Broadridge Financial Solutions (BR) Q1 2017 Results - Earnings Call Transcript

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About: Broadridge Financial Solutions, Inc. (BR)
by: SA Transcripts

Broadridge Financial Solutions, Inc. (NYSE:BR) Q1 2017 Earnings Call November 9, 2016 8:30 AM ET

Executives

W. Edings Thibault - Broadridge Financial Solutions, Inc.

Richard J. Daly - Broadridge Financial Solutions, Inc.

James M. Young - Broadridge Financial Solutions, Inc.

Analysts

Peter J. Heckmann - Avondale Partners LLC

Darrin Peller - Barclays Capital, Inc.

David Mark Togut - Evercore Group LLC

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Operator

Good morning. My name is Karniesha, and I will be your conference facilitator. At this time, I'd like to welcome everybody to the Broadridge Fiscal Year 2017 First Quarter Earnings Conference Call. As a reminder this call is being recorded and all lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session. I will now turn the call over to Mr. Edings Thibault, Head of Investor Relations. Please go ahead, sir.

W. Edings Thibault - Broadridge Financial Solutions, Inc.

Thank you, Karniesha. Good morning, everybody, and welcome to Broadridge's first quarter 2017 earnings conference call. Joining me on the call this morning are Rich Daly, our President and CEO; and Jim Young, our Chief Financial Officer. Please note that the earnings release announcing our first quarter results and slides that accompany this call may be found on the Investor Relations section of broadridge.com.

During today's conference call, we will be making forward-looking statements regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides. We encourage participants to refer to our SEC filings, including our Annual Report on Form 10-K for a complete discussion of forward-looking statements and risk factors faced by our business.

We will also be referring to several non-GAAP financial measures, including adjusted operating profit which excludes the impact of the amortization of acquired intangibles and purchased intellectual property as well as certain acquisition and integration expenses associated with the company's acquisition activities, and adjusted EPS which excludes the after tax per share amount of those same items.

We believe these non-GAAP measures provide investors with a more complete understanding of Broadridge's underlying operating results. For reconciliations to the comparable GAAP measures can be found in the earnings release and in the earnings statement – in the earnings presentation.

Let me now turn the call over to Broadridge's President and Chief Executive Office, Rich Daly. Rich?

Richard J. Daly - Broadridge Financial Solutions, Inc.

Thanks, Edings. Good morning, everyone. My only comment before we begin on the elections is that we're certainly going to – (2:18) in not having our earnings call the day after presidential election going forward because as important as Broadridge is to, I know, everyone on this call and everyone here at Broadridge, somehow I think the world might be slightly more distracted by other events than Broadridge's earnings call. So, with that, let's start.

I'd like to start up this morning with the highlights section on page 4 of our presentation slides. We delivered solid first quarter results. Although first quarter is traditionally the smallest of the year from a revenue and profit perspective, I am pleased to report that Broadridge is off to a good start in fiscal 2017, and is building on the momentum we saw in 2016.

We are reaffirming our fiscal year 2017 guidance and are on track to deliver the three-year financial objectives we laid out in late 2014. A key reason for our confidence is the continued momentum we see in Closed sales. We booked $22 million of Closed sales in the first quarter, an increase of 26% versus last year. Our sales pipeline is strong, and the quality of our dialogues with clients is high.

The integration of NACC, or Broadridge Customer Communications as it is now known, is going well. We're executing on our operational plans and putting in place the key building blocks of our digital strategy. We continue to take steps to strengthen Broadridge's core proxy business by acquiring a software architecture that will enable the delivery of blockchain applications to our proxy clients within the next two to three years, building further on our long-term legacy of delivering technology-driven innovation to the proxy market.

Tuck-in acquisitions which broadened our product line up and leveraged our distribution channels to give Broadridge additional paths to success remain a key use of capital. Our acquisition of M&O Systems which we announced last week is consistent with Broadridge's long-term playbook.

In summary, we are off to a good start to fiscal 2017. Broadridge is delivering solid top and bottom line results, and executing our key strategic priorities. Our strategy of creating multiple paths to success continues to enable us to pursue exciting opportunities driven by our unique market position.

Now, let's turn to slide five for a review of our first quarter financial results. Total revenues rose 51% to $895 million in the first quarter. The acquisition of NACC was the largest contributor to our total growth, and into both recurring revenues and to distribution revenues. Recurring revenues rose 32% to $517 million, excluding the impact of NACC.

Broadridge's recurring revenue growth was driven by a combination of 3% organic growth and the impact of smaller acquisitions made in fiscal 2016. That strong top line growth resulted in 19% growth and adjusted operating income, and 9% growth and adjusted EPS to $0.36. We reported nice growth in Closed sales. As I noted earlier, Closed sales rose 26% to $22 million and we are reaffirming our fiscal year 2017 guidance.

Let's turn to slide six for a review of our business. I would like to start our review with an update on the work we have been doing to analyze the interim record growth which measures the growth in a number of mutual fund and ETF position's service line growth.

Last quarter, we reported that interim growth slowed at minus 1%, the first time the interim growth had slipped into negative territory since 2009 which pushed down full year 2016 growth to 4%. In the most recent quarter, interim growth improved to positive 1%, still a number that is below recent levels.

So, what is behind the lower growth in recent quarters? We analyzed our internal data at the account level to see if we could isolate the drivers. That analysis is ongoing, but I want to share with you some of our initial findings. We see no structural drivers behind the softer positional growth. There is no evidence to suggest that Americans are turning away from investing in mutual funds and ETFs as a mean of enhancing their savings. In fact, the total number of accounts continues to increase. The increasing popularity of passive investing, including ETFs, is not driving the decline. Our work shows that investors with a passive orientation hold a similar number of funds as those who invest in active strategies.

One driver of the decline that we've been able to identify has been the drop in net funds flow to mutual funds and ETFs. As many of you know, these flows which have been positive since 2009 declined from $200 billion to $300 billion annually to a slightly negative number in fiscal 2016.

We see this as a cyclical phenomenon rather than a structural issue. Net fund flows have begun to improve, although they remain soft. We have seen that reflected in our business as evidenced by the modest uptick we saw in the first quarter.

Our analysis of interim record growth continues, including of our most recent monthly data point of 7% growth in October. One month up or down is not conclusive and we will update you regarding any additional findings on future calls.

My next topic is the integration of NACC. Four months after closing the acquisition of NACC, we're making strong progress in executing on our integration plan and have announced the closure of two facilities. I am pleased by our progress, and we're on track to achieve our target of $20 million in annualized core synergies. Also, as I noted last quarter, a key rationale for the acquisition was to differentiate and accelerate our digital strategy. The building blocks of this strategy are increasingly flowing into place.

Last quarter, I highlighted our relationship with Evernote. This quarter I want to highlight the rollout last month of our Broadridge Communications Cloud at Money 20/20 in Las Vegas. The Broadridge Communications Cloud, using patented technology and analytics, connects our current network of more than 900 brands, hundreds of broker-dealers and thousands of corporate issuers with 138 million recipient households receiving 5 billion annual communications to a network of 10 digital channels including Amazon, Dropbox and Evernote.

Customers across multiple industries, including financial services, healthcare and telco, can use the Broadridge Communications Cloud to distribute essential customer communications like bills, statements, healthcare explanation of benefits, and regulatory and tax documents through any of these 10 digital channels based on consumer preference.

What is exciting is the potential for the Broadridge Communications Cloud to create a powerful network effect. Once a consumer elects to receive a bill or other statement in any channel from any brand within the Broadridge digital network, our proprietary algorithms identify additional matches where that consumer has relationships with other brands in the network.

The consumer is then alerted to these new matches and can click to enroll. The power of this digital network is that brands that are not yet connected to a specific consumer online can now be connected by virtually joining the network where other brands have already created a digital relationship, so that each new brand that joins increases the value of the total network.

In addition to accelerating digital adoption through this network, the Broadridge Communications Cloud also enables brands and consumers to interact in new ways by changing static PDFs into tailored interactive content. This will be achieved by integrating our channel partners' digital capabilities, our customers' digital assets and Broadridge's content management platforms to fundamentally transform essential customer communications.

We're still in our early days here, and the model continues to evolve. But it is encouraging to see the building blocks in terms of product development, early client wins and this most recent product rollout start to fall in place. Given this progress, I am optimistic about how this may evolve over the next several years, especially if we see some of the larger technology players make a big push to drive digital distribution.

We made another meaningful investment in the first quarter that we believe will enable Broadridge to continue to lead over the long-term by acquiring the technology assets of Inveshare. The key to this acquisition is blockchain.

While lacking the extensive and critical functionality of Broadridge's industry-leading platforms such as ProxyEdge and other voting reconciliation and compliance tools, Inveshare's intellectual property uses a dynamic architecture that will allow more rapid prototyping and proof of concept development for developing distributed ledger capabilities without impacting our current architecture and functionality.

In short, these technology assets will provide us a streamlined framework that will enable more rapid development of blockchain applications for the proxy market. Blockchain offers three potential benefits to the proxy marketplace. First, it can increase efficiency by reducing the complexity of the reconciliation process that exist today; second, it can increase security via encryption; and third, it can increase transparency around both confirmation.

We intend to deliver enhanced corporate governance at a lower total cost as we build out our products on this framework. Moreover, Broadridge is uniquely well-positioned to deliver blockchain to the proxy market.

Most blockchain applications require that all market participants sign on to a single framework which is a huge obstacle to adoption. In proxy, Broadridge sits in the middle of a hub between our client, issuers and other participants. So as we develop blockchain applications, those clients are ready to adopt blockchain and reap the benefits without having to wait for all of the participants to come onboard. It is important to look at this investment as one way to strengthen the long-term fundamentals of our proxy business.

Our role in the proxy market has been built up over the last decades precisely because we have consistently delivered innovation and savings. There is a lot of excitement around blockchain and rightfully so. But it is equally important to see it in the proxy market context as being the latest in a series of pioneering innovations that include telephone voting, e-delivery, the ProxyEdge institutional workflow and other critical capabilities delivered by Broadridge that have enhanced the corporate governance process and Broadridge's market position over the last three decades.

Late last week, we announced the acquisition of M&O Systems, a leading provider of advisor compensation management solutions that help broker-dealers and wealth management firms support advisors and grow their businesses. This acquisition will enable Broadridge to offer wealth management firms and broker dealers a more complete suite of front and back office solutions, ranging from advisor compensation tools to mission critical Broadridge investment platforms.

These solutions can also help broker-dealers and financial advisors comply to the U.S. Department of Labor's new fiduciary rule which we see as a compelling opportunity for Broadridge to support our clients and lower their cost for compliance. In other words, M&O is a classic Broadridge tuck-in acquisition.

As a reminder, tuck-in acquisitions like M&O are the primary focus of our M&A strategy and a key use of our capital. We have a healthy pipeline of similar tuck-in acquisitions, and we'll continue to seek out opportunities that can complement our existing businesses and deliver attractive returns to Broadridge shareholders.

Let's turn to regulatory matters. Last month, the SEC adopted the Investment Company Reporting Modernization rule. Not included in that rule, as adopted, was any change in the distribution of mutual funds, annual and semi-annual reports. What is clear is that reducing cost will continue to be a major goal for all of the participants in this process, including fund companies, investors, and brokers.

At Broadridge, we are also committed to that goal and are actively investing to achieve it. It is worth remembering that through the application of e-delivery, managed account processing, householding and other consolidation by Broadridge, we estimate that total fees paid by the fund industry to deliver annual and semi-annual reports have declined by 24% since 2010. That's a record of delivering value of which we are very proud and one we intend to continue to build upon.

We see our digital strategy and other innovations as having the potential to significantly raise electronic distribution which will drive additional significant savings over the next several years and increase investor interaction.

Let me now turn the call over to Jim to walk through our financials.

James M. Young - Broadridge Financial Solutions, Inc.

Thanks, Rich, and good morning, everyone. I'll provide some additional details about our growth drivers and comment on Broadridge's operating income and margin performance. I'll also try to address some of the questions many of you have asked about our potential exposure under our contract to Scottrade in the wake of its announced sale to TD Ameritrade. Finally, I will close with the discussion of our balance sheet and uses of cash and review our full year 2017 guidance, which we are reaffirming today.

Before I jump in, let me remind you that the first quarter has historically been our smallest revenue quarter, accounting for just over 20% of the total in recent years. Similarly, adjusted net earnings of the first quarter has historically averaged around 12% of the full year. So, please keep this in mind as you analyze our results.

I'll start with a quick recap. First quarter 2017 recurring revenues was 32% to $517 million, and total revenues rose 51% to $895 million. Adjusted operating income rose 19% in $2 million and adjusted EPS rose 9% to $0.36.

The drivers of our growth are laid out on page seven of the presentation. As I noted, total revenues grew 51% to $895 million. The acquisition of NACC which occurred on the first day of the fiscal quarter was the biggest driver of our total growth, contributing $272 million to our revenues. That acquisition drove the increase in both recurring revenues and distribution revenues. Changes in foreign currencies, specifically the weaker Canadian dollar and British pound lowered our reported revenue growth by 1 percentage point or $4 million.

Recurring fee revenues grew 32% to $517 million. Excluding the impact of NACC, the growth in recurring revenues was largely organic. Revenues from closed sales accounted for 6 points of growth which was partially offset by 3 points of client losses and mutual internal growth for a total organic growth of 3%. Tuck-in acquisitions, excluding NACC, added another point of growth.

The key to organic growth slowed despite another healthy quarter of new business revenue additions. Losses were a little elevated and internal growth, while a neutral contributor in the first quarter, was down from the 1% level seen in fiscal year 2016. Generally, the slowdown was driven by several factors including tepid stock in interim record growth and lower overall volumes of interim communications. None of those changes our revenue outlook for the year.

Turning to slide 8. Adjusted operating income rose 19% to $82 million in the first quarter of fiscal year 2017. The growth in operating income was largely driven by the acquisition of NACC and the continued strong performance by our GTO segment which was up 26%.

Adjusted operating income margins declined from 11.5% to 9.1%, largely as a result of adding a lower margin NACC business. Adjusted EPS rose 9% to $0.36. Our net earnings were impacted by higher interest expense of $4 million and higher foreign currency transaction losses.

Turning to slide 9. I will discuss the performance of our ITF and GTO segments. ITF's revenues rose 68% to $723 million, driven largely by the impact of higher recurring fee and distribution revenues of NACC. ICS recurring revenues rose 52% to $329 million. On an organic basis, revenues rose 2% as continued growth from net new business was partially offset by negative internal growth.

The negative internal growth resulted from overall lower process interim communications which offset growth and other product lines. Both equity stock record growth and mutual fund interim position growth were 1% in the first quarter. These metrics are same-store sales measurements for the same period a year ago, and not always indicative of overall volume and revenue after accounting for timing and other anomalies.

As Rich explained earlier, mutual fund interim positions contracted in the fourth quarter before modestly picking up in to positive territory in the first quarter. Our preliminary October interim's growth was 7%; it is too early to determine the trend, and we're not relying on much growth for the balance of the year to achieve our guidance.

ICS earnings before taxes fell $1 million to $33 million and is relatively small earnings quarter for this segment. Pre-tax margins declined to 4.5% from 7.9%, primarily as a result of the margin diluted impact of the NACC acquisition.

GTO recurring revenues rose 6% to $188 million, driven by the continued strength in net new business as new deals from last year's record sales continue to be onboarded. Our equity and fixed income values were down 3% and 2% respectively. Internal growth was neutral as the overall mix of volumes resulted in a slightly favorable pricing mix.

Acquisitions also contributed two points of overall segment revenue growth. GTO earnings before taxes rose $8 million or 26% to $38 million, driven by higher revenues and continued efforts to realize cost efficiencies.

Before I move on from our GTO business, let me address our potential exposure and our relationship with Scottrade which recently agreed to be acquired by TD Ameritrade. Scottrade is a client and many of you asked about the financial impact of a cancellation. Now, as a policy, we do not comment on our contracts with individual customers, but do want to make a few points to try and address some of the concerns you have raised.

First, we do not expect to begin recognizing revenues from Scottrade until the second half of fiscal year 2017, and the earnings contribution is expected to be modest. Second, there are myriad scenarios with this merger for us ranging from losing the business outright to picking up more business. In the scenario that we lose the processing business outright after the announced target close date in August 2017, the estimated EPS impact would be about $0.03 on a run rate basis before taking into account protective provisions in the contract. We also provide several investor communications services for Scottrade which align with services we provide TD Ameritrade and thus are excluded from this estimated impact.

Third and finally, any downside analysis needs to consider protective provisions, including negotiated termination provisions which would keep us largely economically whole over a multi-year period. I share this information in order to help you gauge the potential impact of Broadridge from the announced transaction. It was important to note that we first see these types of deals with potential opportunities. I hope this is helpful.

Moving on to slide (sic) [11] (27:30) 10. Free cash flow was negative as is normally the case in the first quarter and included $15 million of capital spending for software and other assets. These results do not impact our free cash flow targets for the full year. Other [indiscernible] (27:47) uses of cash in the quarter included the purchase of NACC on July 1 for a price of $410 million in cash or $402 million net of cash acquired and other closing adjustments.

And two, the acquisition of the Inveshare Technology assets in September for $95 million, which consists of $90 million in cash paid at closing and $5 million to be paid in September 2017. Further, we expect to make an additional payment of $40 million upon delivery of the new blockchain application, which we expect to be by September 2018.

The Inveshare technology acquisition will not impact our adjusted operating income or adjusted EPS in 2017. We do expect higher non-GAAP adjustments for amortization expense of $15 million in fiscal year 2017 as a result of this transaction. Please note that we have revised our non-GAAP definition to include amortization expense associated with the purchase of intellectual property in addition to amortization expense resulting from business combination accounting.

Tuck-in acquisitions that complement our existing products and leverage our distribution remain a key component of our capital deployment strategy. As Rich discussed, we completed another modest tuck-in acquisition by acquiring M&O Systems last week, a leading software as a service provider of advisor compensation management solutions, for $25 million net of customary working capital and other adjustment. This business is doing in the neighborhood of $10 million a year in revenue and does not expect to have a material impact on our earnings in fiscal year 2017.

We also spent $40 million to repurchase shares. It's our practice to use proceeds from option exercises to repurchase stock, which accounted for most of the repurchase activity. We funded our activities during the first quarter using the cash we raised as part of the $500 million senior notes offering completed in June by drawing on our revolver. Total debt outstanding as of September 30 was $1.1 billion or 1.8 times trailing 12-month EBITDA, in line with our target leverage levels.

Before I hand the call back over to Rich for his closing remarks, I'd like to reaffirm our guidance for fiscal year 2017 as shown on slide 11. We expect a recurring revenue to grow 29% to 31%, total revenue to grow 43% to 45%, our adjusted operating income margin to be approximately 15%, adjusted EPS to grow 12% to 17%, free cash flow to be in the range of $350 million to $400 million, and we expect Closed sales in the range of $140 million to $180 million.

This guidance still assumes 6% to 8% recurring fee growth, excluding NACC, as organic growth is expected to tick up from Q1 levels. Also, as you think about the second quarter, please remember that our second quarter earnings, on average, have accounted for about 11% to 12% of full year earnings.

In closing, as Rich mentioned earlier, we are on track to achieve the $20 million in annualized cost savings from the integration of NACC. Let me remind you that most of these savings will begin to be seen in our number over the course of fiscal year 2018 and beyond, and we expect very little benefit from cost synergies in fiscal year 2017. We will, however, incurred higher expenses including capital expenditures associated with the integration in the balance of fiscal 2017.

We look forward to updating you further on the integration and key milestones along the way. I'll now hand the call back to Rich.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Thanks, Jim. Please turn to slide 12 for my closing remarks. Broadridge is off to a solid start to fiscal year 2017. We reported strong top and bottom line growth, and we are reaffirming our 2017 guidance. The integration of NACC is going well. We are making progress in bringing our two businesses together and are on track to deliver the cost synergies we laid out at the time of the deal.

We are implementing our digital strategy, which was a key strategic impetus, for the transaction by rolling out the Broadridge Communications Cloud and building the largest client and channel network in the industry.

We invested in our proxy business by acquiring key technology that will enable us to deliver blockchain capabilities faster and with lower risk. We are committed to maintaining our leading role in the proxy market by delivering innovation to our clients.

Last, our Closed sales increased and our sales pipeline is strong.

The common factor in all of these trends is execution. When we hosted our Investor Day in late 2014, one of our key messages was that we wanted to transform Broadridge from a company that relies on the market for its growth into a company that was focused on providing solutions to our customers across the capital markets, wealth management, asset management and corporate client segments. Focusing on our clients' needs and delivering the breadth of products they require gives us multiple tasks to achieve our objectives.

I am pleased with the progress we have made in making this a reality. Our organic revenue growth in this quarter was driven by higher sales, which is an indication that we are finding ways to add value to our clients and by continued higher retention, and not by internal growth.

Our strong sales pipeline speaks of the depth of our client relationships and breadth of our products. The investments we are making in our business in both digital and blockchain should put us in a position to further extend the value we can offer. That progress and our continued focus on execution gives me increasing confidence that we will deliver on the three-year financial objectives we've set and continue to deliver top quartiles whole shareholder returns for years to come.

Before I turn the call over to Q&A, let me thank our associates. Thanks to their efforts, the service profit chain is alive and well at Broadridge and their work is critical to the value we add to our clients.

Now, let me turn the call over to your questions.

Question-and-Answer Session

Operator

We'll pause for just a moment to compile the Q&A roster. Your first question is from Peter Heckmann with Avondale.

Peter J. Heckmann - Avondale Partners LLC

Good morning, everyone.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Hi, Pete.

James M. Young - Broadridge Financial Solutions, Inc.

Good morning, Peter.

Peter J. Heckmann - Avondale Partners LLC

Hi. Can you talk a little bit about the Department of Labor's pending rule and some of the puts and takes? I'm wondering if that may have some sort of – be creating a pause in turnover in advisory portfolios that may be hitting positions – position growth. And then as well would you expect the changes that the fund industry makes to fee structures or to fund share classes could then result in an uptick in mutual fund proxies over the next two quarters?

Richard J. Daly - Broadridge Financial Solutions, Inc.

Pete, it's a terrific question and that's part of the analysis that we're working on when I talked about analyzing the interim record positions. If you recall, we called out in the last call, our year end call, that some of our larger retail clients have been pointing out to us that until the DOL rule dust settles, advisers have been very hesitant to put clients into new funds until they better understand the grandfathering aspects of the rule and just have this whole fiduciary part of the rule is going to play itself out.

So, it's clearly part of what's going on in the fund volumes beyond fund flows. But what we found was a pretty good correlation between fund flows and volumes and funds flows are down.

Now, the DOL rules are going to require a different way to service these assets. We're in the asset servicing business, in particularly in communications. As the world continues to work on lower fees, that's why our focus on digital and our excitement about being the largest network to identify individuals whether they do it through a brokerage account or they do it through a cable bill, whether they do it from a cell phone bill, whether they do it through a credit card bill.

All the things we're servicing now in the largest network with those 5 billion pieces of content we distribute, identifying ways to drive that cost of paper and postage out, we see as one of the most significant ways, not only for the financial services industry, but for all industries we're going to enable people to communicate more cost effectively and it should also be highlighted – because I mentioned it and I want to emphasize this, it also has to be a better experience, okay, both in terms of convenience and the content you're looking at.

And if you go and look at the release from Vegas, it not only talks about this network, okay, of Money 20/20, but it also talks about enhanced content and enhanced experience. So, DOL is one of the factors, however driving cost out through digital adoption where we let it in proxy, we let it in interims, and now we're going to leave it for consumers, right, is something we believe will enable us to have not only maintain our strength in the market while pursuing meaningful opportunities as this evolves going forward.

Peter J. Heckmann - Avondale Partners LLC

Okay. And then any thoughts on the need for more mutual fund proxies, from any changes that funds need to make?

Richard J. Daly - Broadridge Financial Solutions, Inc.

You're talking about the event-driven side of this, Pete?

Peter J. Heckmann - Avondale Partners LLC

Yeah.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Okay. We believe that we've been running below historic norms really because, of course, management. There is – I'll call it interesting dialogue activities in some of the larger funds about the need to go-to-market. The timing of that, it's too early to tell. But we do believe that the event-driven side of this would be on the historic low but I can't tell you what it will be going forward. But I'm not expecting to be going back to historic lows.

Operator

Your next question comes from Darrin Peller with Barclays.

Darrin Peller - Barclays Capital, Inc.

Thanks, guys. Just on a bit of a higher level, what do you see is the potential? Maybe you could just help list off the potential for items that could lead to reacceleration of the ICS segment organically just given what we're seeing on the growth and the number of positions, obviously decelerated, and the event-driven is also had to tell.

So, I know data analytics is an initiative of your deals. And I guess that will lead to the follow up question of what the pro forma growth could look like with NACC and how that's been performing.

James M. Young - Broadridge Financial Solutions, Inc.

Hey, Darrin. It's Jim. It's obviously – ICS on organic basis a little light at 2% with that software interim position growth. But look, I think as we think about new business, that's the big driver. At 3 points this quarter, we continue to believe that a lot of the emerging and acquired businesses that are still gaining steam and also are contributing disproportionately to our sale and the ability to drive that much higher.

So, even in a scenario where position growth comes down and what the internal growth moves to something that's more flat, which we're not anticipating at the moment, but if we're to get more flat, we still think that net new business number can continue to be well more than 3%, more of the kind of the 5% range as we think about a lot of these new businesses growing, this is obviously excluding the acquisition of NACC. So, there's still a lot of growth left.

Darrin Peller - Barclays Capital, Inc.

Okay.

James M. Young - Broadridge Financial Solutions, Inc.

Obviously, we like the growth that comes from the interims and proxies and stock-record positions but that's not what we're focused day-to-day. It's all the sales activity whether it's daily analytics to the advisor space, et cetera.

I think that I've seen kind of organic growth going forward just as a reminder for NACC, as we layer in that business, it's going to contract for a couple of years as we work through some of the things we outlined at the time we announced the acquisition, including consolidation in the telecommunications industry, they'll decline for a bit before it rises back to higher levels and we start layering in what we think are good sales opportunities for – on the combined entity.

So, again, we're pretty optimistic about the growth and where our dollars are invested in or against these emerging acquired products that have – continue to have really good sales performance.

Darrin Peller - Barclays Capital, Inc.

All right. So, it sounds like – yeah, Go ahead, Rich.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Darrin, so let's take a step back because really your expertise here is going to help you a lot more than anything, in some ways, our expertise. It's not something that hasn't been very actively discussed on your side of the world that leading up to this election, money here and around the world has been somewhat on the sideline waiting to have a better understanding of what this all means. All right?

And I've been doing this, getting close to four decades now, and this is not the first time that I've seen questions about where the market is as it fully value, doesn't it fully value, what is the political world mean, what a world events mean et cetera, et cetera. I don't even put this to even close to some of the more significant activities we went through in the past, including 9/11.

With rates being where they are, this money can sit on the sidelines and stay on a money fund yielding a basis point, internationally having a negative return. So, the question is, and I've seen this, the best place for returns historically has been and I expect will remain to be in the markets. And as money comes into the market, those assets need to serviced.

So, I very much still love the position that ICS is in for a long-term point of view, right? Because I still believe that market, whether they correct, stabilize, they ultimately go to new heights. And we thought it was a how a dire that situation seemed in the past at that moment, it's always proven to be true. So, that's one of the advantages of having more gray hair every day.

With that said, we transformed the business when we spun from a company that relied on markets, whether it be trades in our processing segment or positions in our communications business, to a business that's gone out there and identified ways to enable our clients, okay, to meet the challenges going forward. And we have a really wide breadth of product. I mean, one of the things that feels great right now is the position that GTO is in. And if you think about the way we transformed GTO, look at the NACC transaction because that – we didn't want to be in the statement business for these other entities.

What we learned was the need – if you're going to be successful in driving digital, it's not the broker's choice, it's the consumers' choice and we had to have a wider breadth of content to go after. I am highly confident as we go forward in our ability to retain and win clients, not because we're going to be lowest price, but because we're going to drive people to the lowest cost and the best experience to service their customers.

So, I've lived through volumes going multiple places and position growth. Q4 was high and abysmally low after the crisis, but we're now in a position where we can achieve our success with relatively flat volumes.

Darrin Peller - Barclays Capital, Inc.

Right.

Richard J. Daly - Broadridge Financial Solutions, Inc.

I ultimately believe volumes will come back, right?

Darrin Peller - Barclays Capital, Inc.

So, that's ...

Richard J. Daly - Broadridge Financial Solutions, Inc.

This money has to go somewhere.

Darrin Peller - Barclays Capital, Inc.

It sounded like that – right. So, hopefully it comes back, but even despite that, I think what you guys, and Jim, you were saying earlier also is just that even in this environment there's enough catalysts and levers between data analytics and new business to reaccelerate to maybe a mid-single digit rate for the – from an organic standpoint for the segment.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Yeah. The harder we work, the luckier we get in here, (47:11) Darrin.

Darrin Peller - Barclays Capital, Inc.

Right. Just a quick follow-up question on the GTO side. I mean, obviously we get lots of questions around demand and the environment around financials, broadly retrenching on spending, obviously it was Brexit; now it's other things, election, et cetera. I mean, any insight into what you're seeing from your clients on -- bigger clients on spending trends right now? I mean, it's seems like the segments' growth rate has held up pretty well.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Hey, Darrin. We talked about sales. And we talked about sales with confidence. And look, the $22 million is not a knock-you-out-of-your-seat number. The reason we're talking about it with that confidence is because of the pipeline, the size of it, the quality of the conversations and the level within the largest financial institution that those conversations are taking place.

So this industry needs to transform itself. It's not just a matter of taking heads out or reducing the cost per head; it needs to transform itself. And if you go back to the last quarter, we announced that one of the largest global banks, or one could even argue the largest, right? But certainly in terms of what they do, went to seven platforms worldwide to Broadridge going forward, right? That is not insignificant.

As other firms are looking at, we can't announce who that client is on something like a call or we can't advertise it. What we can do is talk to every other firm about what's happening in the industry and there is an enormous amount of interest in what's happening particularly because of the size of the firms now that are saying it just doesn't make sense to do this on their own particularly when Broadridge has created a solution that enables us to combine platforms around the globe to create that level of efficiency.

Darrin Peller - Barclays Capital, Inc.

Okay. All right, guys. Thanks very much.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Thank you.

James M. Young - Broadridge Financial Solutions, Inc.

Thanks, Darrin.

Operator

Your next question is from the line of David Togut with Evercore ISI.

David Mark Togut - Evercore Group LLC

Thank you. Good morning, Rich and Jim.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Hi, Dave.

James M. Young - Broadridge Financial Solutions, Inc.

Hi, Dave.

David Mark Togut - Evercore Group LLC

Recognizing that the first quarter is seasonally the smallest quarter of the year from a contribution of revenue and earnings. Adjusted EPS growth was 9% under the 12% to 17% guidance for the year as a whole. Can you talk about sort of the puts and takes at this point that would take you, let's say, to the low end of the range versus the middle or the high end of the range from what you see today?

James M. Young - Broadridge Financial Solutions, Inc.

Sure. This is Jim. Yeah, obviously the first quarter is small. So, growth off of a small base -- not as meaningful. So, what we – again, we reaffirm guidance; we have good confidence that we deliver that. So, clearly, if some of the key variables we think about between the low and the high, clearly if interim growths were to pick back up in a significant way, that's a variable that starts pushing you a bit higher. Clearly, if events-driven revenue continues to grow like it did last year, we're assuming more flattish this year, that's certainly a nice tailwind that will push you up into the higher end of the range.

Both those variables, obviously, can have factors, bring you down to the low end of the range. But otherwise, we've got very good revenue visibility given the nature of the business, given the recurring revenue base, and business under – the revenues that we have under contract. On the investment side, obviously, in any given year, we've got a set of investments we're trying to make and this year is no different, probably as large as ever. So, those are always levers, although we're pretty disciplined about making sure we make the investments each year.

And then obviously, I think, one other variable when you have a large new business like we do with this NACC acquisition, you're still learning about that business, so it's not hard to have a few million dollars move either way, either in additional savings you find or frankly year one cost as you integrate the business. So, those are some of the variables that I think about at the moment, but we don't have to sort of natural volatility that others might have just given the sort of large recurring revenue base that we have.

David Mark Togut - Evercore Group LLC

Understood. That's helpful. Just as a quick follow-up. Rich, the Tier 1 banks that outsourced trade processing to you -- do you get a meaningful revenue and earnings contributions from that contract in fiscal 2017?

Richard J. Daly - Broadridge Financial Solutions, Inc.

Well, David, this is going to be a pretty meaningful conversion process, so you shouldn't be thinking of that as being a major uptick in 2017. What you should be thinking about is the strong sales that we've had over the years rolling into 2017, and that's some of the revenue visibility that Jim was talking about.

Operator

And you do have a follow-up question from Peter Heckmann with Avondale.

Peter J. Heckmann - Avondale Partners LLC

Guys, I may have missed it, but a lot of things going this morning as you note. But Jim, your commentary around kind of the percentage of earnings that typically comes from the second quarter, you do have what appears to be a fairly difficult comp with the event-driven revenue in the second quarter of fiscal 2016. So, it looks like the consensus for the second quarter is about $0.41. Should we infer from your commentary that that's something more around the mid to high-30s is probably a little bit better number?

James M. Young - Broadridge Financial Solutions, Inc.

Yeah. I would just stick with the comments, Pete. I think you're right to highlight the very tough comp for next year. So, back to David's question about, and I'm just seeing a growth coming in the second quarter, I think again queuing of that 11% to 12% of our full year earnings typically fall into the second quarter will probably get you in the right zip code for what we're seeing right now.

Peter J. Heckmann - Avondale Partners LLC

Okay. Great. Thanks a lot. We'll talk to you next quarter.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Next queue.

James M. Young - Broadridge Financial Solutions, Inc.

Next queue.

Operator

Your next question is from Patrick O'Shaughnessy with Raymond James.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Hey. Good morning, guys.

James M. Young - Broadridge Financial Solutions, Inc.

Hey, Patrick.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

So, my question is around the Inveshare technology assets that you acquired. Can you kind of walk us through the build versus buy decisions that you made. Obviously, it's through the investment for technology that's not completely developed at this point. So, what led you to say, you know what? Let's not do this internally, let's buy this from Inveshare.

Richard J. Daly - Broadridge Financial Solutions, Inc.

Patrick, this is Rich. Good morning. Yours truly really drove that. As I heard in the ways about blockchain, we are participating with our clients on blockchain dialog as it relates to back office processing which is mind-numbingly complex.

As we looked at markets like Estonia and Australia, well, I knew as the leader in proxy and as somebody, as an organization and as a leader myself who was lead proxy for decades, I needed a faster path than the build path, and what I highlighted in the call was that the Inveshare technology does not cover all the functionality of ProxyEdge and lots of the reconciliation things we do, but it's on a more current architecture. And by starting with that as our starting point, our technical people said to me without question we can get to a blockchain solution faster than the path of going in on our own. That's what led to that decision.

So, we intend, through this transaction where we've already gotten a reaction of the marketplace, for the world to again look to Broadridge to lead. What's unique about proxy for Broadridge versus any one of us is because we already connect to all parties, the toughest part of blockchain is getting the parties connected.

So, hypothetically if IBM wants to get instant voting results via blockchain and another company does not want to participate in it, we would be in a unique position with this solution that when we expect during an election a corporate secretary closes the polls at IBM, it will be – give our preliminary results and we'll issue them in an 8-K within 48 hours, it will be – they close the polls and instantly, at that second, split-second, every vote received through that split-second is now in front of that corporate secretary, all right?

So, there are other efficiencies that this will drive but most importantly is Broadridge is the leader in proxy. And if you're going to remain the leader, you can't say, well we like what we had and we don't want to be concerned about making investments. You need to invest to remain the leader. And so, everyone should interpret this, is that Broadridge will continue to invest at the levels required to lead across the markets we weave in.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Got it. Now the follow up would be to what extent are you concerned that through this investment you've now capitalize a smaller competitor in the proxy space and maybe make them a more viable product to you.

Richard J. Daly - Broadridge Financial Solutions, Inc.

There will always be competition out there. We think the differentiation and that's why I emphasized the functionality. The differentiation between what we do and anyone else can do is very dramatic. We spend more on cyber security than all of our competitors combined have in revenue. So, we live in a world where the days of a Rich Daly starting a proxy business in an extra bedroom are over. Because the requirements to get to even the cyber security needs, no one who gave me the data almost 30 years ago will give it to me today. That's the reality, and no one worth talking about would give me the data.

So, this is not about that aspect of it. We remain highly confident that our value proposition is very well-differentiated versus any other offering in the market, and that's why we continue to win. There have been better deals on the table to our – commercially all of our clients for quite some period of time.

Operator

And at this time, there are no questions. Speakers, do you have any closing remarks?

Richard J. Daly - Broadridge Financial Solutions, Inc.

All right. Well, it certainly is going to be a very interesting day today. And I regret to say it's probably not just because of Broadridge's earnings call.

We're three minutes into the open now, so I'm sure everyone wants get off to that. We'll remind you that we have an investor launch on November 16 in New York City. We will certainly look forward to seeing you there, and we look forward to discussing Broadridge as we go forward.

I've said this many times before, but it requires particular emphasis today, choose to have great day. Thank you.

Operator

This concludes today's conference. You may now disconnect.