Q2 2020 Earnings Call

Good morning, and welcome to the broadridge second quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist wage by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to eddings Tebow head of investor relations Mister Tebow, please go ahead. Thanks Danny. Good morning everyone and welcome to broaden his fiscal second-quarter 2020 earnings conference call our earnings release in the slides of the company. This call may be found on the investor relations section of birth.

Joining me on the call. This morning are Tim Gough e r c e o and our CFO Jim young if I turn the call over to Tim a few standard reminders. We will be making forward-looking statements today's call regarding broadridge that involve risks a summary of these risks can be found on the second page of the slides in a more complete description on our annual report on Form 10-K . We will also be referring to several nods Pleasures which we believe provide investors with a more complete understanding of broad ranges underlying operating results an explanation of these non-GAAP measures and reconciliations to their comparable gaap measures can be found not only to release and presentation. Let me now turn the call over to Tim Gokey.

Thank you waiting.

And good morning. I'll begin today with some key highlights in the second quarter which are on slide for.

Drawbridge continue to execute well in a mixed quarter recurring revenues Rose 7% to 648 million dollars driven by strong revenue from sales rep as well as contributions from recent acquisitions. I'm especially encouraged by the second quarter record Judy nine million dollars of revenue from close sales, which shows the impact of our strong backlog and client demand more market-driven activity prevented an even higher results and we expect organic growth to take up in the second half leading to a page 10% year for recurring Revenue.

That's it. Event-driven activity came in significantly below our expectations leading to a 5% decline in adjusted EPs. And if these like small quarter month, we now expect a lower level of event-driven activity to persist into the second half of fiscal twenty.

Portly our recent acquisitions are performing strongly both are p.m. And TD Ameritrade which we acquired in Q4 are significantly ahead last year and head of our expectations. It's great to see the revenue synergies playing out early.

Rogers value proposition continues to resonate strongly with our clients. We posted another strong sales quarter and year-to-date our sales are up double-digits. Exclaim vs. Make a deal for me year ago.

Looking forward with now entering the more significant the second half the year where we typically generate more than 70% of our earnings.

I'm pleased to say we remain on track to achieve a recurring revenue and adjusted EPS guidance for the full year. We expect recurring Revenue growth of eight to 10% driven by stronger organic growth and continued strength in the recent acquisitions. As I noted earlier. We expect event-driven activity to remain soft with the event-driven revenue decline of 20 to 30 per month for the full year.

it's a

Real tribute to the resiliency of our business model that despite that pressure. We continue to expect to deliver within our eight to twelve percent adjust EPS guidance. I'll be at the low end up in some women confident in our opportunity.

nothing about the short-term fluctuations and event activity which we seen many times before changes that

Continue to see strong sales and strong performance, and we continue to invest in new products and technology and we see exciting Milestones later this year.

With that, let's turn to slide 5 to dig a little deeper into our operating results starting with our assignment.

ICS recurring revenues excluding Custom Communications Rose 9% driven by 4% organic growth and the addition of the TD Ameritrade retirement assets and a recent in a position.

The biggest engine number again of growth was mutual funds and ETFs Tantrums where we benefited from strong time flows, which helped Drive 6% Fund in terms record growth.

So contributing to our growth was continued demand for didn't analytics products which posted another quarter of double-digit growth.

As I mentioned earlier the business requires from TV within our fun processing business is off to a strong start.

That growth was offset by a drag culture Communications which declined 3% due to weaker mutual fund Communications, especially lower post-sale perspective volumes. We practice practice is to broker clients and they purchased their first shares of a new fund or ETF during the second quarter that business was impacted by a double-digit decline in the volume of new mutual fund and ETF same as we lacked the significant purchase volumes. We saw during last year's. Of Market volatility.

Also, seeing a modest impact for increased depressions which we expect to weigh on growth going forward. It's a good news is that the larger transactional Communications business is stabilized with Jeff in sales offsetting and erosion.

Despite the progress and maturing and biggest Driver results for the event-driven revenues which declined 17 million or 36% year-over-year, but we're striking with the same level of event-driven activity.

And you know the largest part have you been having issues related in a timing of mutual fund and ETF for elections, which take place every five to seven years. This activity was at a low point five kids.

The long-term underlying positive driver here is mutual fund and ETF position growth which isn't at a high single-digit rate for the past decade driven by the importance of regional funds and ETFs the savings vehicles for millions of Americans.

A smaller driver of your company's is activity related to special meetings as you're treated triggered by public company m&a and orange shareholder activism.

These results are even more volatile and difficult to forecast and we're notably week in the second quarter.

Given both the rate environment and the money invested an activist strategies. We continue to believe these revenues will grow over any medium term.

Event-driven activity is a core part of our government's business and contributor to our long-term growth and earnings.

Is lumpier than the rest of our business which is why we break it out separately. That's it adjusted EPS guidance shows our business model can withstand a fair degree of pressure here. I'm still deliver attractive returns while continuing to invest for long-term growth. Do you touch an event-driven trance in more detail in his section?

It's trying to GT. Oh, we're driving our business through a combination of talking Acquisitions and delivering on our Revenue backlog GTO revenues grew 14% $281 off.

Recent acquisitions with the biggest contributor to a second growth quarter growth over the past three quarters providers has made five tech m&a investment to help strengthen our Capital markets wealth management products Suites.

for making

Integrating these Acquisitions and are seeing good growth that's ahead of our business plan.

Our clients have reacted positively to broadridge taking over these products and we seen multiple instances where clients upsize new clients new contracts for both of the term existing ones from one to two years to four or five years. That's a strong Testament to broadbridge and the speeds to teach acceptance of our recent additions.

The next biggest contributor in Q2 was revenue from sales, which was a healthy 8% reflecting our ability to translate our strong backlog and sales into recurring rep.

This is offset some degree by creating weakness and equities and other pressures and organic Grill kicked up modestly from q1 to 4% What can I head? The combination of old gramophone sales an easing of other pressures put us on track to achieve stronger organic growth in the second half

Close my review of our second quarter operating results by touching unclosed sales.

Edible sales in the second quarter included an advisor compensation sale to a leading independent wealth manager and an upscale to Global Investment Bank, excluding the large wealth management sale from you be closed October of last fiscal year year-to-date close sales are up double-digits which speaks to the appeal of drug abuse value proposition.

Let's move to slide six view of regulatory topics and recent strategic initiatives and Regulatory initiatives the SEC continues to assess a range of topics that touch on Thursday. I'll start with that as well underway 33 or notice an active in mutual funds. This is the rule that was adopted in June 2018 and the will go into effect on a calendar 20-21 allowing mutual funds to send their investors and notice that annual and semi-annual reports are available instead of sending them the full report.

active in games

With hundreds of fund families to help them notify their investors of the perspective change in capture the preferences.

It's regulation will have only modestly positive impact on broadridge. But thanks to our work mutual funds will be able to realize significant print and distribution savings beginning next year.

It's one more instance a broadridge saving the industry time and money at the same time. You have to see adopted 33. It also asks for comments off the future client experience for mutual fund Communications.

Robert and Instinct participants submitted comments a little over a year ago showing how the current format can be streamlined and it critical information investors and around fees and performance can be better off in simpler easier to understand formats. We're now seeing some momentum around this topic. The SEC staff has said in public forum that is considering options for shorter and more engaging removed and in November this topic of streamlined Communications is moved on to the short term agenda.

Important to mutual funds to the savings of tens of millions of households. We favor any step to ensure Main Street investors have better access to the critical information. They need and the streamlined applications can deliver this information more effectively and a much lower total cost.

Finally on the proxy Plumbing side set up working groups established last summer on various topics, including end and Confirmation over Novo Universal proxy wage in future technology opportunities.

These complete periodically and have no timeline for issuing a recommendation of that said provided is working closely with sick Minds other stakeholders to develop a consensus around and and vote confirmation which is a key priority for the FCC.

Stephanie back the SEC has shown that it's clearly engaged and trying to understand how it can strengthen our corporate governance system and make it more cost-effective.

30 EC forward or simultaneously seeking information and how to make Communications more effective as positive for broadridge.

The SEC appears to have a clear goal use technology to help drive down costs and increase shareholder engagement.

Even our investments in these areas. They're long-term Focus. We think we are well-positioned to help achieve an objective.

virus remains committed to investing in our long-term growth

340 first quarter earnings in November . We announced two additional Acquisitions the first clear structure strengthens the investment management part of our wealth business clear structure of our asset class coverage include more fixed income capabilities. It's well aligned with our strategy of building a true cross-platform to enable asset managers to have a single view in terms of business and optimize your investment works. Well with a front to back basis

Position which we announced last week or further our strategy of building a leading regulatory Communications business in Europe combining funds Library capabilities and fund document and data a nation-wide urges existing regulatory Communications offerings will strengthen our business in Europe and elsewhere. They helping fund managers meet their regulatory requirements across multiple jurisdictions.

coming in the back of our other recent acquisitions, including Rock Hall and RPM and the fourth quarter and Shadow and epic 360 early in the second quarter broadridge is continuing to push hard on strengthening our core franchise business office governance Capital markets and wealth

These Acquisitions will extend our ability to bring value to our clients and are integral part of our Capital stewardship and long-term growth strategy.

Another key part of our value proposition is helping our clients access new technologies, especially across the integration blockchain wage. So I'm excited by the launch of the broadridge private Cloud powered by IBM.

bye transition

Our Global distributor technology platforms IBM, we will be able to accelerate our hybrid multi-cloud strategy.

Friday 5:00 will enable us to more rapidly provision a different capacity of services for Global clients will increase in overall resilience in our Network.

Extending our long-standing partnership with IBM also positions us to use redhat technology containerize or apps from labels them to run both in our private Cloud as well as on AWS cloud.

Celebrating our hybrid Cloud strategy will enable broadridge to further deliver next-generation SAS Solutions.

Investing in new products and capabilities is a key part of our formula for long-term success. We're finding these girls investment even in a year when we were seeing pressure from the inventor of the technology that comes across the ABCD. These Investments are translating into a very healthy pipeline of innovative new capabilities and create additional value for clients and shareholders driving top quartile results over time.

in government

Rolling out modernized proxy templates as we speak. We're launching an instant solution for 33 and we've introduced a new Global fund analytics platform. We're bringing a chanced digital capabilities to our Communications clients and using distributed Ledger technology to enable European Banks and Brokers to meet the requirements and the shareholder rights directive.

Capital markets, we continue to strengthen our Global post-trade Management platform. We're also expecting a soft launch over the summer of Rai driven fixed-income trading capabilities and are launching a repo Market solution based on blockchain physical 21, we expect both of these internal bill is to contribute meaningfully in the future. And of course, we're making very good progress in building a next-generation industry platform for developing an industry, which we expect will come live in 2021 earlier this week. We named Mike Alexander as head of our newly combined wealth of business an important milestone in the creation of this new franchise.

Since January second, I've met with more than a dozen CEOs.

other senior leaders and our largest clients

these conversations leave me more convinced than ever but the opportunity we have in front of us. It's clear that Financial Services CEOs are very engaged and driving technology and business information and they're excited about broader to the key partner of them an energy solutions with next-generation technology that will simplify and improve their operations.

For all these reasons our technology leadership organic products Investments continue to contaminate and healthy sales Pipeline and competent and excited about how proud We just capitalizing on a strong and growing Market opportunity to create sustained growth not only in the second half of fiscal 2020 well into the future.

Before I turn the call over to Jim I want to thank our Associates for the work. They do to help our clients and enable better Financial lives for Millions by powering investing in Communications.

is making

real difference

I mean now trying to call over to Jim to walk through a financial gym. Thanks, Tim. Good morning. Everyone to financial results had some very positive signs, but we're below our own expectations. However. We are on track to deliver. I guess our fiscal year 2020 guidance and long-term objectives before reviewing our results. I'll make a few call outs first event-driven activity log event fees declined notably from a year ago driving in decline in our second quarter earnings events. These were all so much lighter than our expectations. We now expect full-year event-driven fee revenues to be down 20 to 30% versus last year.

Second recurring growth recurring growth for the quarter was 7% with strong contributions from new sales and acquisitions.

Third organic growth organic recurring fee growth was light at 1 and a half percent in the quarter new revenue from sales contributed a queue to record 39 million dollars or six points for organic growth in the quarter that's strong result was offset by negative internal growth. We expect organic growth to pick up in the second half as sales contributions remain strong and in turn off switch two positive.

Capital to updates here. The first is m&a since our last call. We have announced two additional tuck-in Acquisitions clear structure and funds library that brings our fiscal year-to-date money Investments to approximately $310.

Second update is our debt offer. We issued $750 million dollars in ten years senior notes at a 2.9% coupon in early December highlighting the value of our strong capital V. Call out is the broadridge private cloud in the second quarter. We recorded charges of $33 representing a non-cash loss on a hardware asked to be transferred to IBM and other related charges.

Fifth and final guidance or overall guidance remains broadly unchanged however, given the slow start to the year and organic growth. We expect organic growth to have less of a contribution to our life a recurring fee growth of eight to 10% versus contributions from Acquisitions with full-year Organic growth of 3 to 4% vs are prior view of five to seven percent wage. Additionally, we expect the weakness and event-driven activity to continue into the second half. However, we remain on track to deliver 8 to 12 % adjusted EPS growth. I'll be at the lounge and given the event pressures.

Let's turn to slide.

At 7 for review of our second quarter Revenue drivers. I'll start with recurring fee revenues.

Overall a recurring fee revenues Rose 7% in the quarter within recurring fees. We are especially pleased with our sales driven growth contributing six points to growth. This is a month to record as we continue to make progress against our healthy Revenue backlog.

Acquisitions also contributed six points of growth has a very productive nine months of tucking acquisition work or yielding meaningful Revenue Editions.

Internal growth which has been a consistent contributor was notably negative in the second quarter and a dragon organic growth is Tim noted lower customer Communications volumes and lower track volumes were the chief contributors here. Again, this -3 points of growth dampened and otherwise good quarter on sales to revenue conversion.

We expect organic Revenue growth to improve and our seasonally larger second half and to exit the year at a healthy clip. The Improvement should come should come from the combination of sustained strong sales tax revenue performance an internal growth flipping to positive territory.

Looking down to total revenue total revenues grew 2% to $969 million in the quarter strong gains and recurring revenues are offset by declines and event-driven fees which also impacted distribution revenues and finally foreign-exchange impacts related to growth in our International businesses from Acquisitions. Most notably RPM lowered Revenue growth by 1.5.

Next I'd like to put some context around Q2 and year-to-date of inactivity. Let's turn to slide eight.

Biggest driver of event volatility is the timing of one large mutual funds go out for proxy. Another driver of volatility is large high-profile Equity contests, which are generally a Sonic and unpredictable. We've experienced with large funds going on for proxy in big contests in recent years, especially fiscal 18.

Year-to-date we have had no such large events and at the same time so I'll very light activity across more run-of-the-mill requests, like special meetings various types of mutual fund shareholder Communications couple of markets transactions to put that in context comparing our fiscal twenty results to our five year history shows that Q2 total event fees of $31 million dollars wage were 36% below last year 42% below our Q2 average in just above the five-year low in fiscal 17. The story is largely the same across both Equity mutual fund types of event Revenue.

the mutual fund activity

Slow down a certainly more pronounced especially as we are not seeing any large campaigns. We believe this represents cyclical softness and not some broader secular trend.

Looking ahead. We expect that. Of softness to extend into the second half. We are expecting activity to pick up sequentially in the second half but there was a result of normal seasonality as well as our visibility took a few small to medium-sized mutual fund proxy campaigns.

For the full year, we expect event-driven fee Revenue to be in the range of $175 to $195 down about twenty to thirty percent from last year well below our five year average and closer to the five-year low that implies a hundred for $224 for the second half. This is down considerably from our Outlook a quarter ago, but still life as well level.

Next I'll cover the performance of our ICS and GTO segments on slide 9. I'll start with ICS. I've already covered event-driven Revenue. So I'll focus on recurring revenues which grew 3% off looking at the drivers behind the 3% increase solid net new business games contributed three points internal growth dip negative largely from the impact of lower customer communication volt offset by higher mutual fund interims recent acquisitions contribute an additional three points of growth with TD outperforming.

we expect

ICS organic Revenue growth to pick up over the balance of fiscal twenty as we benefit from the full weight of higher proxy volumes and the second half of the year, but to be a little below our history to 6% annual growth rates as the decline and mutual fund Communications. The Tim reference will continue to be out of drag on growth over the balance of fiscal twenty.

ICS total revenues declined 2% driven primarily by the decline and event-driven revenues in related distribution revenues. We expect the distribution Revenue declined to Abate in the second half of the year. Should I expected higher regulatory Communications and other mix shifts?

Trying to GTO revenues Rose 14% driven by the Acquisitions of our p.m. In Rockwall Rockwall and more recently Shadow and clear structure for Gannett growth was 4% off by new revenue from sales, which drove eight points a growth as we on-boarded new clients onto our platforms. This is offset in part by a decline in equity volumes.

looking at

Add GTO as well positioned for accelerating growth. We expect the continued benefit of strong sales to revenue growth as we continue to work through our large Revenue backlog. We also expect interest to turn firmly positive on easing pressures net-net. We expect GTO organic Revenue growth to be mid to high single-digit range in the back half of the Year combined with Acquisitions. We expect strong teens total growth for GTO in the second half.

Let's turn to profits on slide ten adjusted operating income declined seven million or 7% driven by a decline and event-driven revenues as most of you know, event-driven revenues are highly profitable tend to have an outsize effect on our income when they decline adjusted EPS benefited modestly from a lower tax rate is a relative size of the excess tax benefit for Equity compensation package is two million dollars with eight million year-to-date week until you expect a full year e t benefit of $20.

pausing

Look at our gaap EPS. You can clearly be see the effect of the $33 charge associated with the private Cloud agreement with IBM this quarter. We've excluded this charge from our adjusted off.

Next is cash flow and the balance sheet on slide 11.

Roberts generated free cash flow of -32 million dollars for the first half of the Year. This is not uncommon for our seasonal cash flow, especially with major on boardings in-flight. We continue to expect healthy free car wash for the full year with big contribution from the seasonally stronger second half of the Year important benefit of the private Cloud agreement is a reduction in our overall Capital spending related to technology structure as we moved to a more consumption-based model. We expect to see some benefit from that the second half

Rounding out free cash flow as we discussed in August . We are seeing continued investment commensurate with our Revenue backlog related to client-driven work. We are doing to build out our global trade management platform our in our new wealth product along with more General client onboarding this anticipated pickup is evident in our first half of free cash flows as noted. We remain active on the home front this quarter and with three Acquisitions rep representing an aggregate purchase price of about $230 that brings our year-to-date investment in m&a to approximately 270 million dollars off. This does not include our acquisition a fund library for approximately 69 million dollars an ounce last week.

given to

And distributions our Capital return to shareholders this year has been a hundred Seventeen million dollars.

Finally on Capitol. Our senior notes issuance gives us liquidity to refinance our upcoming four hundred million dollar Bond maturity in September of this calendar year fund additional Acquisitions opportunity arises and or return Capital to shareholders.

Let's turn to guidance on page twelve and starting with recurring revenues.

We continue to expect recurring fee Revenue growth to be in the range of 8 to 10% after a slow start to the year. We now see organic growth for the full year at 3 to 4% down to 7% We expect organic growth to pick up in the second half of 2020 as a result of healthy proxy Revenue as we enter the heart of the proxy season continued wage growth in mutual fund and ETF interims in GTO acceleration as we see continued benefit from new sales additions and an easy and easing of internal growth cops.

these drivers we

We offset by continue to weakness and ICS customer Communications revenues. In addition. We expect our Acquisitions to contribute five plus points to broadridge has overall recurring fee growth rate for the year off.

Total revenues we expect total revenue growth to be in the range of 3 to 6% Even with this latest outlook for event activity adjusted EPS our guidance for adjusted EPS growth of eight to twelve percent is unchanged. However, given lower event-driven revenues. We expect to be at the low end of that Range close sales. We continue to expect close sales to be in the range of 190 to 236.

Finally, we have adjusted our guidance for both gaap operating income and diluted EPS to reflect higher acquisition amortization and the private Cloud related charge.

In summary after a slow start to the year, we expect GTO acceleration and a healthy proxy season to drive improved organic growth and the seasonally bigger second half of the year. You will remain on track to deliver our full-year revenue and earnings guidance and importantly we are also on track to meet our three our objectives for fiscal years eighteen through twenty and with that operator will open it up for questions.

Thank you.

Only when I begin the question-and-answer session to ask a question, you may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset wage pressing the keys. Please limit yourself to one question and one follow-up. If you have additional questions, please reenter the question queue to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster. The first question today comes from David toga with evercore is I please go ahead.

Thank you. Good morning. I just like to clarify you one part of your updated guidance for fiscal twenty gym. I think initially in the FY twenty guys, you were expecting a 4 percentage-point contribution from m&a to recurring fee Revenue growth. So originally you were guiding to 8 to 10% recurring fee Revenue growth which implied 4.5 m&a and four to six points organic, but with emanate coming in about six percentage points to recurring Revenue, year-to-date that implies organic off about two points lower more like two to four percentage points. So is that is that correct in the way? I'm thinking about that and then my follow-up really is on with the internal revenue growth, you know, which you have down 3% on slide seven. Is that really almost all just the decline and event-driven or there's some other components

there that you know the

We should focus on.

Yeah, David, as I said my remarks we we now see organic growth at 3 to 4 % and I also said that we expect Acquisitions to be another, you know, five plus points which gets us, you know back to this range of 8 to 10% as we look at that internal growth. I think it's important to remember that three to four is comprised of the softer first-half about 2% and we see strength in the second half, especially the fourth quarter which helps us exit the year at a healthy rate and then specifically and relates to your next question on internal growth. Remember that event-driven is not reported in our recurring Revenue. So it's not the internal growth is not related to event what I'm seeing in that internal growth is a function of Trades some of the weaker mutual fund Communications that Tim reference driving that when we look in the second half

And we think about the strength.

Our proxy season a couple of you know cops just using a little bit. We think that internal growth flips to positive. So it's that combination of continued strength on revenues new sales plus positive internal growth helps us exit the year at a higher organic growth level is the weakness in trade volumes just market conditions being soft or are you concerned there might be some share shift their know this is really the equity volumes that some of the industry has seen much weaker. We were down 16% off and so, you know in hindsight not a not a big surprise, but clearly, you know, that's something that usually is sort of neutral to positive. So we're down 16% that's going to put some pressure on wages Revenue growth with the margin understood. Thank you very much.

The next question comes from Patrick with Raymond James, please. Go ahead. Hey, good morning guys. Just the one that drilled down a little bit more into the underlying drivers behind lowering the full your organic recurring Revenue guide to three to four percent. I know you spoke about uh about this little bit more prepared remarks, but you know, maybe if you can summarize what are the the key moving parts to take that uh down for the year and then I think building off of that what are the implications if any in terms of your outlook for fiscal 2051 and beyond for organic recurring Revenue growth

Patrick I'm going to start this is Tim and then I'm going to let let Jim add on to that. You know, I think one of the broad points is really implicit. In fact, we've been saying but I think it's worth just restating is that we are really an annual company. And so when you think about what our drivers of organic growth is really around position growth and then revenue from new sales and in the seasonally small first-half that position growth, you know doesn't really have a chance to come through and have the impact that it does seem to remember that 70% of our proxy business is in the in the second half. So, you know, I think as we see that position growth coming through and having an impact in the second half I turn around in in some of the smaller internal growth factors that that Jim talked about that's why we feel good about as well as the continued strong performance on revenue from sales. That's why we feel good about

acceleration in

The second half and then you know what you're going to see is that building from Q3 into Q4. So the exit rate in Q4, I think is the strongest part of the month and that gives us a good feeling about 21.

Got it. Thank you Tim. And then you mentioned in your prepared remarks some commentary about in the Communications business. I think increased oppressions off when on growth going forward. Can you provide a little bit more detail on I kind of what that means.

Sure.

B

Some of our you know, our clients are always looking at how they manage their costs and as they've been looking at their client experience and specifically how they handle the treatment of communications to manage. The account holders a couple of the larger clients are taking a little different view on that and and that's something that we think will walk over time. And so they're they're just, you know, doing some fine-tuning about who they send who they send what to and so that is didn't have that much of an impact on the first half. It will have some impact on the second half and that's built into all the forecasts and guidance that we given great. Thank you.

next question comes from Ken

He'll with rosenblatt Securities, please. Go ahead.

Hey, good morning. Had a question on the IBM. I know you talked about it a little bit in the prepared remarks, but I was hoping you could maybe walk through any potential changes. We can expect on the operating expenses going forward as a result of that agreement and then also kind of on the flip side of that maybe talk a little bit more specifically about some of the opportunities you're thinking about given the flexibility this platform might allow you going forward. Thanks.

Can thanks for thanks for asking that question and I'll start and let Jim add in anything that I that I missed but we're really excited about this. You know, as I said in my prepared remarks is a is a real step for you know hybrid multi-cloud strategy. We think it's going to enable us to really speed our time to Market in an offer enhanced resiliency wage is going to allow us to offer new capabilities over time and really, you know, we think improve the strength of our SAS offering importantly and it didn't get into this as much on the edge not a substitute for a public Cloud strategy and we continue to invest strongly with AWS. We have eighty teams at work refactoring various applications and modernizing them and we see that as a real Modern Life approach, but you know the nice thing about the private Cloud approaches. It doesn't require any change to the applications. It does require any client testing and and also dead.

There were a number of our Associates that moved moved to you know, the associates will be able to continue to support us and have a great career tracks. So we think it is. It's a win.

For our clients is to win for our Associates and it does you know, when we talk about what the impact on on our operating expense it is. It is more efficient off and that is going to enable us in the near-term to increase our investment in terms of moving to the public cloud and and developing applications. So it really is a nice move away from spending money on running servers and things like that to being able to to invest in things that will make a real difference for our clients. So we are excited about that. And then the last piece is dead. You know, what will also free up is capital dollars that were that were investing. So in addition to the expense the day we have Capital dollars that we were having the future.

Okay. Thanks for the detail there one quick one. They'll on clothes sales. I think after the first quarter you guys are up 103% and then the latest update was up double-digits year-to-date basis there any more color you can provide on just a second quarter activity.

You know the type of quarter we felt really really nice about we have ended the first half really where where we had hoped to for the first half and so it off if you're take out the the very large deal from from last year. It was about on track with last year and the the timing between first and second quarter. I think something's happened in q1 that that you know was great that they happened as long as I did. So we feel you know, really on track in terms of delivering on our full-year sales guidance.

Okay. Thanks for taking the question.

The next question comes from Peter Hickman with d a Davidson, please. Go ahead.

Hey, good morning. Gentlemen, I just a couple of follow-ups in terms of the m&a. It's contributing to fiscal twenty this in terms of a wrong number the $39 million this quarter. Would you be thinking somewhere around 140 million for the full year?

Yeah, the $39 million I paid for this quarter is the sales contribution. There's nobody from sales not specifically the number.

I'm a misunderstood and just remember one thing about the 5 Points better than five points that growth coming from m&a and our recurring revenue for this year.

Okay, 5.0 occurring okay, and then in terms of a little bit softer revenue and customer communication. Are you seeing any acceleration to offer delivery or emailing that they claim into that or or is it other issues?

We're just in your little software were processing the question but it is I think I would I would say yes and no it was my hands of which is you know, we do definitely see continued traction on on digital and that's a very positive thing and but that's not the cause of what you're seeing this quarter. So what you seeing this course is really, you know, very much around the postal business and the the change we saw in in really volumes off there. And and again we projected those volumes I going forward for the second half and we'll just cuz I I, you know, if you say digital sort of gets my juices flowing they can't help but notice I thought about that a little bit, you know, if you look at some of the things that we have going on and digital over the past two years we have on boarded more than a hundred mutual fund complexes.

and trying to transition from DST on to

Our next Generation how driven a digital platform and you know, we really transfer that like like to like in the initial instance, but that platform has been a significant capabilities that those funds aren't using today. And and so we think that's a really really nice digital opportunity for us over time and it will see you know, some some nice acceleration there so long we do remain excited about digital but but that wasn't the impact of this court.

Got it. Thank you.

Next question comes from Kristin a with Piper Sandler, please. Go ahead.

Good morning. Thanks for taking my question. Tim. Wanted to follow up something you said in your prepared remarks about the volume of new mutual fund ETF sales in the quarter. Yep. I know it had a tough comp, but I'm just wondering if you're seeing any impact on new ETF sales. Now that a lot of the online Brokers have gone 2-0 trading fees. You might see some some adjustment in some of the ETFs that were branded by a a large broker that now maybe there's less interested in or I might be wrong, but I'm just curious ever seen any change in and market demand for some ETFs.

Yeah, I don't think that we are seeing any.

Thing related to to the zero trading I think when we look back and try to correlate this and you can imagine that we spent, you know, a few late nights trying to suck at me like the team here has been a few few late nights trying to correlate that and we really see the best correlation. We see is really with the Vixen with volatility. And so we had you know in pairs of high volatility there tends to be a lot of rebalancing activities. So I was calling it a new sales and a new purchases but a lot of this has to do with with things that decisions in divorce may not be making themselves, but it's happening is a matter of rebalancing a large portfolios and are in managed accounts. And so, you know, I'm not taking it down to zero trading side and not I am thinking it's a matter of just with the pretty quiescent quarter that we just passed there wasn't a lot of that rebalancing activity.

Okay, that's helpful. And then on the just on the acquisition front that you've done a lot of as we think forward to fiscal twenty.

21 whatever. I I I assume you're keeping the same playbook in terms of accretion. But can you just remind us what your expectations are for accretion from the you know the floor I decided in the press release, for example, what what what's a reasonable expectation for what they'll contribute, This is Jim is your call most of these Acquisitions in the first year, which is everything we're talking about cuz a lot of these were done in Q4 and then just this year are pretty neutral to the year the only so I think the assumption is relatively modest wage. There is to mention a couple of the businesses are over-performing or ready and doing pretty well. So nice contributions and the grand scheme of broadridge earnings. Nothing that moves the needle but nice contributions above our business case, which means that we get a little bit of contribution, you know above and beyond the plan but nothing that is significant in in that respect and and worthy of call out. Yeah, I think I would say wage.

The they're they're they're not a creative in the first year, you know their margins do increase over time. I think that's really built into the fifty basis points per year that we tend to talk about and and deliver down for a long time. So I would

I really think about it that way it is just a case and talk a little bit more broadly about about m&a and you know, I've talked before about how we see this as an evergreen opportunity for broadridge because there's always always teams creating new opportunities and we've really seen this year that play out in terms of when we can make make these companies sort of Under Armour Briella using our Master Services agreement our sales force our servicing how that really adds value to them and and why I had such good returns from this overtime and just you know, you're not I'm not buying these and holding them as soon as separate things and ending up as a collection of stuff. They're being nicely integrated into into our product offers and into our our service delivery. So we think this is really something that is an important part of our growth strategy that will continue. You know, this year is it is at a higher level than it typically has been and as you know dead

you know, we take a lot of time looking at what are the things that we would like to own and we we do that well in advance and many conversations, you know, many of these are companies we've been talking to for many years actually control when they decide they want to transact but it's nice that we have with our balance sheet and and leverage and other things we have the, you know, the ability to act when people do want to transact and and we think we have really nice business cases around these

Thanks. That's very helpful.

Again, if you have a question, please press * then 1 the next question comes from Darren Keller with wolf research, please. Go ahead.

Mister poll your line is open.

Morning, guys, this is Andrew on behalf of Darren Keller. Just wanted to touch upon wealth management briefly. Are you guys seeing any incremental interest in in the market do the UBS announcement for the last couple of years? How's that translating into the clothes sales? You've seen in the last couple of quarters.

Yeah, I'll take that. It's it's Jim. Thank you Andrew. We are definitely seeing a lot of of good interest. First of all, we're making good progress on the implementation with UBS. We had a very high number of deliverables for the first year, which I'm I'm pleased to say, we we finished on on track and so we're excited about that. We're seeing, you know, a lot of interest off from others in terms of with the agreement around the pain points that we've identified and the interest in really being part of the open architecture platform of the future and am so so that is is is good in terms of specifically on the on the platform the the momentum in terms of clothes sales. It's really too early for that. These are long conversations and and people want to see a further along in in the build but that those conversations are very positive. What we have seen is, you know, we do have a lot of birth.

Component Solutions in and around that platform

And those have had nice momentum. I mentioned the sale of advisor compensation solution to a leading wealth manager. That was the largest whale ever for for that business and wage that is a a really nicely growing business for us and and plays right into things like rugby. I think about the number of conversations. We were having with clients about rugby and all the solutions that would bring to the table, you know communication Solutions the advisor Solutions and with fi360, they really to help people really look into their portfolios and make sure that they are are suitable. So, lots of good things happening in wealth is really nicely growing area for us and then I have to just real call out to my gal exander who just this past week. We we asked to take leadership of of this home business which are now bringing together under one leadership. So we feel really good about it and continue to make good progress.

Thanks, and then regards to the customer Communications business, you know, it continues to be a headwind in the ICS segment. When should we expect you start to grow over?

You know the the one large client that you called out in the past or is it or is it, you know a couple of other clients at your see some declines and yep. I'm glad you asked that so we can just clarify this because in what we talk about externally as Communications, there are a few different business lines. The largest line is the transactional Communications business and that is the business. We've talked about quite a bit in previous calls that has had was affected by that that client that those departing this quarter. It was not that took Communications business and that the transition off of that client is essentially complete so you won't hear us talk about that again in the future and all that business was stable. He didn't grow but it didn't drink either and so the the the 3% you saw Minesweeper this this quarter was related job.

Did the whole sale business that that we talked about and then I'll just I will say on the transactional Communications business just even though just to remind people even though the revenues have been going down. It has been a nice contributor to earnings and and because the synergies and other things in the Acquisitions, it has been a growing growing earnings over the time that we've been talking about it. So that's where that is. It is it was stable this court. I'm not going to I'm not putting out the mission accomplished sign here, but that transition off of the larger client is is complete now. No, I appreciate the color.

Concludes our question-and-answer session. I would like to turn the conference back over to Tim go to you for any closing remarks.

Yeah, I would just like to thank you for being on the call today. We're remain very excited about we having from close sales about the level of sales activity the backlog the lemonade performance. We're looking forward to increase in organic in the second half and you know, we just remained really confident and excited about what our long-term opportunity is. I'll just bring bring you back to the conversations that I've had since the beginning of January with leaders of our largest clients. And when we look at the challenges, they face and Transformations that they're looking to do in the alignment of what we're doing with what their needs are. I feel very optimistic about the future of language.

Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.