Underwhelming sales dominate Broadridge earnings call

Financial technology provider Broadridge has fallen short of sales targets for the 2023 financial year, closing $246 million in new sales, down 12% from the previous year.

In the company’s Q4 earnings call, CEO Tim Gokey listed a number of factors pushing financial institutions to shelve modernization projects, effectively dragging down European sales.

“Our financial services clients are dealing with fallout from the steepest rate increases in decades, a sharp slowdown in investment banking activity, fund outflows, banking crises, and increased regulation. They’re reducing headcount and delaying purchasing decisions. Those pressures have had an impact on our sales,” he said.

Gokey blamed the “decisional weakness” of financial institutions for reduced uptake of Broadridge offerings, but stressed that the opportunity to sell clients on post-trade solutions and Itiviti had not disappeared. Broadridge acquired Itiviti, a Swedish trading platform provider, for $2.5 billion in 2021 and renamed it Broadridge Trading and Connectivity Solutions (BTCS).

“As we look at those opportunities, they haven’t gone away. They haven’t gone to a competitor. And that is what is leading to a record pipeline as we enter the year,” he said, referring to a $400 million sales backlog.

The ongoing Russian invasion of Ukraine was also cited by Gokey as a sales “challenge” that contributed to a “complex environment” in Europe. Russia’s full-scale invasion of Ukraine has caused significant disruption to Europe’s financial industry as conscription, migration, and destruction of infrastructure have taken a heavy toll on institutions with a presence in the country.

Gokey also pointed to the collapse of Credit Suisse as a potential reason for delayed decision-making, calling the incident “the failure of one of the largest European institutions.” The upheaval of the banking crisis—which hit Europe hard with the failure of the Swiss banking behemoth—has also caused some banks to put modernization projects on hold.

Broadridge’s chief financial officer, Edmund Reese, said that the delays in the timing of the company’s sales have had only a limited impact on the company’s long-term outlook. This is in part due to the $400 million sales backlog, which he said could be converted into revenue in 12 to 18 months.

Broadridge’s capital markets revenue grew to $257 million in Q4, up 12% from $231.5 million in the previous quarter, bolstered partly by growth in income from BTCS licenses.

With free cash flow also up on the year, executives indicated the company is sizing up new projects.

“We’re developing new AI applications, including an AI-enabled interface for a bond-trading platform, reducing the friction around pre-trade analysis by making it easier to identify bots with similar characteristics,” said Gokey. This concept is not dissimilar to Broadridge subsidiary LTX’s BondGPT. BondGPT is powered by OpenAI’s GPT-4 large language model, which aims to answer bond-related questions and assist users in the identification process of corporate bonds on the LTX platform.

Gokey also hinted at the possibility of future acquisitions, saying that Broadridge now has “the flexibility to fund [a] tuck-in M&A if the right opportunity arises.”