Broadridge Financial Solutions Inc (BR) — Q4 2019 Transcript

Thank you, Rocko. Good morning, everyone, and welcome to Broadridge's Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. Our earnings release and the slides that accompany this release may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our CEO and President; and our CFO, Jim Young. 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'll 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.

Thank you, Edings, and good morning, everyone. Broadridge delivered strong fourth quarter and fiscal year 2019 results. Our outlook for fiscal year '20 calls for yet another strong year, including high single-digit growth in recurring revenue and 8% to 12% adjusted EPS growth. This morning, I will provide a brief review of our 2019 results, including the strong close to another record sales year and then talk about the acquisition of RPM Technologies, which we've announced after our last earnings call. Finally, I'll give an update on our progress against the priorities I laid out in my first earnings call as CEO earlier this year. Jim will then provide a closer look at our financial results and give you more details regarding our 2020 guidance. We'll close with your questions. Let's get started. I'm really pleased with both our strong fiscal year 2019 results and how well we are positioned to deliver sustained growth in fiscal '20. FY '19 recurring fee revenues rose 6% to $2.8 billion, more than offsetting the decline in low to no margin distribution revenue and lower event-driven revenues. In all, total revenues rose 1% to $4.4 billion. Adjusted operating income rose 8%, thanks to strong margin expansion, and adjusted EPS rose 11%. After a strong fourth quarter and the landmark UBS Wealth Management deal, full year Closed sales rose 9% to $233 million, marking another record sales year. Just as importantly, we hit those marks while continuing to fund investments in new products and technologies. We also made three tuck-in acquisitions that will strengthen and grow our business, especially in Wealth Management. Six percent recurring fee growth, double-digit earnings growth, record sales, continued investment, that's why we feel so strongly about 2019. Based on these results, we're announcing an 11% increase in our annual dividend to $2.16. Broadridge has now increased its dividend every year since becoming a public company in 2007, and 2019 marks the eighth consecutive double-digit increase. Looking ahead, we expect higher growth in 2020. Specifically, we expect recurring revenue growth of 8% to 10%, including 5% to 7% organic revenue growth, along with lower event and flat distribution revenues, resulting in 3% to 6% total revenue growth. We further expect continued margin expansion with adjusted operating income margin to be approximately 18%, which will drive adjusted EPS growth of 8% to 12%. Lastly, we expect another year of strong Closed sales in the range of $190 million to $230 million. Based on our 2019 results, along with our outlook for continued growth in fiscal '20, we are in a very strong position to deliver on the three-year targets we shared at our last Investor Day, including recurring revenue growth, margin expansion and adjusted EPS growth. I'm particularly pleased to note that the midpoint of our adjusted EPS guidance range implies an 18% three-year compound annual growth rate, right at the high end of our 14% to 18% three-year target. Now let's turn to Slide 5 for an update on our business. Keep in mind that when I discuss our ICS and GTO results, I'll be referring to growth rates that better represent the underlying business trends by excluding the impact of the ASC 606 accounting change. I'll start with Closed sales, where we ended a record year on a strong note. $72 million of Closed sales represents our third strongest quarterly result, trailing only last year's Q4 and the second quarter of this year, and propelling us to a full-year record of $233 million. I'm especially pleased with the breadth of our sales results, with two-thirds coming from ticket sizes of less than $2 million. While large sales are critical, the most important driver of our sales in recent years has been these core deals, literally hundreds of them every year. Our success in making these kind of bread-and-butter sales, most of them up-sells to existing clients, is a direct result of the breadth of our product offering and the quality of our client relationships. I'm also pleased to note that our fourth quarter acquisitions contributed to these results with RPM notching a nice strategic sale of Wealth Management software to a major Canadian bank. Our ICS segment performed well in the fourth quarter, with 6% recurring revenue growth on an underlying basis. Excluding customer communications, ICS recurring revenues rose 8% in the fourth quarter, driven in part by solid stock and interim record growth of 6% and 5%, respectively. For the full year, stock record growth was also 6% and interim record growth was 9%. In each case, slightly stronger than the average growth of the past 10 years. The long-term trend towards greater portfolio diversification, coupled with the growing number of managed accounts and more recently, model-driven investment, shows no sign of easing. Our ICS business also benefited from continued momentum from our data and analytic products and strong growth in our corporate issuers business, where we are seeing strong demand for our disclosure solution services. Customer communications and fulfillment revenues declined 1% in the fourth quarter and 3% for the year. While the growth trajectory of our customer communications business has been disappointing in recent quarters, we expect revenue declines to narrow as we complete the off-boarding of a large customer over the balance of calendar '19 and as recent sales wins are brought online. Our GTO segment performed well in the fourth quarter. GTO revenues rose 8%, driven by a rebound in organic growth to 5%. We expect this organic reacceleration to continue in FY '20 as GTO returns to stronger growth especially in the second half. Much of this growth will come from new client onboardings, while our strong revenue backlog gives us good visibility on FY '20 growth. GTO revenue growth also benefited from the acquisitions of Rockall, which closed in May, and RPM, which closed in early June. Speaking of M&A, I'm pleased we could be as active as we were in the fourth quarter. We acquired three businesses for approximately $400 million, the largest of which was RPM, acquired for CAD 400 million or about USD 300 million. The acquisition of RPM broadens and deepens our business in Canada by extending our product offering for the Canadian wealth market. Much of the market in Canada is served through the bank channel, and RPM extends and deepens our already-strong relationship with several leading Canadian banks while bringing on newer relationships as well. RPM has been growing at low double-digits, and with the acquisition off to a promising start, we expect continued strong growth going forward. The acquisition of RPM along with the Rockall and TD acquisitions are great examples of how targeted tuck-in acquisitions brought in our product lineup, deepened our relationships with key clients, and drove attractive long-term returns. Looking ahead, our strong balance sheet means we are well-positioned to pursue additional tuck-in opportunities that will strengthen our governance, capital markets, and wealth management strategies. We will also stay disciplined in ensuring that any transactions meet our financial and strategic hurdles. With that overview complete, let's turn to Slide 6 with an update on the progress Broadridge has made against the priorities I discussed in my first earnings call as CEO. At that time, I identified three key priorities, all of which are aligned tightly with our Investor Day strategy: to continue to transform Broadridge and to build world-class franchises in governance, capital markets, and wealth management. The first priority I outlined in February is to deliver on our near-term financial objectives, both our FY '19 guidance and the FY '20 expectations embedded in our Investor Day targets. The second is executing against our multiyear growth objectives across our governance and capital markets franchises and in building our wealth franchise. My final priority is to continue to strengthen the long-term foundations of our growth by building on our strong culture and world-class capabilities in product and next-generation technology. Across all three priorities, I said we will maintain a keen focus on strong and balanced capital management. So let's take each one in order. The first one is straightforward. With 2019 in the books, we delivered 6% recurring revenue growth, 110 basis points of margin expansion, and 11% adjusted EPS growth, all in line or above our guidance. We also achieved another year of record Closed sales, giving us further visibility into future growth. As I noted earlier, our FY '20 guidance puts us on track to meet our three-year Investor Day objective for recurring revenue growth and margin expansion and to deliver at the high end of our adjusted EPS growth range. Balanced capital stewardship is a key part of our financial and growth strategy. Our first use of cash remains our dividend, and the 11% increase we announced this morning further reinforces the importance of our strong and growing dividend. In 2019, we continued to balance investments in our products and technology with returning additional capital to shareholders, investing approximately $400 million in M&A and $367 million to repurchase shares, ending the year on track with our leverage targets. You should expect us to continue to take a balanced and long-term approach to our capital stewardship. The second priority I discussed is multiyear growth execution. In governance, our strategy is simple and clear. We are building the next generation of regulatory communications and extending the complementary web of services to all parts of the network we serve. Over the past year, Broadridge has rolled out innovative, new digital capabilities, including a new voting app that can be accessed standalone or through an API. We are working with more than 130 mutual funds to ensure that they can take full advantage of the new 30e-3 notice and access regulations in 2021. Last but not least, we've begun work with our clients to ensure compliance with the EU's Shareholder Rights Directive when it goes into effect in late 2020. These are all important steps forward in building the next generation of regulatory communications. We're also extending our services across the governance network. Thanks to disclosure capabilities we acquired in 2017, our recurring revenues from corporate issuers grew almost 20% in 2019, as we handle more and more of our client's critical governance needs, from annual meeting services to regular filings. Through our data and analytics offering, we are matching our proprietary data with other sources to provide mutual funds critical information and insights on worldwide fund flows, generating double-digit growth as well. Finally, our acquisition of TD Ameritrade's retirement plan custody trust assets will help us continue to link our mutual fund clients and financial advisers who administer independent 401(k) plans while funding additional platform development. In capital markets, we continue to make progress in onboarding new clients, including to our new GPTM global platform. That strong backlog and our visibility regarding bringing these clients online is a key driver behind our expectations for accelerated growth in our GTO business. Included in that backlog is a significant GPTM sale to a leading Asian bank, another sign that our global growth strategy continues to pay off. In addition, we signed a multimillion-dollar deal in the fourth quarter with a large U.S. bank to extend the reach of our GPTM platform. Finally, we made good strides in developing enhanced network benefits through fixed income market participants. 2019 has been a big year for our wealth management business. During the second quarter, we signed a large deal with UBS to build a technology platform focusing on front, middle, and back-office capabilities. Six months later, we are making good progress against our product roadmap. We also strengthened our wealth management capabilities via the acquisition of Rockall and RPM. So I feel good about how we're executing our growth strategy across governance, capital markets, and wealth management. My third focus is on securing the future by continuing to transform Broadridge and building on the world-class capabilities that make us the right industry partner now and for the long term. That means strengthening our client-focused culture, building on our world-class product and technology capabilities, and investing in talent. I'm pleased to note that our revenue retention rate has remained a strong 97%, and that Broadridge was awarded multiple workplace accolades, including being recognized as a great place to work in the U.S., Canada, and India. We also achieved a perfect score on a recent ranking as one of the best places to work for LGBT equality by the Human Rights Campaign. We are proud of these accomplishments. At the same time, we've increased our focus on product development, making strides in integrating next-generation technologies such as artificial intelligence, blockchain, cloud, and digital. During 2019, Broadridge rolled out enhanced digital communications, accelerated our cloud initiatives, continued investing in blockchain, and advanced our work on AI for our fixed income business, among many other accomplishments. These achievements are being recognized by our clients. Finally, the market for world-class talent is fierce, so I'm especially pleased with recent additions to our senior management team. Samir Pandiri joined us from BNY Mellon, where he led the Asset Servicing Division, a business larger than Broadridge by revenue. He will lead Broadridge International. Frederick Duden joined us from JPMorgan and previously Charles Schwab, to steer our global product management team. Fred has led the development of some of the most innovative digital wealth products in recent years. I'm convinced that our ability to increasingly link our individual products to form more powerful solution suites will drive our success. So I'm excited to welcome both Samir and Fred to the company, and their choice to align their careers with Broadridge reflects the opportunity we all see ahead. Speaking of additions, I'm also thrilled to welcome Amit Zavery to our Board of Directors. Amit is a seasoned technology leader with experience building leading tech businesses at both Oracle and Google. He will provide tremendous value to our Board and to our management team. So Broadridge is making progress against all three of our key priorities—financial, strategic, and foundational. Let me sum up. Broadridge delivered strong financial results while continuing to invest even in a lower event environment. We have real growth momentum across our two strong franchises and are focused on building a third. We continue to invest in product, technology, and talent, further strengthening our position as a trusted partner. As a result, Broadridge has never been better positioned for growth. The increasing demand for the financial services industry to leverage next-generation technology to reduce costs and increase differentiation continues to grow, and Broadridge possesses the unique capabilities, deep experience, and ability to invest to accomplish these goals. A combination of strong underlying demand, continued execution, and ongoing investment places us in a position to deliver another strong year in 2020 and ensure continued growth over the long term. Personally, I am as excited as ever about Broadridge's prospects to create value for our associates, shareholders, and the millions of people worldwide who rely on our clients to help them meet their financial goals. Before I turn it over to Jim for a review of the financials, I want to pause and thank the more than 11,000 Broadridge associates around the world, who are enabling better financial lives for millions and making our vision of transformation a reality. Jim?

Thanks, Tim, and good morning, everyone. I'll begin my comments with a few call-outs. First, Closed sales and backlog; another record Closed sales performance pushed our recurring revenue backlog up to $330 million at the end of fiscal '19 from $295 million at the end of fiscal '18. Second, Q4 revenue growth under ASC 606. Once again, we are providing in today's presentation revenue growth rates on both an as-reported basis in fiscal '18 adjusted for ASC 606 to provide a more meaningful view of our top-line performance. So on an ASC 606 adjusted basis, recurring fee revenue grew a healthy 6% in the fourth quarter, and full-year recurring fee growth was also 6%, right in line with our guidance. Importantly, while the ASC 606 change had a significant impact on our quarterly recurring revenue recognition, especially in our third and fourth quarters, it had virtually no impact on full-year result comparisons. Third, regarding capital deployment; we invested approximately $400 million, including deferred payments in the fourth quarter for three acquisitions that will enhance our growth profile and broaden our product lineup, especially in wealth management. We expect these acquisitions to contribute approximately three points of recurring fee revenue growth in fiscal '20. The earnings contribution in fiscal '20 is expected to be modest after accounting for the financing costs. Regarding share repurchase, we also deployed $270 million in the quarter to repurchase shares for a total of $367 million in fiscal 2019. As a result of this capital deployment, we exited the year just below our long-term target leverage ratio. Fourth and final, guidance: our fiscal '20 guidance calls for organic recurring fee growth of 5% to 7%, plus three points of growth from M&A for a total of 8% to 10% recurring revenue growth. We expect this to result in adjusted EPS growth of 8% to 12%. Let's move to Slide 7. On a reported basis, recurring revenues were down 6% and total revenues were down 8%. However, as I noted, the implementation of the ASC 606 accounting standard in fiscal 2019 shifted a significant chunk of equity proxy revenues out of the fourth quarter and into the third quarter, while fiscal '18 results are reported under the old ASC 605 standard. Therefore, the most meaningful comparison is to fiscal '18's Q4 revenue results under ASC 606 as shown on this page. Using this like-for-like basis, recurring revenue grew a healthy 6% and total revenue grew 1%. Slide 8 provides the same view on a full year basis. As you can see, the impact of ASC 606 on full-year revenue results is negligible. In both cases, recurring revenues rose 6% in fiscal '19 to $2.8 billion, and total revenues rose 1% to $4.4 billion. With ASC 606 now fully implemented, fiscal '20 results, starting with the first quarter, will be reported on the same basis as fiscal '19. Let's turn to Slide 9 to dig a little deeper into our quarterly revenue growth. Keep in mind that the numbers on the slide are presented on the ASC 606 adjusted basis I just discussed. I'll start with recurring revenues on the bottom half of the slide because those are the revenues that are the biggest driver of our overall economics. Recurring revenues rose 6% in the quarter, including organic growth of 5%. The biggest driver of that growth came from the onboarding of new business, our Closed sales as shown here. As expected, internal growth rebounded nicely in the fourth quarter after a low in Q3, contributing two points of growth driven by higher stock record growth and better GTO revenues. Acquisitions contributed only one point of growth in the fourth quarter as the RPM acquisition did not close until early June and the TD deal closed at the end of June. As I noted earlier, these deals will contribute more meaningfully in fiscal '20. Total revenues grew 1% to $1.2 billion in the quarter, as the growth in recurring revenues was partly offset by lower event-driven and distribution revenues. Event-driven revenues came in at a healthy $51 million but were down from a year ago. The continued decline in low- to no-margin distribution revenues contributed a two-point drag, and the strength in the U.S. dollar versus the Canadian dollar and British pound lowered revenue growth by one point. Next, I'll cover the performance of our ICS and GTO segments on Slide 10. ICS recurring fee revenues declined 11% on an as-reported basis, as the accounting change shifted approximately $100 million of mostly proxy revenue to the third quarter. Adjusting for ASC 606, recurring revenues rose 6% in the fourth quarter. Looking at the growth drivers behind that 6% increase, steady net new business gains kept pace even with the ongoing runoff of the known client loss in customer communications. Solid equity and annual position growth and excellent issuer performance helped to drive two points of internal growth in the fourth quarter. The acquisitions of FundAssist and MackayWilliams in the fourth quarter of fiscal '18 also contributed one point to growth. Turning to GTO, GTO rebounded nicely in the fourth quarter, with 8% total revenue growth and 5% organic growth, up from flat in Q3. Contributing to GTO's return to healthy organic growth levels was two points of internal growth compared to a negative three points last quarter. That rebound was driven by a combination of modestly higher trading volumes and better licenses in other revenues performance. Let's turn to profits on Slide 11. On a reported basis, adjusted operating income declined 8% to $267 million, and adjusted EPS declined 8% to $1.72 per share. The decline in fourth-quarter earnings was the result of the ASC 606 shift of proxy fee revenues and related earnings from the fourth quarter to the third quarter. These results were right in line with the guidance we provided on our May earnings call. And now for the full year, on Slide 12. Looking through all the noise around the timing of revenue recognition caused by ASC 606 and typical seasonality, Broadridge delivered another strong full year with adjusted operating income growth of 8% and adjusted EPS growth of 11%. Moving to capital allocation on Slide 13. Broadridge generated $544 million of free cash flow in fiscal '19, approximately $20 million below our guidance range due to higher working capital requirements, a slightly lower access to tax benefits, and higher client onboarding investments, which should drive future growth. We invested approximately $550 million back into our business. The biggest use of cash was for acquisitions, which, as Tim noted, will extend our product breadth and the strength of our wealth management business. In total, we invested approximately $400 million to acquire RPM, Rockall and TD assets, with $350 million of the aggregate purchase price coming out of cash in fiscal 2019, and another $43 million that will be paid in Q1 of fiscal '20. Given our typical reinvestment in newly acquired businesses and deal financing costs, we expect modest EPS contribution in fiscal 2020 from these deals, although we anticipate all three to generate very attractive returns over time. We also invested more than $70 million in CapEx and software. Another notable area of investment for us, approximately $70 million net of client reimbursements, was in client-driven work we did to build our global GPTM post-trade technology platform and our new wealth product. Linking these product development efforts to long-term client contracts gives us the confidence and ability to accelerate our product development, and we expect this area of investment to pick up further in fiscal '20 as larger projects accelerate and push the investment to over $100 million. Given this increase in investment, we expect fiscal '20 free cash flow to be equivalent to that of fiscal '19. In fiscal '19, we also balanced those investments with returning capital to shareholders. In total, we returned $578 million, approximately $5 per share to our shareholders in fiscal '19. $211 million was in the form of dividends. A figure that will increase to greater than $240 million in fiscal '20 due to the 11% increase in the dividend we announced this morning. We also deployed $367 million net of option proceeds to repurchase 3.2 million shares, including 2.3 million shares in the fourth quarter. We closed fiscal 2019 with an EBITDAR debt leverage ratio of 1.9x, in line with our long-term target of a 2.0x adjusted leverage. Our free cash flow and balance sheet position Broadridge well for continued, balanced capital allocation in fiscal '20 and beyond. Before I provide additional insight into our guidance, I want to touch on our recurring revenue backlog on Slide 14. As a reminder, our recurring revenue backlog represents an estimate of the first-year revenue from Closed sales that has not yet been recognized. Our recurring revenue backlog grew 12% to approximately $330 million from $295 million at the end of fiscal '18, as our record Closed sales greatly exceeded revenues onboarded throughout fiscal '19. This equates to 12% of fiscal '19 recurring revenues. Moreover, the not-yet-live portion grew to $240 million. We believe the backlog is a good indicator of our ability to generate ongoing revenue growth. Now let's look ahead into fiscal '20. Our full-year guidance can be found on Slide 15. First, we expect recurring fee revenue growth to range between 8% and 10%, which includes organic growth of 5% to 7% plus approximately three points of growth coming from our fourth-quarter acquisitions. The midpoint represents acceleration from fiscal '19, primarily driven by growth in our GTO segment. We anticipate GTO's recurring revenue growth to be in the mid-teens as a steady stream of new client onboardings should elevate GTO's full-year organic growth rate to mid- to high single-digit levels. RPM, with $40 million to $50 million in revenue, and Rockall, with $10 million to $15 million in revenue, will contribute the balance. In ICS, we expect another year of mid-single-digit organic growth driven by continued healthy mid- to upper single-digit position growth and growth in our data and analytics product lines, partially offset by flat performance in customer communications. Next, we expect total revenue growth to be in the range of 3% to 6%, as we anticipate low-margin distribution revenues to remain flat or contract in the low single digits, weighing down total revenue growth. Rounding out total revenue growth, we project an approximate 5% to 15% decline in event-driven revenues and expect foreign exchange losses to widen at a rate greater than recurring growth, considering the addition of more non-U.S. revenue, including from our recent acquisitions. Third, we foresee adjusted operating income margin to be approximately 18%, up from 17% in fiscal '19, which is more or less in line with our goal of a 50-plus basis point per annum increase. This margin expansion is driven by higher recurring revenues and modest expense growth, offset in part by lower event-driven revenues. This means we are targeting high single-digit or better growth in adjusted operating income. Moving down the income statement, the increase in leverage should result in higher interest expense. Our overall tax rate should remain steady at 21% as our core tax rate, which excludes the excess tax benefits, stays unchanged at 24%. We project an excess tax benefit of $20 million in fiscal '20, aligned with fiscal '19's $19.3 million benefit. We also expect a modest benefit from lower share count due to our fourth-quarter share repurchases. Consequently, we anticipate adjusted EPS growth of 8% to 12%. Finally, we expect Closed sales to be in the range of $190 million to $230 million. A word on Q1 fiscal '20 and earnings seasonality: As you consider your estimates, please recall that our event fees were up 30% in Q1 fiscal '19 and represented the largest quarter for event-driven fees in fiscal '19. Consequently, we expect event fees to contract in the first quarter of fiscal '20 by approximately 30% to 35% to a more normalized level, which will adversely affect first-quarter EPS. Given event-driven revenues at this level, we believe fiscal '20 Q1 EPS is likely to be consistent with the approximately 13% of full-year adjusted EPS that the first quarter typically represents. In closing, we maintained our strong business momentum exiting fiscal '19 and are well-positioned for another good year marked by healthy mid-single-digit organic recurring fee revenue growth and double-digit adjusted EPS growth. We will now go to questions, Rocko?

Good to see the strong finish on Closed sales. Just to dig into the 2020 Closed sales target of $190 million to $230 million, could you delve a little deeper into what you expect to be the main drivers of that Closed sales target? More ICS, more GTO, any thoughts by product?

Yes, Dave, it's Tim. Thank you very much for the commentary. We are really excited about the continued momentum we see in the business, as reflected in sales and our pipeline. In 2019, we obviously had the large wealth win. So when we think about '20, this target we are putting out represents nice growth above where we were in '19 when excluding that big wealth win. That’s just a sign of the confidence and momentum we see in the business across the board. While there is no giant deal baked into this target, we continue to experience really good momentum in our various ICS solutions around regulatory communications. We also see strong underlying momentum in the GTO areas, both in capital markets and in wealth and investment management. We do not have another UBS-type deal in this next calendar year; that is something that will take longer to develop. However, we have plenty of other wealth solutions gaining traction, especially in serving mutual funds with our data and analytics products. Overall, we are anticipating balanced growth across all of our product lines. This growth will carry us to a very good result in '20, without any specific large deal driving it. Frankly, we are already planning how we can continue to grow sales in the following years because we see considerable demand for what we offer. I have met with more than 20 CEOs of our clients over the past seven months, discussing key themes driving them and the issues that resonate strongly.

Appreciate that. Just as a quick follow-up. Jim, what are your assumptions on share repurchase for 2020? I don't think you called out any share repurchase in your 2020 EPS guidance?

No, we don't really have any explicit assumptions for '20. As you know, all of the share count implications are coming from our FY '19 activities. So we were pleased to deploy almost $370 million in share repurchases.

Look, we're happy to see the recent growth in GTO this quarter. If you could help us understand, I know you've been working towards a few large clients. Are you starting to see the actual revenue roll on that now? I think you were alluding to a couple in your prepared remarks. And then perhaps discuss the cadence for GTO as we look forward into fiscal '20?

Sure. Darrin, it’s Tim. As you know, these large projects are complex. Some of them are coming online right on time, while others take longer—sometimes due to us, and sometimes due to them. While the acceleration we saw in GTO in the last quarter did not stem from any major client onboarding, we are glad to see positive trends, even if some projects are taking longer to complete than anticipated. However, this growth rate will contribute as we progress through the year. The 8% to 10% recurring revenue growth we expect for the company considers all of this, and we feel very optimistic about it.

And Darrin, this is Jim. Regarding the cadence for GTO, we are excited about targeting mid-teens growth. At present, the growth appears relatively even across quarters. There will be a mix between organic and acquisitions throughout the quarters. Acquisitions will weigh heavier in the earlier quarters while organic growth is expected to start more modestly and ramp up as we begin onboarding new clients and make our way through the backlog.

Okay. All right, guys, your business has performed well across the board. I'm curious to learn more about the wealth management sector. First, you've executed deals there, and M&A has been pronounced. Can you clarify the split between GTO and ICS? Also, what's the expected growth profile of wealth management overall? Is it worth considering a separate business line for modeling purposes?

Yes, Darrin, thanks for that question. Just a reminder for everyone listening: firms are evolving their business models due to the commoditization of asset management and other trends in wealth management. The market currently lacks a skilled technology player serving wealth management firms; they must either build their solutions or purchase multiple point solutions to integrate. We view this as a significant opportunity. As I speak with the CEOs of our clients, they resonate well with our vision to offer comprehensive solutions where the more they buy, the better it is. Thus, we foresee this area continuing to be a growth engine for us. Growth is more likely from the GTO side than the ICS side. While we have solid offerings like advisor websites, data aggregation, and others in ICS, GTO has emerged as the more significant driver. In the near future, we expect to see the impact of M&A on our results. To recap, Rockall adds a solid securities-based lending platform, and RPM allows us to integrate banking with wealth management into Canada, with potential for growth beyond that. Our discussions surrounding digital communications within wealth management are very promising, indicating significant potential. Initially, you will see the impacts from our M&A activity, followed by contributions from existing product offerings.

On the reporting side, Darrin, we look forward to showcasing our results in this area. We will consider the best timing to break that out, but right now, we remain enthusiastic about the progress in wealth management.

This is Alexis Huseby on for Pete. Could you remind us of the annual revenue contribution of the three recent acquisitions?

Yes, we discussed RPM, which contributes $40 million to $50 million in U.S. dollars. The Rockall business, based in Ireland, contributes about $10 million to $15 million, and the TD assets represent a business with approximately $20 million in fee revenues. So that sums up to where we get the three points of growth next year from acquisitions.

Great. Are you aware of the timing of any proposed rule changes concerning mutual fund interim distributions or any other regulatory changes we should monitor?

Yes. Let me address that. There are two significant areas regarding regulation. First is the implementation of 30e-3 and how we can enhance the client experience for fund companies. Over the past 10 years, we have managed to reduce cost per transaction by 40%, saving the industry $400 million. We are encouraged by the more than 130 funds employing our solution for 30e-3 implementation, viewing it as a modest positive for us. However, we see it more as an investment in the ecosystem. The implementation is set for 2021. The second area involves ongoing research by the SEC aimed at enhancing the client experience. We are actively involved in discussions, proposing ways to improve investor document transparency, such as summary documents that enhance legibility for investors. Lastly, we are addressing proxy plumbing discussions following the roundtable last fall, with good momentum focusing on end-to-end confirmation. We are already facilitating this for about half of the industry and plan to introduce it for the remaining share of the industry starting next year. Overall, we anticipate these improvements will bolster investor confidence in the system and remedy minor issues that may arise.

First question is on customer communications. Can you provide insight into the pipeline in that segment? Tim discussed a few recent wins, but are there any developments that you believe will significantly impact growth?

Oscar, it's Tim. Regarding customer communications, while we often highlight revenue, I want to emphasize the synergies we've achieved—reporting a 2x on synergies. Despite declining revenues, earnings remain unaffected. Currently, we are experiencing a loss of small and medium sales, but we have a solid backlog to onboard, which may not be sufficient for significant employee engagement growth, translating to flat outsized revenue for the next year. We are progressing through the off-boarding of a large customer, with a gradual process enabling us to present this decline for a prolonged period. If we managed this business internally, we would be looking favorably at it. However, as a public company, it becomes a longer discussion. We expect to finalize this off-boarding at the end of the calendar year, allowing sales to reach an even balance. Beyond that, we are looking forward to potential larger conversations that could significantly influence growth. Discussions with large players indicate the future of communications will focus on mobile capabilities for customer interactions, which reinforces our vision of facilitating transitions for our clients. Although the timing is unpredictable, its significance cannot be undervalued.

Got it. Second question centers on M&A. We've noticed an uptick in deal pace recently with the tuck-ins you referenced. Can you elaborate on your appetite for a larger transformational deal in any of the mentioned sectors?

Certainly. Tuck-in M&A in the fintech space remains a long-term strategy of ours. There are always emerging solutions and management teams seeking partnerships to elevate their offerings. We have a solid record of making sound investments yielding growth. We were active in Q4 with an extensive pipeline, as many properties are on the market during favorable selling conditions. Nevertheless, we maintain strict criteria regarding financial returns and strategic alignment. When contemplating larger transactions, opportunities tend to be fortuitous. We focus on controllable factors—scanning our pipeline and analyzing up to 100 deals annually, ensuring it fosters growth over the long run.

I wanted to follow up on the previous question concerning share repurchase activity in 2019. Is it accurate to conclude that more active share repurchases imply that it is a last resort compared to investing in the business and M&A? Is that the right perspective on your priorities?

Chris, it's Jim. We remain focused on balanced capital allocation. We evaluate our M&A pipeline over an extended period rather than in a rigid manner to achieve a healthy balance between M&A and share repurchases. Throughout the year, we pay close attention to our share price and leverage potential opportunities to buy shares at value-for-money rates. Entering the last year with high cash flow visibility facilitated our decision to align these actions, allowing us to exit the year just shy of our target leverage ratio. This approach will continue to be part of our strategy. We are satisfied with our accomplishments concerning M&A and meaningful share repurchases in the year, all while ensuring the M&A pipeline remains strong for future growth.

Regarding your guidance for event-driven revenue, I realize these revenues are inherently unpredictable. However, do you currently have reasonable visibility on your fiscal first quarter? Also, what factors significantly influence whether you anticipate it being down 5% or down 15% overall?

Yes, Chris. Just a reminder, this segment accounts for about 5% of our revenue, and we appreciate its contribution. We're particularly pleased with the performance this year, allowing us to reinvest without major disruption even with anticipated declines. We continuously monitor this segment and assess how to manage through the variable landscape. Our visibility remains decent; as we've stated, we feel confident about our ability to predict over a 98-plus day window. One substantial fund is in the queue for the year. Predicting the second half remains more challenging. However, our historical records assist in establishing a baseline for event expectations, and we're comfortable with our guidance. We aim to handle this effectively, regardless of whether revenues experience a surge or drop.

In your deals, you typically pay around 3x revenue for the acquired companies. I believe you paid approximately 6.5x for RPM. What specific characteristics led you to justify this pricing in your view?

Yes, Patrick, it's Tim. RPM possesses a robust growth trajectory, is an excellent strategic fit, and has commendable profitability. When we evaluate potential acquisitions, we model future revenues, contribution potential, and the expected return on investment. Revenue multiples may vary, but RPM aligns closely with our growth strategy and is expected to enhance our wealth management business in Canada while creating opportunities for expansion due to its well-structured technology architecture.

Great. I just wanted to thank everyone for participating in the call and to reiterate the significant opportunities we foresee ahead. We believe Broadridge is exceptionally positioned to drive meaningful changes in the industry, and I look forward to updating you next quarter with more progress. Thank you.