Earnings Call: Broadridge Reports 4% Increase in Recurring Revenue

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Earnings Call: Broadridge Reports 4% Increase in Recurring Revenue

Broadridge Financial Solutions, Inc. (NYSE: BR) showed strong performance in its earnings call for the first quarter of the fiscal year 2025. The company reported a 4% increase in recurring revenue and executed an acquisition that enhances its wealth management capabilities in Canada. It announced an adjusted earnings per share (EPS) of $1 and raised its recurring revenue forecast for the fiscal year 2025 from a previously expected range of 5%-7% to 6%-8%. Closed sales reached a record level of $57 million, representing a 21% increase year-over-year. Broadridge maintains confidence in achieving its three-year financial goals, emphasizing innovation and long-term growth strategies.

Key Points:

  • Broadridge reported a 4% growth in recurring revenue despite the impact of E-Trade deconversion.
  • Adjusted EPS was $1, with a growth projection for the fiscal year of 8%-12%.
  • The SIS acquisition, completed on November 1, is expected to strengthen wealth management capabilities in Canada and contribute approximately $60 million in revenue.
  • Closed sales increased 21% year-over-year to a record $57 million.
  • The company raised its recurring revenue forecast for fiscal year 2025 to 6%-8%.
  • Management expects a strong fiscal year, citing improved organic growth and positive currency effects.

Company Outlook:

  • Broadridge is on track for an 8% to 12% increase in adjusted EPS.
  • Closed sales for the fiscal year are expected to be between $290 million and $330 million.
  • Revenue for the first half of the fiscal year is anticipated to be between $320 million and $330 million, with earnings expected to account for 27% to 28% during this period.
  • While focusing on organic growth, the company is exploring M&A opportunities and has a robust sales pipeline and backlog of $450 million.
  • Digital revenue growth is expected to be in double digits alongside sales and customer acquisition activities.

Negative Aspects:

  • Free cash flow was negative $158 million in the first quarter.
  • The E-Trade deconversion had a 170 basis point negative impact on revenue growth.
  • Although the SIS acquisition may not affect earnings, it could slightly reduce margins.

Positive Aspects:

  • The recurring revenue growth forecast has been upgraded due to the SIS acquisition.
  • Equity and fund positions are showing mid to high single-digit growth.
  • Growth in equity registrations is expected to reach high single digits in the second quarter.

Performance Below Expectations:

  • There were no reports of situations falling short of specific expectations mentioned in the earnings call.

Q&A Highlights: CEO Tim Gokey noted that first-quarter sales represent about 20% of the full-year outlook, attributing this to timing rather than unusual prominence. He also emphasized positive trends in managed accounts, voting options, and direct indexing, reinforcing confidence in the company's growth trajectory.

Broadridge's performance in the first quarter of the fiscal year sets a positive tone for the year, as it not only meets expectations but also positions itself for stronger performance through strategic acquisitions and a focus on innovation. The acquisition of SIS expands Broadridge's reach in the wealth management sector, particularly in the Canadian market, and significantly contributes to the company’s growth projections. Despite some negative impacts such as the E-Trade deconversion and negative free cash flow, company management remains optimistic about the future, pointing to solid demand and a strong sales pipeline as indicators of sustainable success. Broadridge's commitment to innovation and strategic investments appears to be paying off as it continues to confidently navigate the complexities of global markets and regulatory changes.

InvestingPro Forecasts: Broadridge Financial Solutions' strong first-quarter performance for fiscal year 2025 is further supported by key metrics and projections obtained from InvestingPro. The company's market capitalization stands at $25.34 billion, reflecting its significant presence in the financial technology sector.

One of the most notable InvestingPro Insights is that Broadridge has increased its dividend for 17 consecutive years. This aligns with the company's robust financial health and commitment to shareholder returns, which is particularly significant given the company's positive outlook and upgraded guidance for fiscal year 2025. The current dividend yield is 1.68%, showing impressive dividend growth of 21.38% over the last twelve months. This underscores Broadridge's ability to create value for investors even while investing in growth initiatives such as the SIS acquisition.

Another important InvestingPro Insight highlights that Broadridge operates with a moderate level of debt. This prudent financial management is crucial as it enables the company to pursue strategic acquisitions and invest in innovation without overly straining its balance sheet, supporting long-term growth strategies.

The company’s profitability is clearly evident in its financials; it reported a gross profit of $1.99 billion and operating income of $1.08 billion over the past twelve months. An operating income margin of 16.57% demonstrates Broadridge's efficiency in converting revenue into profit, which is essential for sustaining its growth and dividend payments.

It is worth noting that Broadridge is trading at a high P/E ratio of 36.47, indicating that it commands a premium valuation with investors having high expectations for the company’s future performance, consistent with management’s positive outlook and upgraded guidance.

For investors seeking a more comprehensive analysis, InvestingPro provides an additional 12 insights and forecasts for Broadridge Financial Solutions.