Broadridge Financial Solutions Inc (BR) — Q1 2022 Transcript

Thank you, Chuck. Good morning, everybody, and welcome to Broadridge's First Quarter Fiscal Year 2022 Earnings Conference 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; and our CFO, Edmund Reese. 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 in the presentation. Let me now turn the call over to Tim Gokey. Tim?

Thanks, Edings. Good morning, and thank you for joining us. I'll begin with an overview of our key messages and some highlights from our strong first quarter. Next, I'll provide an update on execution against our growth strategy across our three franchises. Finally, I'll close with some thoughts on how Broadridge is continuing to drive long-term sustainable growth. Let's get started. Our first quarter results marked a strong start to the fiscal year. Recurring revenues rose 16% and adjusted EPS rose 9%. Our top line growth continues to be propelled by a combination of our own actions and strong underlying market trends. The biggest driver of our 7% organic growth across all three of our businesses was the onboarding of closed sales as we continue to convert our $385 million backlog into recurring revenue. We also benefited from the continued tailwind of very healthy position growth in governance, driven by ongoing trends. We continue to execute on our long-term growth plans across our governance, capital markets, and wealth and investment management franchises. I'll provide an update on our execution steps in a few moments. Finally, our strong start to the year puts us in a very good position to reaffirm our full year guidance, including 12% to 15% recurring revenue growth and 11% to 15% adjusted EPS growth. It also keeps us on track to deliver at the higher end of our three-year growth objectives. Beyond those three-year objectives, we are focused on delivering sustainable long-term growth driven by ongoing industry trends and investments across our governance, capital markets, and wealth franchises and in turn, generating consistent top quartile shareholder returns. Generating those returns requires consistent execution. So let's turn to Slide 5 for an update on our growth strategy, starting with governance. Our governance business had a very strong first quarter. ICS recurring revenues rose 11% to $410 million. As I noted earlier, the biggest driver of that growth was revenue from closed sales. The other key driver continued to be position growth, which reached 39% for equity proxies in a small quarter, and 9% for funds and ETFs. In equities, the growth continues to be broad-based across all market caps in multiple industries. In funds, much of the growth is being propelled by ETFs. Over the past decade, the number of both equity and funded ETF shareholders has risen at a high single-digit rate, propelled by the ongoing democratization of investing. We're also extending our governance franchise to enable voting choice. Many of you saw the announcement from BlackRock a few weeks ago that they will implement pass-through voting for their institutional investors. Climate change and ESG more broadly are becoming increasingly important to investors, and they're demanding to have greater transparency and a voice in the actions that companies they own are taking to address these issues. Broadridge is playing a key role in helping BlackRock implement this important change. We have been working with them over an extended period to leverage our infrastructure to enable pass-through voting. It's a great example of how our expertise in managing preferences and voting and our 24/7 SaaS platform is helping our fund industry clients. Given the increasing importance of ESG, we're hearing from others in the industry, seeking to offer a similar service to their clients over time. Moving to capital markets. We continue to make progress in growing our franchise with revenues rising 34% to $209 million driven primarily by the integration of Itiviti, which is going well. Our newly combined capital markets team has hit the ground running in finding complementary product opportunities that leverage our pre and post-trade expertise and client reach. For example, we recently announced the integration of Itiviti's NYFIX solution with Broadridge's buy-side portfolio order and investment management system. This will enable Broadridge's clients to achieve greater automation in their post-trade workflows and is a tangible step toward integrating our solutions across the trade life cycle. Outside of Itiviti, we brought live another large U.S. bank with a global business to our GPTM capital markets technology platform. The first phase of this onboarding, covering global fixed income, is a result of over two years of platform investment. We expect to roll out additional phases, including the expansion of equities over the coming quarters. In wealth and investment management, revenues rose 6% to $131 million. We continue to make steady progress in developing our Broadridge wealth management platform, while also delivering component solutions. For example, we were recently selected by a leading Canadian pension plan to leverage our investment management private debt and loan solutions to help them manage their alternative asset portfolio. I want to wrap up by giving you my perspective on what our continued execution means for Broadridge and our investors. Our strong first quarter results reflect the underlying growth trends powering our business and the execution of the clear growth plan we laid out at our Investor Day 11 months ago. We're extending our governance capabilities to cover more investors, more geographies and more issuers. We're building the data-driven solutions for the fund industry and the digital communications infrastructure that helps companies increase the effectiveness and lower the cost of their client communications. We're growing our capital markets franchise by adding new clients under our platforms and integrating the front office capabilities we acquired in Itiviti. And we're building our wealth and investment management franchise by adding more component solutions and creating a next-generation wealth management technology platform. The critical factor underlying all this execution has been and will continue to be investment in our technology and digital platforms. We're pursuing a $52 billion market opportunity that's continuing to evolve. The long-term trends driving that evolution, including the ongoing democratization of investing, which in turn is driving and being driven by greater digitization, were only accelerated by the pandemic. Those same trends are powering our growth and creating an imperative for investment by our clients in the next-generation technology we provide. We're all hearing a lot these days about the 'democratization' of investing. But what we are seeing now is a continuation of a 50-year trend driven by the ongoing combination of new technology and reduced trading costs. These forces have led to continued innovation from discount brokerage to online trading, to 401s, ETFs and managed accounts. More recently, modern user interfaces, zero-commission trading, and the pandemic have accelerated this long-term trend. Together, these forces have made investing consistently more cost-effective and more accessible for more people. For Broadridge, this has supported high single-digit growth over the last decade in the number of positions we serve. Going forward, more innovations, including direct indexing, will support continued growth. So we expect that same high single-digit growth for many years to come. It's worth noting that democratization is also playing a part in the increasing importance of ESG, which further underlines the importance of what Broadridge does. As new investors come to the market and new innovations drive increased diversification, it's critical that investors get to shareholder disclosures and other communications they need to make informed decisions. Investors are also seeking to exercise their vote on how issuers and funds should approach ESG issues. Our 24/7 SaaS technology platform plays a critical role in powering that system of corporate governance. We have built that platform through continuous innovation and investment to link tens of thousands of corporate issuers and funds with hundreds of banks and broker-dealers and tens of millions of individual investors. Our platform is constantly monitoring and validating positions across more than 100 million retail and 270,000 institutional accounts. Every day, we collect, maintain, and manage the investor preferences that are critical to driving digital distribution. Doing so effectively and securely requires investment in continuous monitoring to provide the highest levels of data security. It also requires us to serve our bank and broker-dealer clients with co-branded communications, client service, and integrated billing and collections that greatly simplify the entire ecosystem. As a result, we've built a 24/7 proxy and fund information infrastructure, which delivers highly accurate voting for thousands of annual meetings and whose efficiency saves funds and corporate issuers hundreds of millions of dollars each year. Thanks to our investments in digitization, it's also increasingly green, driving down paper and mail volumes and reducing greenhouse gas emissions. So we will continue to invest in extending that network to enable expanded voting, enhance shareholder communications, and better gather and share data analytics that helps funds and issuers better understand changes in their investor base. Digitization is the second trend that's been accelerated by the pandemic and which is driving our growth. It's reducing costs for our clients, broadening their reach, and accelerating processes from account opening to trade settlement and communications. It's being facilitated by the rapid adoption of next-generation technologies. The move to the cloud enables a scalable and variable cost computing architecture, which is changing our clients' business models. Data, analytics, and AI are transforming how clients make decisions and power their investment processes. The move to digital technology in financial services has been both a driver and beneficiary of market democratization. Financial services need technology and scale to compete in today's complex markets, and Broadridge provides both. Our SaaS technology is an on-ramp for accelerated digitization with next-generation technology. We're delivering blockchain solutions to the repo market, AI-driven trading to fixed income, and enhanced virtual and new meeting experiences among many other examples. Bringing new technologies to our clients with mutualized solutions at scale is a core part of our strategy. Past investments have put Broadridge in a position to help our clients today. With the acceleration of democratization and digitization, the opportunity to invest for the future is as high as ever. We're investing to build new platforms and solutions, including our Broadridge wealth platform. Consistent with our history, we'll also actively seek out M&A opportunities that meet our strategic and financial criteria. Collectively, this investment strategy has and will continue to extend our capabilities in governance, including data analytics, capital markets, including most recently front office trading, and wealth and investment management. I'm confident that these investments will only further strengthen our position as an innovation enabler for our clients and reinforce our long-term growth. Finally, any focus on sustainable, long-term growth must be grounded in meeting the needs of all stakeholders. At Broadridge, that focus starts with our culture, anchored in the service profit chain that puts associate engagement at the core of our business approach. It extends to our clients and communities as well as our shareholders. I encourage you to read our recently released sustainability report. You'll learn about how we are building the most engaging workplace for the most talented associates in our industry, the efforts we make to keep our clients' data secure, our success in reducing greenhouse gas emissions, and much more. Before turning the call to Edmund, I'd like to thank the thousands of dedicated and talented Broadridge associates that have made these results and future opportunities possible. They are the foundation of our success. Let me briefly summarize. Broadridge delivered a strong quarter driven by continued execution and powerful underlying growth trends. We are executing on our long-term growth strategy and are committed to making investments that will create additional opportunities. And we're doing it the right way by also driving associate engagement, making a positive impact on our communities, reducing our environmental footprint, and improving the financial lives of millions. I'm confident that Broadridge is on track to achieve the higher end of our three-year growth objectives and is well positioned to drive sustainable growth for the long term. And now let me turn to Edmund for a review of our financial results. Edmund?

Thank you, Tim, and good morning, everyone. As you've just heard from Tim, we are pleased with how our strategy is progressing. It's good to be here to discuss another quarter of strong financial performance, driven by new sales, strong underlying volume trends, and the acquisition of Itiviti. You can see that strong performance in the financial summary on Slide 7, which shows that recurring revenues grew 16% to $751 million. Adjusted operating income rose 17% to $177 million, with AOI margins flat to last year at 14.8%, reflecting our continued ability to find efficiencies and gain operating leverage through our scale, allowing us to invest in our technology and digital platforms. That growth in operating income was partially offset by higher interest expense related to financing the Itiviti acquisition. As a result, adjusted EPS rose 9% to $1.07. Let's get into the details of those results, starting with the recurring revenue on Slide 8. Recurring revenues grew from $650 million in Q1 '21 to $751 million in Q1 '22, an increase of 16%. Organic recurring revenue grew at 7% and came in at the high end of our 5% to 7% three-year objectives, reflecting the continued momentum from our sales and revenue backlog and increased investor participation. The contribution from acquisitions, primarily our continued success integrating Itiviti, added another 9 points to recurring revenue growth. Now let's turn to Slide 9 and look at the growth across our ICS and GTO businesses. We reported double-digit recurring revenue growth in both of our segments. ICS recurring revenue grew by 11%, all organic, to $410 million, propelled by a combination of new sales and strong volumes. Regulatory revenues rose 23% to $165 million, powered by higher mutual fund ETF communications, strong equity position growth in the U.S., and closed sales revenue. Growth was also strong in our international proxy business led in part by strong performance in Canada. Our issuer business also contributed to our overall growth rate through strong sales of our disclosure products. And as expected, we are also benefiting from high retention of our virtual shareholder meeting solution. Data-driven fund solutions revenue grew 5% to $83 million, boosted by an increase in revenue from assets under administration and revenue from new sales of our data and analytics products. Finally, customer communications revenues rose 2% driven by new sales and growth in digital. In turning to GTO, recurring revenues grew 21% to $341 million and 2% organic. Wealth and investment management revenues rose 6%, driven by the onboarding of new component sales and higher retail trading. Capital Markets revenues increased 34% as we benefited from a full quarter of Itiviti revenue. Excluding Itiviti, organic growth was slightly negative as lower license and consulting revenue was offset by strong revenue growth from new business, including revenues from onboarding of the major U.S. bank that Tim mentioned. Going forward, we expect revenue from closed sales, fueled by our healthy revenue backlog, will drive strong growth over the balance of the year. So let's turn to Slide 10 for a closer look at the volume trends. Broadridge continued to benefit from strong volume trends in the first quarter. The biggest driver of our internal growth was mutual fund and ETF record growth, which rose 9% driven by healthy markets and strong inflows. Equity record growth was 39% in a seasonally small quarter. So keep in mind that the first quarter historically represents approximately 5% of full year equity communications, with more than 80% coming in the fiscal third and fourth quarters, while mutual fund ETF communications are more balanced throughout the year. Looking ahead, our testing of record positions is showing continued strong growth trends in the seasonally larger second half, with high single-digit growth indicated for both equities and funds. On the bottom of the slide, we saw a modest 2% increase in our trading volumes, as higher fixed income volumes were offset by lower equity volumes. Our outlook for the balance of the year assumes flat trading volumes. Turning to Slide 11, where we summarize the drivers of recurring revenue growth. Recurring revenues rose 16%, powered by 7% organic growth and 9 points from acquisitions. Revenue from closed sales was the biggest driver of our organic growth. We saw strong contributions from sales across both ICS and GTO. Our recurring revenue retention rate remained unchanged at 98%, and internal growth contributed another 2 points as growth in ICS outpaced the decline in GTO. Itiviti was the biggest driver of our acquisition growth, contributing $54 million of growth with a much smaller contribution from the tuck-in acquisitions we made late in Q4 and in early Q1. Now we'll turn to Slide 12 to review the drivers of total revenue and for some additional color on our strong event-driven revenues. Total revenue growth was 17%, as strong recurring revenue growth was accompanied by 4 points of growth from higher distribution revenue and 3 points from event-driven revenues. Low to no margin distribution revenues grew 11% year-over-year, primarily resulting from the higher customer communications mailings. Higher postage rates were a small factor in the first quarter but will be a more significant contributor to distribution revenues for the remainder of the year. So we expect continued high levels of distribution revenue growth for the full year. And as I've previously noted, over the long term, we expect that the share of distribution revenue as a percentage of total revenue will continue to decline as we remain focused on growing recurring revenue. Event-driven revenues rose to $76 million in the quarter, driven by higher mutual fund proxies. Q1 '22 did benefit from a large fund proxy that was originally expected in Q3 '22. Despite this timing benefit, and given the strong start to the year, we now expect event-driven revenues for the full year to be modestly ahead of our $220 million 7-year average. For modeling purposes, we're expecting Q2 to Q4 to be in line with our $55 million 7-year quarterly average. Rounding out revenue drivers, changes in FX contributed 1 point to our growth. As previously disclosed, we changed our FX reporting methodology to better align the presentation of our key metrics with current FX rates. You can find our comparable revenue, segment profitability, and closed sales numbers for fiscal '20 and '21 in the 8-K we filed at the end of September and in the appendix to these slides. So let's now move to margins on Slide 13. The adjusted operating income margin was flat at 14.8% in the first quarter. The positive impact of strong recurring and event-driven growth was offset by growth investments and an increase in low-margin distribution revenue. We continue to expect an AOI margin of approximately 19% for the full year as we benefit from the higher-margin Itiviti revenues and continued margin expansion in our organic business, offsetting the greater-than-expected higher growth in low-margin distribution revenues. Moving on to close sales on Slide 14. Closed sales of $30 million were essentially flat year-over-year. Closed sales were balanced across both our ICS and GTO segments, and we continue to see over two-thirds of our sales in smaller core deals, those under $2 million in annualized value. That gives us confidence in the broad demand and long-term growth of our digital products. We remain on track to deliver $240 million to $280 million in closed sales for the full year. And finally, cash flow and capital allocation on Slide 15. Broadridge's cash flow generation is typically negative in the fiscal first quarter and strengthens throughout the year, and Q1 '22 was no exception with negative free cash flow of $151 million. Turning to uses of capital, we continue to invest in our long-term growth. A big part of that investment is the technology platforms we're building in capital markets and wealth. These new platforms require upfront investment to build new capabilities and convert new clients. We invested $82 million in our platforms during the first quarter. Our investment in our next-generation wealth management platform is an important part of that, but we're also investing in other platforms such as our global post-trade management or GPTM solution. All of these investments are tied to long-term client contracts and strengthen our capabilities across capital markets and wealth management. We will continue to prioritize these internal investments in our technology platforms as part of our capital allocation model. And we're excited about the growth from new client revenues as we convert clients onto the new platforms. As we integrate Itiviti, continued M&A remains a focus. During the quarter, we had a modest minority investment and invested $13 million in a pair of tuck-in acquisitions within our capital markets business. Looking forward, you can expect us to continue investing in our platforms and allocating capital to targeted M&A opportunities that meet our high strategic criteria and financial profile. And we will continue to return capital to shareholders, primarily through our dividend, as we remain focused on paying down debt and maintaining an investment-grade credit rating. I'll close my prepared remarks with a quick review of our guidance and some final thoughts on our first quarter results. We are reaffirming our full year guidance on all of our key financial metrics. We continue to expect 12% to 15% recurring revenue growth, adjusted operating income margin of approximately 19%, and adjusted EPS growth of 11% to 15%. I'll note that over the last five years, the first half has typically represented less than 30% of our full year adjusted EPS, and I expect that trend to hold in fiscal year '22. Finally, as I noted earlier, we expect closed sales in the range of $240 million to $280 million. And with that, let me reiterate today's key messages. Broadridge delivered strong first quarter results with 16% recurring revenue growth driven by new sales, strong underlying volume trends, and the acquisition of Itiviti. We are reaffirming our guidance for a strong fiscal year 2022, and we are investing in our business as we pursue our $52 billion addressable market. As a result, we are well positioned to deliver at the high end of our three-year objectives, and we see a long run rate for continued growth.

I want to start by discussing the GTO segment of the business. When I look at the underlying growth trends, excluding acquisitions, it seems to be around 1% or flat, though I understand there were tough comparisons for volume. Can you remind us how things are progressing on the wealth management side, especially regarding initiatives with UBS, including timing and necessary investments? More importantly, I’m interested in the overall opportunities in the capital markets pipeline. This is an area we have focused on and should have a long runway. I'm curious about where bookings are coming in within that category and what potential growth we might see in the next few years.

Darrin, it's Tim. I want to provide some context regarding our wealth management efforts before letting Edmund discuss the broader pipeline and momentum in capital markets. The transformation of our wealth management is one of our most exciting opportunities, and we are actively collaborating with UBS to advance this initiative. Just last week, we engaged with senior leadership and feel optimistic about the partnership's progress. We are making significant strides in developing new capabilities and navigating the complex task of retiring an established platform. As you know, we have already launched some applications and are working with UBS to appropriately sequence the rollout of additional solutions to align with their overarching digital transformation schedule. We anticipate implementing this in stages over the next 18 to 24 months. As a reminder, we will start recognizing revenue once these solutions are fully live. For now, the net revenue will be reflected on our balance sheet, which you will see in the forthcoming quarters. We are confident about this initiative, although it may take some time before revenue becomes apparent. We continue to receive positive feedback from other clients, with good progress being made with RBC and promising discussions with additional partners. That summarizes our update on wealth management. Meanwhile, we are also achieving strong results in our component sales in this area. For an overview of our current status in capital markets and overall momentum, I will turn it over to Edmund.

Thank you, Tim, and thank you for the question, Darrin. I want to begin by noting that GTO remains a very robust franchise with over $30 billion in market opportunity when considering capital markets and wealth management. We experienced a strong performance in GTO overall, achieving 7% growth in fiscal year '21 and now 21% this year. Much of this growth is attributed to Itiviti, but the organic business in GTO also saw a 2% increase. As Tim mentioned regarding the wealth management sector, that aspect grew by 6% for the quarter, aligning well with our organic growth targets of 5% to 7%. This growth stems from the continual onboarding of new sales and the retail trading activity we've observed. However, the organic business in capital markets experienced slightly negative results in the first quarter, primarily due to decreased license and consulting revenue. To address your question, we have a strong pipeline ready for onboarding, and we previously shared our recurring revenue backlog of $385 million, a significant portion of which comes from GTO. Therefore, we anticipate license revenue growth in the latter half of the year, stable trading growth, and continued progress in onboarding our pipeline. This positions us to expect the capital markets business to also fall within our 5% to 7% growth objectives. I believe this sets us up well for both franchises to be within our overall organic growth ranges.

That's helpful, guys. A very quick follow-up. There has been strong growth in mutual funds on the equity side, particularly. Even without that, there's been decent growth in other areas of the non-regulatory side, and it's encouraging to see customer communications consistently positive now. What are your thoughts on that segment of the business? Customer communications had its challenges, but it seems to have improved.

Yes, Darrin, thank you for bringing that up. We had a long story regarding a major client leaving, which took longer than expected and created a negative impact for several quarters. I'm relieved to have that behind us. The narrative within customer communications is more intricate than the surface-level number, although it is encouraging to see that number in the positive. The main focus is on the shift from paper to digital in that business. We've seen double-digit growth in the digital segment over the past two years, and it continues to gain momentum. While the overall growth is modest at 2% and expected to remain muted, we are pleased with the transition that is taking place.

And I'll only add to Tim's comment that, that higher growth in digital comes on at higher margins as well. The customer communications have been a strong earnings driver. And now you're starting to see that translate into the top line as we grow digital with a higher margin business as well.

Wanted to just start with an update on Itiviti. I know you guys have been working pretty hard at that and pretty hands-on there. So just kind of an update in revenue generation, sales opportunity and anything on kind of the cost or operating margin side?

Thank you, Michael. I'm really excited to discuss Itiviti. It serves as a great complement to our operations. Its strengths in the front office, particularly in Europe and Asia, align well with our expertise in the back office and North America. We are focusing on three growth opportunities. Itiviti has been successfully gaining market share in the front office as competitors scale back. In the medium term, we see a significant opportunity to introduce Itiviti to our Broadridge clients in North America, utilizing our strengths in fixed income and new asset classes. In the long term, we aim to connect the front and back office, integrating back office data into the front office to create a more seamless and cost-effective experience. We're observing strong client interest in this long-term vision and a demand for alternatives to existing providers. Client engagement around this strategy remains high. Meanwhile, the integration process is progressing well. The combined capital markets team is achieving integration goals, and we are seeing results that align with our expectations, including positive contributions to sales revenue and the bottom line.

Yes, the only thing I'll add just to your question specifically, Michael, is on the margin side. This is largely a recurring revenue business. We said that it would come in at over 30% margins and be accretive. You heard in my prepared remarks that it was accretive to our overall AOI margin for the quarter. To Tim's point about front to back, this is something that we are investing in. So the investments that we're deploying in this quarter and for the rest of the year will go towards activity as we look to build capabilities front to back as well. So we feel good about the progress. The last thing I'd say about it is I've mentioned to you that acquisitions would be 7% to 8% of contribution, and you saw strong reaffirmation of that in the first quarter with 9 points of our recurring revenue growth from acquisitions. And for our three-year objectives, I think since we brought Itiviti on, we'll see 2 points of contribution to adjusted EPS growth. So I feel good about Itiviti and the acquisitions that we've been making over the past two quarters.

And maybe kind of following up on that, just on sales opportunities internationally. I know this was potentially a nice foothold with some clients on a more international basis. It seems like that may take a little more time as you focus on integration. But when could we see some benefits from kind of the Itiviti customer book? And then also maybe just a more broad kind of update on what's going on internationally as the pandemic subsides. Are you seeing any more success there?

Sure, Michael. First of all, I think we do expect a strong contribution from sales from Itiviti this year. As you know, we went from where we landed last year, around $240 million, a little bit above that to guiding to $240 million to $280 million this year. A significant chunk of that is from Itiviti, and we're seeing nice traction on that. So I do think you'll see contribution to closed sales from Itiviti. If we think specifically about international, we've had pretty significant growth in international sales. It's lumpy year-to-year, but if you look at the trend, it's been very consistently up with some really nice opportunities that we're in the midst of pursuing now. So I expect that to be an increasingly strong contributor to our overall sales mix over time.

And Michael, I'll just add one comment to Tim's, which is we said that we expect strong revenue synergies from Itiviti as a result of those sales. We said $20 million by 2025, and we're still pursuing that.

It's Chris Donat. I wanted to ask one more question on the wealth business and just to make sure I understand sort of the quarter-on-quarter dynamics there because it's the second consecutive year we've seen a decline in revenue in your September quarter. And I'm just wondering because, Edmund, you made the comment about the license revenue and consulting. Is there a seasonal factor there? Or is it just coincidence that we've seen sort of this happen two years running on a quarter-on-quarter thing?

Thank you for the question. You may be referring to the capital markets business rather than the wealth management business. We experienced significant client signings in fiscal year '20 that boosted license revenue. We continued to see growth in fiscal year '21, and we have a plan in place that anticipates flat performance in the first quarter, with expected growth in license revenue in the latter half of the year to help the capital markets reach our typical organic growth rate of 5% to 7%. As for wealth management, it continues to grow, with a four-year compound annual growth rate of about 8%. This quarter, it grew by 6%, driven by both new sales and strong retail trading growth. That encapsulates the relationship between the two businesses. I'll check if Tim would like to add anything further.

Yes. I would like to add that there is nothing seasonal about this situation. If you're observing something, it seems to be more specific to our circumstances. A couple of years ago, we had some substantial business in Canada regarding licenses, which led to some fluctuations, with a significant increase followed by a decrease the following year. However, we do not anticipate anything of that scale happening again, and I do not believe there is any overall seasonal pattern.

That's right.

I appreciate the comments on the capital market. Regarding the wealth side, it's a small piece, but I noticed the quarter-on-quarter change from the fourth quarter, which had $136 million in wealth revenue, down to $131 million. I always viewed that business as highly recurring. Could you remind us what the revenue drivers are? I thought the change from the June quarter was negligible. I'm just trying to understand what’s happening.

In this quarter, Chris, you're going to see about a 6% growth of that; about 5 points of it is on the organic component, and 1 point is from new revenue from new acquisitions that we had still showing up in that business. And on the organic side, very much like the other components of our business, you see us being able to retain our clients at 98% of the recurring revenue that we have with them, with new sales being the largest driver. And recently, the retail trading being the uptick that we've seen on wealth management, it really does boil down to those drivers.

Chris, we can revisit any sequential comparisons later. However, if you take a step back and consider what we are experiencing for the full year, you'll notice that we are achieving a solid level of organic growth within our expected range. Therefore, I wouldn't read too much into the sequential quarter number.

I do. I like to point out the comments about the components of the businesses have some seasonality in it. But in my prepared remarks, I made a comment about the first half of the year being typically just under 30% of the full year adjusted EPS. And I think fiscal year '22 is going to continue with that trend.

The 39% equity position growth is probably a record since Broadridge spun out of ADP in 2007. So my question is, what are you assuming for stock record growth for the critical spring proxy season?

Yes, Dave, it's Tim. I'll start with a few general comments, and then Edmund will share some details about our current testing, as we have some insights on that. As you mentioned, those numbers are impressive. However, since it's a small quarter, it's challenging to draw significant conclusions from just this data point. At a higher level, I want to emphasize that the trend I discussed earlier regarding democratization is a long-term movement that has made investing more accessible and cost-effective. These factors have remained steady over time, typically in the mid- to high single digits. While we see an elevated level now, we don't expect that to persist in the long run and anticipate a return to mid-single digits. This year may still be somewhat elevated, but we are confident about the long-term drivers, including emerging aspects like direct indexing.

I will provide some insights on our outlook moving forward. As Tim mentioned, we've experienced mid-single-digit growth over the past decade in both equities and fund and ETF positions. This trend has risen, starting from fiscal Q4 of 2020, peaking at 26% last year and reaching an impressive 39% in Q1 of 2022. Our recent analysis indicates that Q2 is normalizing closer to 20%, which is an improvement from the low teen growth we observed a few months back. However, it's important to note that the first half of the year typically contributes less to our overall volumes—last year, it accounted for about 13%. More than 80% of our volumes occur in the latter half of the year, particularly in the third and fourth quarters, and our mid-October forecasts indicate high single-digit growth for that period. Overall, we feel optimistic about our business for 2022.

Yes, the visibility at this stage, we are pulling the records of the companies that will be having meetings in the second half. And so the upper single digit is what we're seeing in October, but we'll redo that, and that obviously continues to change as the year progresses. Dave, I think it’s quite difficult to separate everything. The situation is very intricate. As we proceed with the assembly and testing of components in an agile manner, a lot of the functionality arises from the complexity of working with UBS, which has $1.7 trillion in assets and serves ultra-high net worth clients—some of the wealthiest in comparison to large competitors. This complexity often reveals additional capabilities. It's a continuous process, but we are optimistic about certain developments that will be available in the first half of next year, along with more releases in the following quarters.

I think most of my questions have been answered, but just two quick follow-ups. One on the customer communication and customer reimbursables piece, noting the mix shift there where the decline in some of the print and postage is masking strong growth in digital. Over the last few quarters, have we seen much impact from that regulatory change around 30e-3 and 498A? Or do you expect that to occur over the next couple of quarters?

I would say, and I'll let Edmund add on, but we are beginning to see a positive benefit from 30e-3. That has been a modest benefit. I'm less certain about the 498 piece. I think that the 498B is the part that is not yet approved. Regarding 498A, I am not seeing it emerge as a significant driver either way.

Tim, you're exactly right. We have been seeing an uptick in recurring revenue from 30e-3. And I think we still have a couple more quarters in fiscal year '22 where we'll continue to see incremental benefit from that. The offset is in the distribution revenue, which is passed through and low to no margin. So overall, that's a benefit for us that we're picking up now, and not much from the 498B.

Yes, and remember, Pete, that all of this is within the regulatory framework. There is a continuous shift from paper to digital in regulatory matters. Earlier, I was referring to the same trend happening within the BRCC customer communications area.

Got it. And just a follow-up on the wealth management aspect, is it possible for the RBC deployment to proceed while you’re still completing some of the UBS work? Or will some of the development with UBS be necessary to convert RBC?

That is a great question, and we are having extensive discussions with both clients regarding this topic because some of these components may already be ready. It might be easier with RBC since they are already using our back office to implement some of the components and get them started. However, we really need to work through this with both clients at this stage. Our plan has always been to proceed after UBS, but the order of that is something that continues to evolve.

I was wondering if you could size the potential revenue impact of that pass-through voting initiative from BlackRock. And then as you kind of think about pass-through voting as a topic in general, is the ability to expand that to mutual funds and ETFs and other products over time? Or do you think it's kind of limited to a subset of BlackRock's products?

Thank you, Patrick, for your question. This is an exciting development for us. It brings together many aspects we've discussed, including democratization, ESG, innovation, and the power of our network and infrastructure. We've been working on this for some time. In the near term, as you noted, it won't drive revenue, particularly on the institutional side. The more intriguing consideration is whether this will eventually extend to the retail and ETF markets, which could lead to revenue growth in the long term. However, I wouldn’t anticipate any near-term impact. Looking ahead, this could be a factor that supports continued growth in the high mid-single or high single-digit range over time.

Got it. And then on your closed sales, can you remind me about the underlying reasons for the seasonality in your closed sales? Is that because your client budgets are, hey, we want to get this deal done before the end of June? Or is it more on your end?

Yes, great question, Patrick. Most clients finalize their budgets in December, and they are aiming to achieve that. If you observe many companies, they typically have significant sales towards the end of the calendar year. This situation is more influenced by our fiscal year rather than a rush to close deals at the end. We have strong relationships with our clients, and many of these decisions are already made, but they get delayed in the contracting process, leading to a large pipeline. Due to our relationships, clients recognize the impending deals and prioritize us, resulting in a substantial backlog in Q4. We are working towards having two major increases, one in December and another in June, and we will continue to strive for that.

Yes, I would like to just thank everyone for participating in all this morning for your interest in Broadridge. We're off to a strong start for the fiscal year. We are continuing to execute on our growth strategies across governance, capital markets, and wealth management. We're reaffirming our guidance for the year and our expectation to be at the upper end of our three-year objectives. And we look forward to updating you again in a few months.