Investor Conference Call to Review First Quarter Fiscal Year 2027 Results - BROADRIDGE FINANCIAL SOLUTIONS INC

Explicit Guidance:

• Fiscal 2027 Full Year Recurring Revenue: Reaffirmed 6% to 8% growth on a constant currency basis.
• Fiscal 2027 Full Year Adjusted Operating Income Margin: Expected to be approximately 21%.
• Fiscal 2027 Full Year Adjusted EPS: Guided for 8% to 12% growth.
• Fiscal 2027 Full Year Closed Sales: Reaffirmed range of $290 million to $330 million.
• Fiscal 2027 Second Quarter EPS: Expected to represent approximately 12% to 14% of full-year results.
• Fiscal 2027 Event-Driven Revenue: Expected to normalize to historic averages of $60 million to $70 million per quarter for the remainder of the year.
• Fiscal 2027 Tax Rate: Expected to be approximately 22% for the full year.
• Fiscal 2027 Free Cash Flow Conversion: On track to deliver over 100%.
• Fiscal 2027 Position Growth: Testing signals low double-digit equity position growth and high single-digit fund position growth for the balance of the year.

Business-Segment Outlook:

• Governance (ICS): Expects recurring revenue growth within the 6% to 8% total guidance range. Interest rates are projected to be a neutral factor in Q2 and a modest tailwind in the second half of the fiscal year.
• Capital Markets (GTO): Expects growth at the higher end of the 6% to 8% guidance range, led by capital markets performance with slower growth expected in wealth management.
• Wealth Management: Anticipated to see slower growth compared to capital markets; driven by continued expansion in Canada and onboarding of major U.S. wealth managers.
• Product Specifics:
  • Tokenization: Expecting significant volume increases in the Digital Ledger Repo (DLR) platform over the next six months based on clients in implementation.
  • AI Products: Strong demand for AI-powered institutional voting and global demand models; expansion of coverage to include global equities.
  • Custom Policy Engine: Seeing continued momentum and interest from asset managers; expanded pipeline includes major wealth managers with house policies for managed accounts.
  • LTX (Credit Trading Platform): Currently in launch phase with immaterial current volumes; viewing potential market consolidation as an opportunity to become a preferred third alternative, with a long runway for growth.

Market and Competitive Outlook:

• Tokenization: The SEC's innovation exemption and the introduction of tokenized equities are creating a more diverse and fragmented environment; competition across Level 1 networks and custodial models increases complexity for issuers and intermediaries, creating opportunity for Broadridge's horizontal governance layer.
• Proxy Voting: Increasing global demand for efficient, digitized proxy voting; expansion in Asia Pacific (e.g., collaboration with Korean Securities Depository) and Europe (e.g., sale to a leading Scandinavian wealth manager).
• Client Engagement: Anticipating further announcements from blue-chip names regarding Standing Voting Instructions (SVI) programs following early success with Goldman Sachs and Tesla.
• Regulatory Impact: SEC's upcoming move to e-default is increasing digital engagement demand; clients view this as a catalyst to drive deeper engagement and implement tailored digital communications.
• Pricing and Renewals: Net renewal numbers remain positive (>100%) with zero losses in proxy; business model focuses on expanding service scope rather than aggressive pricing hikes.

Macro / Industry Outlook:

• Interest Rates: Identified as a modest headwind in prior quarters; expected to become neutral in Q2 and a modest tailwind in the second half of the year.
• Investor Participation: Seeing a sustained pickup in fund position growth, accelerating from 6% in Fiscal 2026 to high single-digit growth.
• Market Structure: Anticipate continued market evolution creating significant new opportunities; change is viewed as positive for Broadridge due to increased client investment needs.
• Regulation (E-Delivery): Not currently anticipating an expansion of SEC e-delivery reviews to include preference management processing fees by the ICI; any such review is viewed as distant.
• Digital Assets: Expect continued recognition of non-GAAP gains/losses on digital asset holdings due to mark-to-market volatility.

Strategic Initiatives:

• AI Productivity: On track for $25 million in AI-driven savings for Fiscal 2027 (vs. $6 million in Q1); savings are being used to fund strategic growth initiatives and drive EPS growth.
• AI in Managed Services: Achieving ~25% efficiency gains in operations with a line of sight to ~50%; exploring a "savings sharing" partnership model with managed services clients.
• Tokenization Partnerships: Announced core governance layer partnership with the New York Stock Exchange for its tokenized equity marketplace; agreements with Kraken Payword, Ando, and Alpaca to provide governance services; leading a user group for the DTCC's tokenization initiative.
• New Product Launches: Launched DLX, an end-to-end platform connecting tokenized and traditional markets across multiple asset classes; expanded AI voting solution to include global equities.
• Capital Allocation: Reaffirmed strategy of balanced allocation between organic growth, M&A, dividends, and share repurchases; maintaining capacity for tuck-in M&A given 2x leverage ratio.

Risks and Headwinds to Outlook:

• Seasonality and Mix: First and second-quarter margins are expected to be lower due to fixed costs and the absence of elevated event-driven revenues which typically carry higher margins; margins expected to expand in the second half.
• Investment Timing: Margins in H1 may be pressured by the timing of ramp-up investments in platform, tokenization, and AI, which are expected to normalize in H2.
• Digital Asset Volatility: Continued non-cash gains/losses on digital asset holdings may impact GAAP earnings, though excluded from adjusted EPS.
• Market Fragmentation: The diversity of tokenization models (Level 1, custodial, synthetic) creates complexity that could delay adoption if clients require specific navigation.
• Regulatory Uncertainty: While the SEC innovation exemption is supportive, the specific timeline and volume limitations of tokenized venues remain unclear.

Management Tone on the Future:

• Confidence Level: Described as "never more confident and excited" regarding Broadridge's ability to serve clients and create shareholder value.
• Strategic View: Management views current market changes (tokenization, AI, digital engagement) as a generational opportunity and a positive inflection point for the business.
• Guidance Status: Reaffirmed all full-year guidance metrics, indicating confidence in the ability to deliver 8% to 12% EPS growth despite current investment spend.
• Hedges: Acknowledges potential volatility in margins due to seasonality and investment timing but emphasizes a commitment to delivering the annual EPS target.

Miscellaneous:

• Investor Day: Scheduled for December 8th in New York City, where management will provide financial objectives for Fiscal Years 2027 through 2029.
• CQG Acquisition: Completed acquisition of CQG; integration is strengthening futures and options offerings, with recent wins in front-office solutions for global brokerage platforms.
• Capital Returns: Repurchased $200 million of shares in Q1; total repurchases for the calendar year reached $650 million; returned $111 million via dividends in Q1.