David Ng - Senior Director of Investor Relations Richard J. Daly - Chief Executive Officer, President and Director James M. Young - Chief Financial Officer and Corporate Vice President.

David Togut - Evercore ISI, Research Division Peter J. Heckmann - Avondale Partners, LLC, Research Division Georgios Mihalos - Crédit Suisse AG, Research Division Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division Stephanie J. Davis - JP Morgan Chase & Co, Research Division.

You may begin your conference..

Thank you. Good morning, everyone, and welcome to the Broadridge Quarterly Earnings Call and Webcast for the First Quarter of Fiscal Year 2015. This morning, I'm here with Rich Daly, our President and Chief Executive Officer; and Jim Young, our Chief Financial Officer.

I trust that by now, everyone has had the opportunity to review the earnings release we issued this morning. This news release and slide presentation that accompany today's earnings call and webcast can be found on the Investor Relations page at broadridge.com.

During today's conference call, we'll discuss some forward-looking statements regarding Broadridge that involves risks. These risks are summarized on Slide 2.

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 the risk factors faced by our business. Our non-GAAP fiscal year 2015 earnings results and fiscal year 2015 earnings guidance excludes the impact of acquisition and amortization and other costs.

These costs are significant, and we believe that non-GAAP information provides investors with more complete understanding of Broadridge's underlying operating results. A description of any non-GAAP adjustments and reconciliation to the comparable GAAP measures can be found in our earnings release. Now let's turn to Slide 3 and review today's agenda.

Rich Daly will start today's call with his opening remarks and will provide you with a summary of the financial highlights for the first quarter of fiscal year 2015, followed by a discussion of a few key topics. Jim Young will then review the financial results in further detail.

Rich will then provide some closing thoughts before the Q&A portion of the call. Now let's turn -- I'll turn the call over to Rich.

Rich?.

the mutualization of non-differentiating functions and costs. Broadridge is well positioned in the marketplace to be a vendor of choice. Currently, we have strong interest from a variety of firms, based on our capabilities, to mutualize their communications, operations and technology cost structures.

We feel good about our pipeline, and are excited about our opportunities going forward. We also continue to invest in our go-to-market capability. In September, we hired Chris Perry as our President of global sales, marketing and client solutions. Chris comes to Broadridge after holding senior executive and sales leadership roles at Thomson Reuters.

With over 25 years of experience in banking, brokerage and financial information services, Chris brings unique and valuable experience to Broadridge. The executive leadership team and I are excited to have him here and look forward to his contributions. We are off to a solid start to the fiscal year.

We are executing on our strategy as reflected in our sales performance and investments to further enhance our long-term growth. As I have previously said, we are not relying on market-based activities for growth. As a result, Broadridge is a very different company today compared to when we became a public company almost 8 years ago.

With that, I will turn the call over to Jim, who will talk more about the financial results..

higher commission on the 100-plus percent increase in closed sales, which is an expensive driver we happily accept; other increased performance-based compensation expenses; and impacts from investments in our sales and marketing capabilities, largely in the form of people that began a year ago.

Also, we revalued a contingent obligation related to an acquisition, which resulted in a credit in the prior year period. These items alone represent the majority of the $0.09 decline in non-GAAP EPS. Therefore, we don't expect this level of SG&A expense growth in the remaining quarters.

In closing out on the overall Broadridge financials, we reiterate our direction on how to think about our revenue and EBIT distribution across the fiscal year, where approximately 40% of annual revenue and about 20% of related EBIT should fall in the first half. Now turning to Slide 8 and the performance of the segments.

ICS posted solid recurring revenue growth of 10%, matching fiscal year 2014 levels, and total growth of 4% with the event-driven drag amplified [ph] on ICS's results. 5 points or half of the recurring growth was from Net New Business with continued momentum for new closed sales.

Another 3 points of growth came from the Emerald acquisition, which will anniversary in February 2015. Internal growth contributed the final 2 points. Looking at the drivers of internal growth, Q1 stock record positions grew 7%, which was consistent with fiscal year 2014 growth, recognizing that this driver is not as meaningful to our Q1 results.

It is, however, directionally positive. Mutual fund interim positions grew 8%, which was even with our fiscal year 2014 Q4 rate. ICS Q1 fiscal year 2015 EBIT contracted 7% year-over-year with less high-margin event-driven activity and impacts from some of the SG&A items discussed earlier, including higher sales commission expenses. Moving down to SPS.

Revenue here contracted 2%. While Net New Business was slightly positive, overall trade volumes were flat, and trading support activity was down from Q1 fiscal year of 2014. As Rich highlighted, and we discussed on the last call, we are not counting on much contribution from internal growth for the full year.

And no longer-term extrapolations can be made from current period trading volume levels. With respect to EBIT, the revenue contraction combined with higher sales commissions related to the strong Q1 sales performance and continued investment in sales capabilities, resulted in a 20% contraction in SPS's EBIT. In closing, I'll offer a few odds and end.

First, as you may have seen, Broadridge amended and extended its existing revolving credit facility in August. This transaction enabled us to secure attractive rates, pricing and credit availability. The revolving credit facility was extended with a new 5-year maturity out to August 2019. We also upsized the revolver from $500 million to $750 million.

There are no specific uses for the additional room on the revolver other than to support Broadridge's future growth and provide additional funding and financing flexibility.

Second, consistent with our capital stewardship commitments, we repurchased 15 million or approximately 350,000 shares using proceeds from exercised options to offset the impact of dilution in the first quarter.

Third and finally, please note that certain discrete services that were previously reported in our Securities Processing Solutions segment are now reported within the Investor Communication Solutions segment.

This was done to reflect organizational changes made in fiscal year 2014, with the goal of further aligning and enhancing our portfolio of services. This action had the effect of moving approximately $14 million of revenue and negligible EBIT from SPS to ICS for fiscal year 2014. Further, we updated our segment guidance numbers to reflect these moves.

For avoidance of doubt, this has no impact on the consolidated reported results or the fiscal year 2015 guidance. With that, back to Rich..

Thanks, Jim. Please turn to Page 9 for my summary wrap-up. I am satisfied with our results. The first quarter places us solidly on track for the full fiscal year and demonstrated that our strategy to be less dependent on market-driven activities is working.

As Jim pointed out, due to the seasonal nature of our business, our first 2 quarters earnings historically contribute disproportionately less to our full year results. Recurring revenue momentum has continued, driven by Net New Business. Close sales grew nicely and our sales pipeline continues to be robust.

Going forward, we are well-positioned for continued success and in our ability to execute on our growth strategy. We are not relying on revenue from market-based activities to fuel our growth. The benefits of our strategy are reflected in our first quarter performance. We remain confident in our fiscal year 2015 guidance.

The solid start to the fiscal year coupled with our confidence in the business leads us to reaffirm our full year guidance. With respect to capital stewardship, nothing has changed.

We remain committed to our priorities, which include paying a meaningful cash dividend, investing in our business, pursuing tuck-in acquisitions and making opportunistic share repurchases, all enabled by low capital intensity and a great free cash flow business model.

Broadridge is well-positioned to achieve sustainable success over the long term and in our ability to execute on our growth strategy. Our performance enables us to have continued confidence in our ability to generate sustainable, top-quartile stockholder returns over a multiyear period.

I look forward to seeing you at our second Investor Day, which is planned for December 11 this year in New York City. At that time, we'll provide you with a view into the multiyear growth trajectory of our business, the market dynamics driving our industry and how Broadridge is positioned for success.

You will also have the opportunity to meet our senior management team, comprised of experienced leaders running successful businesses, operating in large and opportunity-rich markets. It will be an insightful event, and I hope you can join us.

Finally, I'd like to take this opportunity to personally acknowledge our highly engaged and committed associates, who have enabled us to deliver consistently strong performance and continue to generate ideas to generate the business forward. We are a different company today compared to when we became a public company almost 8 years ago.

At our Investor Day on December 11, you will learn more about the opportunity that will enable us to transform Broadridge again as we go forward. We continue to add new talent and invest in our associates worldwide, knowing they will produce outstanding results for our clients and stockholders.

I'll now turn the call over to Benita, the operator, and we look forward to taking your questions.

Benita?.

[Operator Instructions] And your first question is from the line of David Togut with Evercore..

Just to start off with -- you called out the 114% growth in new recurring closed sales in the quarter.

Any themes in terms of the types of business, nature of services provided behind those two $5 million wins? And if you could give us a sense of the sustainability of the strength you saw in Q1?.

Sure, David. Well, first of all, it's always great to have a stronger start than looking to catch up. We've historically had very strong finishes to the year. And as I said, the summer months just by the nature of getting things scheduled and meetings to occur in the summer makes the first quarter traditionally the weakest quarter.

With that said, specifically to your question, the sales were evenly broke -- where the large deals would be in both segments. And -- but we saw good momentum across both segments, not only for the 2 large transactions over $5 million, but pretty much in terms of all of the activities.

So the investments that we made in product, the investment that we've made in our merging and acquired, along with cost mutualization being a theme that's driving activity for our industry overall, is what I would attribute it to. Timing is always 1 quarter versus the next quarter can be interesting.

It feels great to start strong like this, and we're looking forward to a strong year..

Understood.

Could you also comment then on the $40 million in investment for this year in terms of how we should see that allocated among quarters? Was it high or low in Q1, relative to plan?.

Well, one of the things that we wanted to do this year was kind of close out the dialogue we had last year, where we increased the discretionary part of investment into the business, based on the very strong start we had last year.

And then in our planning process this year, what we felt great about, and I really mean feel great about, is that we now made that a regular part of our planning cycle, which just, given the market environment activities up until last year, we never had that added flexibility.

So even though nothing's changed, and what I meant by that, so I said, even though we're not going into the details of the $40 million. But I said, with all that said, nothing's changed from what we shared with you in our original guidance on our year-end call.

That $40 million is activity that really requires the business units to submit their plans, because people compete on their ideas for capital. It goes with the same criteria as our acquisitions do. We're looking for a strong return targeted about a 20% IRR. We're looking for the viability of execution.

We're looking to make sure that the talent that we need to execute these ideas is there. And so the bulk of that would generally be executed in the second half, right? We're still on course to do that.

The great thing here, David, is though, that if you look at the way our revenue rolls out, if you look at the way we close Net New Business, and when it turns into revenue, we're using this for 2 things. One, we're using it to accelerate our growth, and we expect to do it in the majority of years.

However, if the market activity was to get squirrelly and decline, it gives us the ability to make our guidance commitment, which we take very seriously, without altering the long term of the business.

And I think for our investors and the people like you who follow us, give you the ability to have more confidence in our ability to not only grow over a multiyear period, but to meet our commitments with more confidence in any given year.

So the fact that, that $40 million is not all the investment we're making into the business, the fact that it's not all of our capital activities that we put into the business -- the reason we highlighted it last year is because we were unable to do that because of the increased earnings, operation and potential that we had last year.

We made it an increased recurring activity for this year to keep that flexibility in the business, and to keep the added growth opportunity in the business. But for us to be sharing that activity versus all the activities, we think is out of context.

Now what we're really looking forward to at Investor Day is you hearing all the activities that we're investing in, across both segments, in order to give you the confidence we have in our future opportunities to grow..

That's very clear. Just a quick final question for me, Rich. It looks like recurring fee revenue growth for the first quarter of 4% was a little bit below your FY '15 target of 5% to 7%.

Is that just a function of a difficult comparison? Or are there any other drivers behind that?.

Well, I'm going to comment overall and I'll let Jim go into the numbers. We saw the summer months, in particularly August, which you guys see as well, as it was slightly slower activity. I specifically wanted to comment that certainly October was not slightly slower activity, and was actually pretty good market activity.

So that's again why we feel so great the way we put together the plan. Our plan didn't anticipate the need or didn't need market activity in the first quarter. And our Net New Business enabled us to deliver the results we delivered. October, we saw some nice market activity. I'd love to see that continue. And if it does, we'll feel even better.

But if it doesn't continue, we have every expectation of delivering on our guidance commitment.

Jim, why don't you comment more specifically?.

David, it's Jim. You hit it on the head. Obviously, just largely a tough compare given the strong performance in Q1 of last year. And then as we look at our drivers, we plan for about 4% to 5% of net new business for the full year, closer to 3% in Q1 of '15.

So as we bring on a lot of the deals that we signed throughout the year, we'll edge up to that number. So a combination of that internal growth that you referenced and then as we grow into our sales wins..

Your next question comes from the line of Peter Heckmann with Avondale Partners..

Rich, I wanted to ask you a question.

I saw -- congratulations on winning the second customer on the Accenture post-trade processing platform that I've been reading more since you highlighted it about shared utilities, and I wanted to ask on -- another company in the space that recently announced an additional shared utility for derivatives post-trade processing.

And I want to ask you if you felt that was just an affirmation of the business case for shared utilities in the securities processing industry? And based on what I've read about the Accenture platform, it doesn't appear that, that would be a competing platform, is that correct?.

David, our platform does not include derivatives at this point in time, in terms of the exotic product nature. And yes, we don't -- there are a number of people that have viewed this as a strong opportunity. And of course, mutualization in our industry, particularly given the pressure that the largest of firms are under on their ROE returns.

So we feel that the momentum continues. These are not quick closes. We were particularly pleased to hear in Accenture's last earnings call for their reaffirmation by referring to -- that they were investing in the leading post-trade services platform, which is Broadridge. So we particularly like that quote.

We think that we are the only proven solution out there. We are the only solution that has real volume on it. In our case, it's extraordinary real volume. So we feel good where we're positioned. These remain long dialogues..

Okay, that's helpful. And then as regards the bookings in the quarter, that is a good start. But if I remember correctly, you had announced the Fidelity deal that closed in July, and you'd announced it on the prior call.

I guess based on my estimates of the size of that transaction, that was a good chunk of the bookings for the quarter, isn't that correct?.

Yes, Pete. I apologize, we didn't communicate it clearly. Fidelity was in our fiscal '14 fourth quarter. So we announced it on the August call, but Fidelity is not in the first quarter results. So we had a very strong fourth quarter and followed by a very strong first quarter..

Your next question is from the line of George Mihalos with Crédit Suisse..

Rich, I wanted to go back to the pipeline of new business as it relates to new sales. You mentioned 2 deals north of $5 million. It seems more and more you're able now to sign some of these more -- I'll use the term elephant-like deals going forward.

How does the pipeline look now for you in terms of these larger deals versus, say, 2 years ago?.

George, I've consistently reported that the pipeline is growing, and that is absolutely the case. We -- I mentioned on the call specifically about Chris Perry joining us, and he's a true professional. I believe he had at one point in his career 3,500 sales associates reporting to him. I know that number is directionally correct.

And -- so he has dove much deeper into our pipeline activities. And so having a strong pipeline is a good indicator as we go forward. We expect that number to continue to grow. We have struggled with what metrics in that to share with you, other than my directional comments.

And I hope at some point in time in the future, we'll actually be able to share a little bit more detail. What I don't want to do is provide detail that you have to be us to understand. So -- but directionally, there's no question. We feel good about the pipeline.

And just by the pressure our industry is under, without -- it goes without saying that the pipeline is growing..

Okay. And just to sort of be clear.

Is it fair to say though that you are seeing larger deals in the pipeline than perhaps what you've seen historically?.

George, I'd say that's fair, but I'd also say that over the last 2 years, we've had lots of dialogues with large deals. We're still having some dialogues with some of those same large deals. So I don't want to give you an indication that I believe that every quarter we're going to be doing 2 large deals over $5 million, right.

Although nothing would make me happier than to do 2 or more large deals every quarter..

Okay, that's fair. And then just last question for me.

Should we be expecting you guys to sort of ramp-up the repurchases throughout the course of the year? I know you mentioned several different capital allocation priorities, but maybe a little bit of help how we should be thinking about that as the year progresses?.

Sure. Well, George, my policy on repurchases has been very consistent. We absolutely recognize that we want to use our shareholders cash to create shareholder value for them. We have a unique situation in that, given the importance of what we do in the marketplace.

That importance is recognized by our clients, by us being a solid financial investment grade because they are outsourcing to us, as you heard with these 2 large deals as well this quarter, mission-critical activities to their organization. So they take comfort, and they have a need to be very confident in our financial future.

With that said, we absolutely, as you saw in our year-end call, are committed to paying a meaningful dividend with a meaningful payout, and that's what led to the increase we implemented and announced at the year-end call. Tuck-ins are a priority; I did not announce a tuck-in this quarter, right.

And I would have loved to have announced a tuck-in this quarter. But nothing has changed there either, which is our criteria to do a tuck-in remains at a very high level. It needs to make strategic sense.

It needs to be -- make more sense under Broadridge's umbrella than a private equity umbrella, and therefore, it needs to be able to give us a 20% IRR without any crazy terminal value calculation or things of that nature. As we continue to generate cash, we believe that Broadridge itself is a very good value.

And if we weren't able to do tuck-ins at a level, and I emphasize tuck-ins, at a level, that we believe was with in line with what we wanted. We also believe that Broadridge is a good value, okay, given our confidence in the future.

But we will never be telling you when we will be doing share buybacks until after we do them, right, because we don't want to create any front-running-type opportunities out there. So when I say nothing's changed, our philosophy around this has not changed.

Our commitment to using cash because of our confidence in the future is as high as it's ever been to create shareholder value because the one thing with Broadridge that has been remarkably consistent since the spin, including the financial crisis, is our ability to create strong free cash flow consistently every year since we've spun..

Your next question is from the line of Chris Donat with Sandler O'Neill..

I wanted to ask, I guess, one more clarification question on the pipeline for closed sales. With the comment that both -- Rich, you said that you describe the pipeline as being robust and growing.

So with $32 million flowing out of the pipeline this quarter, is it safe to say that a similar amount has flowed back in as far as potential new business in the early stage of the pipeline?.

Chris, it is absolutely a growing pipeline. So that means whatever we close is more than exceeded by what we're adding. I'm highly confident to making that statement. The strong start is something, as I put, I'm very pleased. You guys know me for a long period. I use the term very pleased sparingly, all right. There's no question, I'm very pleased.

As a matter of fact, my cardiologist is very pleased. So it's a great start, all right. And -- but think about the product growth that we've created, and I really mentioned -- I wanted to mention this on George's. Think about the product growth we created.

So there were deals in that sales and recurring revenue closed sales number that weren't products 3 years ago, right? There are things related to the acquisitions out there. There are things related to the emerging products we created, all right.

And at Investor Day, you're going to get a better view, although given all the irons we have in the fire, a 3- to 4-hour Investor Day presentation still won't be adequate. But what you will be hearing from the leaders of the businesses is they're confident in their ability to control their destiny without relying on market activity.

And so it is going to come down to Net New Business, and we've been making investments for quite a while. It's nice to see the great start to the year. What will matter is the overall sales results for the year, which we remain confident in achieving our guidance.

And there's no question though that if we had done more than $32 million based on the product we're adding, the acquisitions we've done, the Broadridge brand growing in the marketplace and this whole cost mutualization theme that is putting lots of pressure on all of our clients that get rid of and reduce non-differentiating costs, it puts us in a very strong position.

I want to add one other thing to why our pipeline is more credible than most companies' pipelines. We have made and continue to make and have always made strong investments in cyber security as well. And our industry right now has reached a heightened level of focus on their own cyber security and the cyber security of those they do business with.

And we're still 1 of 9 entities, I believe, it is in financial services overall, that has an ISO 270001 certification. It's not an easy thing to achieve, all right. It separates our fact and position from our competitors' hearsay. So it's things of that nature that also give us added confidence in why doing business with Broadridge is a better choice.

Even though we may not be the lowest cost, we are clearly the best value..

Okay. And then just shifting gears a little bit. I wanted to ask a question about some -- a major set of new stories this past quarter has been around investment manager changes at PIMCO and Janus, and there's tens of billions of dollars sloshing back and forth between different mutual funds.

Does any of that have any implications for your event-driven mutual fund proxies? Or any other types of distributions? Or is it -- does it not trigger the kinds of activities that are good for Broadridge?.

Chris, it's a great question. I'm not going to -- PIMCO is something that generates market activity. By the way, the markets going up and down the way they did -- I'm sorry, down and up the way they did in October, certainly generates a lot more market activity. Things that generate market activity are good for us.

I particularly like things that generate market activity positively. So a market going down generating market activity is not positive long term in terms of investor confidence. A market going down and up is a little tougher to call, but I don't call it negative in any way.

So when people decide that they want to be out of a specific investment, all right, that will create a transaction, okay. And if that money, which in most cases it does, goes into another investment, that creates an offsetting transaction.

So if somebody hypothetically went out of a fund and into a new fund, okay, we'd have one trade if it was done through a client of ours, we'd have one prospectus fulfillment prior to the transaction, and then we'd have the same recurring revenue around the recurring communication requirements under the regulations.

What often happens, Chris, is when people, whether it be go from one fund manager to another, or from one class to another, equity to bonds or bonds to equities, what we see is that they often hold part of the original investment and then go into another investment.

And what that does, it generates the trade, it generates the prospectus around the trade, but it doubles the recurring revenue around the asset servicing because it went from 1 fund position to 2 fund positions.

So the one thing that's been a really neat recurring revenue growth driver around here has been mutual fund position growth, and that remains true today. I don't think the PIMCO situation dramatically added to that activity, although it's I'm sure part of a net add..

[Operator Instructions] Your next question comes from the line of Tien-tsin Huang with JPMorgan..

It's Stephanie Davis on for Tien-tsin. ICS saw solid margins in the quarter despite the event-driven softness.

So what sort of contribution margins are you seeing from the emerging and acquired businesses?.

Stephanie, yes, ICS on the new businesses typically carry a higher margin. I don't think we've cited an exact margin, but if that business runs at a margin -- as you recall our guidance is in the 17.7% to 19.3% range -- forgive me, that's for SPS; for ICS kind of in the mid-18% range. Those new businesses are much higher than that.

You can think of them almost 2x of that -- that may be a bit generous, but much higher margins on the new businesses that are in that ICS portfolio..

Good to hear.

And is there any other color you can share on the international pipeline?.

The APTP transaction is the thing that, as I pointed out in the past, really was a game changer for us internationally.

By being partnered with Accenture, we went from having a relatively small sales force covering everything outside of North America, to now we have the Accenture machine, which is regularly in every financial institution around the world, including outside of North America, consistently presenting the opportunity for APTP at these organizations.

What we have found in some of these dialogues is, when we've brought into the dialogue as the processing expert in the APTP transaction, it's enabled us to discuss some of our other offerings, whether it be Broadridge City Networks, which is a reconciliation product, Bonaire or other type of transactions.

So part of that growing pipeline that we've discussed reasonably at length in the Q&A today is also tied to some of our international opportunities..

And there are no further questions.

Are there any closing remarks?.

Well, Benita, thank you. And -- so Jim and I want to thank all of you for participating today. We do look forward to meeting with you in the near future at our upcoming investor launch on November 11 and hope that you will join us for our upcoming Investor Day, again, which will be held in New York City on December 11.

So it's a little cloudy, drizzling here in beautiful downtown Lake Success, 2 blocks outside of the New York City tax district. But right now, inside of Broadridge it's a pretty sunny day. We're certainly going to choose to have a great day. We hope you do as well. Thanks..

And this concludes today's conference call. You may now disconnect..