and tailwinds that they face?

Sure, David.

We are -- we're seeing a -- I think a really interesting tension there because their need is higher than ever.

And then at the same time, because of all the complexity of everything that's going on, there's a question about undertaking transformational projects.

And so I think one of the things that we really saw at the end of this year was a significantly higher demand for lots of smaller projects that can make a big impact.

And so we saw a lot of those and then some good medium-sized projects.

And we were pleased that the derivatives deal that I spoke about, very transformational project for that institution.

And that's something that they want to carry forward and move ahead with even despite the complexity of the pandemic and the complexity of doing everything remotely.

So we're seeing some institutions really moving forward strongly and taking advantage of this and investing.

We're seeing other institutions hang back.

We think the net-net of that, though, is going to be continued very positive sales.

We did see really strong pickup in our international sales.

So our sales outside the U.S. were up more than 50%.

And we see a continued strong pipeline outside the U.S. as well.

So really nice progress across the board.

Appreciate that.

And then as a follow-up, can you update us on the onboarding and development process around the big UBS wealth management contract?

To what extent is -- could that serve as a -- let's say, a launchpad in the business given demand you might be seeing from other wealth managers currently?

Yes.

Absolutely.

So that project remains really well on track.

We are very, very pleased with the progress there.

We're continuing to strengthen our wealth capability, not just with that project but also with the M&A that we've done and with some of the smaller component sales.

So -- and I'll come back to UBS in a second, but just to reiterate, the recent acquisition of the RPM acquisition, the Rockall acquisition performing really, really strongly.

I think as we look at UBS and what follows on from it, I think what we're seeing from the largest clients now is interest in seeing that go live.

There were lots of discussions but very much wanting to see that go live, which is on track to do.

But what it is doing is it is increasing our credibility overall in the wealth space.

And so we're seeing a significant increase in demand across the rest of our wealth portfolio.

As you know, we appointed Mike Alexander President in the third quarter.

That's been a key step in making this a stand-alone business, and his leadership is really helping us well.

So across our wealth strategy, we feel really good that UBS piece is one component of that, our component solutions is another piece of it and the strength of some of the new acquisitions is the third piece.

And our next question today comes from Peter Heckmann with D.A. Davidson.

This is Alexa Huseby on for Pete today.

So you mentioned the distribution revenue would be flat to down in fiscal '21.

And I'm wondering if you can help us with the approximate impact to that, that comes specifically from 30e-3?

I will take a crack at that, but I'm looking also at our CFO to see if he has a comment, which he may not.

So it is -- I think it is broadly, relatively small in this coming year.

So -- and as you know, we said 30e-3 is a very mild positive for us.

So not -- we really think about it since the distribution piece is really low to no margin, we really focus on the recurring piece.

So from an overall recurring revenue and profitability, we see it as neutral to a slight positive.

Specifically on the distribution revenue side, it's a mild negative, but not something that is really materially changing the numbers.

Okay.

That makes sense.

And then I think I heard you mention 1% in recurring revenue, but could you help us with the approximate acquired revenue carried into fiscal '21 from prior deals?

Yes.

This is Jim.

We -- that's correct.

About 1 point of growth is embedded in our guidance.

And if you recall, we had a couple of deals come a little bit later in the year, like Fi360 and FundsLibrary, which will carry through.

So it'll be about 1 point of growth in '21.

And just as a reminder, so that's the carryover impact, and our guidance never anticipates any M&A that might occur in the coming year.

And our next question today comes from Ken Hill with Rosenblatt.

A question on data analytics.

You guys had highlighted here in the slide deck that still in really good growth there.

I was wondering just given the COVID environment, we've seen more and more peers really make greater investment in that area, how you guys are thinking about some initiatives here over the course of the next fiscal year to really kind of ramp up the offering there.

Yes.

So there are a couple of areas, Ken, where I think this is interesting.

So most of our investment over the past few years in data analytics has been in serving the fund industry.

We have a suite of solutions that gives the fund industry transparency into fund flows, their sales, their share performance.

And one of the key things that we've really done in terms of investment is pull together data sets that used to be disparate and that fund companies used to have to acquire from different places and knit together and that was very complex for them.

And with our global distribution product, they can now have retail and institutional North America, Europe, Asia and pull all that into one data set.

And that is something that is really helpful, especially for the largest global asset managers.

So that continues to be a real growth area for us.

And in this period of uncertainty and volatility, they're looking for even more transparency than ever.

The other one I would just mention is not -- it's not -- we don't usually talk about it relative to data analytics.

But when you talk about leveraging the data we have, we've been working for quite a while in terms of how do we leverage the fixed income data that we have.

And we were making some significant investments in that the past few years.

And the AI-enabled fixed income platform that we're about to launch this fall is something that is going to really leverage that fixed income data in a way, institution by institution, that will bring AI to fixed income traders, allow them to figure out natural counterparties for complex trades and enable them to carry out those trades.

And that's one of the things probably in the whole company that we're most excited about.

Got it.

That's really helpful.

One other question I had.

You guys, historically, you've broken out a bit of a live, not live yet reoccurring revenue backlog.

Any color on the $355 million, how that looks now?

Yes.

So Ken, about 2/3 of that is not yet live at all.

So we've got obviously really good visibility and a whole bunch of -- a bunch of this is sort of peer growth as we onboard it, recognizing there'll be a really large piece associated with the UBS deal, which really won't have any impact in '21, more of a '22 event.

And our next question today comes from Puneet Jain with JPMorgan.

Jim, all the best and hope our paths cross again.

So one question, Tim, on pipeline, like how is your pipeline converting into revenue?

Any impact -- any actual impact you have seen on implementations from the pandemic and also on the sales cycle?

Just wanted to make sure like the recession impact on sales guidance, have you started seeing slowdown in the first 4 months or in the last 4 or 5 months versus being conservative given the uncertainty?

Yes.

Puneet, thank you for that question.

So we -- broadly, the impact has been surprisingly low.

And I will talk about each of the different pieces.

So first of all, in terms of completing sales, obviously, we just had a terrific sales quarter.

And to be fair, a lot of the sales were on the 1-yard line at the beginning of the pandemic, and we certainly saw institutions carrying on and finishing those.

In terms of the sales cycle.

Obviously, we measure at each of the different stages in terms of pipeline creation and moving things through the pipeline.

And we have seen modestly lower pipeline creation in the last 12 weeks.

And I'll say it's a modest delta.

It's not a huge delta.

Part of it, Puneet, is we can't really be sure because given the amount of focus that we had on closing that degree of business, very hard for us to discern whether lower pipeline creation is just our own capacity or anything that's going on out there in the world.

So that will develop.

That is one of the reasons we're being slightly more cautious.

But again, it's a marginal difference.

On the implementation side, we just finished the year of record revenue from new sales in terms of onboarding.

We did see a few delays in some projects but nothing canceled, just pushed out a few months.

And we have built that into our plans for this year, and that is one of the things that was contributing a little bit to a bit of a detriment, a little bit more caution around our revenue outlook.

That said, this next year is going to be another record in terms of revenue from newly onboarded sales.

And as we think about our onboarded -- excuse me, our ongoing growth as a company, you know that revenue from new sales is a key driver for us.

And that continues to accelerate, and we just -- we see that continue to accelerate in the future.

So that is a -- remains a very positive, solid long-term trend.

This year will be another record.

We just took our foot a little bit off the gas in terms of making sure that we are accounting for any potential delays that might arise.

Got it.

Got it.

And Jim, I know you'll share lot more info at the Analyst Day.

But 100 basis points in margin expansion, how should we think about long-term margin beyond that, specifically given like some of the margin drivers that you talked about, like how should we think about -- like are they like the long-term cuts versus more being like near-term cuts?

And can you also talk about drivers for long-term margin expansion?

Yes.

Puneet, look, as Tim highlighted -- put this in context.

We just finished 3 years where we averaged 83 basis points per year of margin expansion.

That includes ending on a very low event-driven year.

So I think our ability to generate margin expansion is pretty good.

And our -- and clearly, as we look at this year on what is relatively modest recurring growth to sign up for another 100 basis points of margin expansion is an indicator that we constantly have abilities to improve our margins.

Obviously, we got to pick up with more digital and less distribution over time.

But we think some of the changes that we're making are long term sustainable.

If you think about private cloud initiatives, if you talk about real estate, some of those things are very durable.

It doesn't mean that we're going to change our longer-term outlook, the team will go through that in December.

But, obviously, we continue to feel really good about levers available to us and our ongoing ability to make this business even more efficient.

And our next question today comes from Patrick O'Shaughnessy with Raymond James.

Can I get some more detail on the sales momentum that you guys spoke to in the BRCC business?

What type of mandates did you win during the quarter?

It's Tim, Patrick.

We had really good sales year for BRCC this year, certainly, the strongest sales that we've seen since it became part of Broadridge.

And lots of solutions across both financial services but other industries as well.

In the fourth quarter, in particular, there were 2 really chunky deals, not mega deals but 2 quite chunky deals: one from a large global bank and a piece of their business, not their whole business; and one from a large health insurer, which was a very significant part of their business.

And so we like that.

As we have -- so we talked about BRCC.

As you know, one of our theses was really around using it to more deeply penetrate some of our largest clients to bring digital sales and as well as to drive bottom line.

And if we look at BRCC this year, we feel really pleased with the performance.

Had a very, very strong bottom line performance this year, a very good sales, stable revenue, off-boarding of that major client that we've always talked about complete.

So when we look at the different strategic indicators for this business, it is a positive traction on a number of fronts, not too early to declare mission accomplished but very positive developments.

Got it.

And then I appreciate some of your commentary on the modernization of fund communications.

But I want to press you a little bit, how do you monetize kind of the notion of driving more engaging and lower cost content for funds to the extent that it could offset the revenue -- that $50 million revenue hit from not sending out those prospectuses anymore?

Yes.

Well, thanks for that question.

Look, just -- and before I get to that, just stepping back for a second.

Obviously, based on what we do, we're for investor disclosure, and this really reinforces that.

And we do well when the communications that clients receive are relevant and when the cost of that whole ecosystem is getting better.

And as we think this change, if it is ratified and go through, will create more engaging communications, create a better digital experience at lower cost for the industry.

And so it's really a win-win-win, and no one is better positioned than Broadridge.

So if you just get into a tangible example.

First of all, we did want to size for everyone sort of what is the amount of revenue that's sort of in these annual prospectuses.

That's not all going to go away.

There are chunks of funds that will not -- it's optional.

It's optional for funds.

It's optional for broker-dealers.

They're closed-end funds.

There's some funds that won't elect to do it.

There's some brokers that won't elect to do it.

And also because of the fact that people still need to let people know about changes, we think this will lead to higher supplementals.

So that whole 60 is not going away, but it does create a new opportunity because this rule is complex to implement.

There's a complexity of creating the new summaries.

A lot of that stuff, the big, thick documents today are offset print.

A lot of these will be more print on demand.

And then there's really hosting clickable layered content.

I just want to give an example.

So in January, we're going live with our 30e-3 solution.

And this is something we're doing for the industry as a whole.

And it's really neat because we send people a notice.

On the notice is a QR code.

You point your phone at the QR code, and it brings up the document tailored to you directly on your phone.

And we're introducing that in January across the industry.

The fund industry loves it.

And one of the things that's really done is to sort of introduce the idea of how Broadridge can help clients with these implementing complex new regulations, and it really has started the digital conversation in a very serious way.

So we've been very positive.

Now you project that forward.

3 years from now, funds are going to have a real complexity to deal with.

They have to create these new summaries.

They have to host clickable layered content.

And if you think about a solution where -- in the future, where they file their long-form documents, we capture all those data points anyway.

Within a couple of days, we present them back.

Here's a summary in your color, with your logo, composed and ready to go.

You approve it and it's ready to be distributed through whatever channel with a hosted solution for clickable solutions.

So you can sort of really envision, Patrick, the kind of introduced solution is going to solve a big problem for the fund industry.

And so only Broadridge is positioned to do that.

And we're excited for the way that it is going to help our clients more deeply engage with their clients.

And ladies and gentlemen, this concludes our question-and-answer session today.

I would now like to turn the conference back over to Tim Gokey for any final remarks.

Thanks, Rocco, and thank all of you on the call for joining us today.

I just want to take a moment to reiterate our key messages.

Our strong results highlight the importance of what we do and the strength of our business model.

The pandemic has and will continue to accelerate the long-term trends driving our growth.

Looking into '21, we see continued revenue and adjusted EPS growth, backed by a record revenue backlog.

This outlook includes increased investments in products, platforms and people.

And finally, Broadridge remains well positioned for continued growth.

We look forward to sharing more on our outlook at our Virtual Investor Day on December 8. Thank you again for tuning in today, and we look forward to seeing you there.

Thank you, sir.

This concludes today's conference call.

We thank you all for attending today's presentation.

You may now disconnect your lines, and have a wonderful day.