Q2 2023 Broadridge Financial Solutions Inc Earnings Call
[music].
Good day and welcome to the Broadridge fiscal second quarter 2023 earnings Conference call.
All participants will be in listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Hey, let's draw your question. Please press Star then two.
Please note this event is being recorded.
At this time I'd like to turn the conference over to adding Stipo head of Investor Relations. Please go ahead.
Thank you Allison and good morning, everybody and welcome to Broadridge is second quarter fiscal year 2023 earnings call our earnings release and the slides that accompany this call may be found on the Investor Relations section of Broadridge Dot com.
Joining me on the call. This morning are Tim Gokey, our CEO and our CFO Edmund Reese.
Before I turn the call over to Tim a few standard reminders.
One we will be making forward looking statements on today's call regarding broadridge that involve risks.
Many of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K.
Two we'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge is underlying operating results and explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings release and presentation.
With that done let me now turn the call over to Tango Tim. Thanks.
Thanks Eddie.
Good morning, and thank you for joining us.
I'm pleased to be here to review, our strong second quarter performance.
I'll start with a quick summary of our results and key headlines.
All of my review of our business.
I'll close with some thoughts on why my recent client meetings have given me, even more confidence that broadridge remains well positioned to grow.
Even in an uncertain market.
First.
On slide three <unk> delivered another strong quarter.
Recurring revenues rose, 8% on a constant currency basis.
With strong growth across both our segments.
Adjusted EPS rose 11%.
Driven by the combination of strong growth and disciplined expense management.
Second this performance highlights the strength and resilience of our business.
Clearly the market backdrop remains uneven.
Equity markets rose slightly in the quarter capping off a year of strongly negative returns.
Rates continue to rise.
Volatility remained high.
Asset managers pulled back on discretionary expenditures.
And the dollar remained very strong.
In the face of this uncertainty Broadridge is resilient business model with 93% recurring fee revenues continued to perform.
Moreover, our long term business drivers remain healthy.
We're benefiting from our strong sales backlog.
Robust investor participation.
And significant demand for our digital solutions, which along with disciplined cost management are enabling us to drive top and Bottomline growth.
Third investor participation in particular remains at very healthy levels.
Broadridge has benefited from mid to high single digit position growth across both bonds and equities and.
And we expect to see further growth ahead in the second half.
Fourth we are executing on our long term growth initiatives.
We're innovating in governance, including pass through voting.
Taylor shareholder reports and digital communications.
And we continued our strong momentum.
Markets.
Fifth and finally, we are reaffirming our guidance for the full year.
We continue to expect to deliver 69% recurring revenue growth constant currency.
Expanding margins and 711% adjusted EPS growth.
Now, let's turn to slide four for a review of our results.
With our governance, our Ics business, which reported another strong quarter.
The biggest driver of our 10% growth in Ics components should be new sales in our fund solutions and customer communications businesses.
Anthony position growth remained strong.
Driven by double digit growth in managed accounts and mid single digit growth in non managed accounts.
And positional growth, while still healthy slowed to 6% as investors rotated away from the traditional active strategies into Etfs and passive.
Looking ahead to the seasonally larger second half of the year, we expect further growth across both equities and funds.
Demand for our innovative solutions remain strong as evidenced by significant interest amongst our asset manager client offered their investors.
Institutional and retail choice and how the underlying shares are voted.
Just yesterday, we launched a new pilot for individual investors with another leading passive.
Passive asset manager.
And we're in discussions with a number of other fund complexes.
We're also continuing to work with our fund clients to develop our future roadmap for tailored shareholder reports, which will fill a critical need for the industry.
Beyond our regulatory products, we're seeing strong demand for digital communications with a second major client signings for our wealth and focused platform during the quarter.
This omnichannel products suite offers enhanced investor engagement.
While delivering near term cost savings through increased digitization of critical communications.
That has proven to be a compelling combination for our customer communications clients.
We are investing steadily in building these capabilities over the past few years.
And I'm pleased to see that investment now turning into a meaningful revenue with key clients.
Turning to capital markets recurring revenues rose, 12% driven in part by the continued strong performance of Broadridge trading in connectivity solutions for BTC, yes, where our market share gains are driving growth.
I was also pleased to see cross selling starting to contribute to new sales as well.
As we want a new client in the quarter that has long been targeted by BTC S and that made the decision to switch now based on their trust and Broadridge.
Our other capital markets products also performed well.
As our scene simplifying globally front to back and within the front office are resonating with clients.
We also continue to see progress in digital ledger repo.
The strong pipeline of discussions with new institutions.
Wealth and investment management declined year over year as positive core growth was offset by lower license revenue.
We continue to hit key wealth management platform milestones.
UBS advisors are transitioning out of the latest generation of our workstation with continued very positive feedback.
We've now completed development, all 29 platform areas and testing for 26 to 29.
We are working closely with the new management of UBS as they refine their approach to rolling out the remainder of the platform and we continue to expect to begin to recognize revenue in mid calendar 'twenty three.
Our sales pipeline is strong and it's admirable to discuss our investment levels have decreased as we shift into this new phase.
Moving to close sales year to date closed sales were $94 million.
Client engagement around our next generation technology remains high and our pipeline entering calendar 'twenty three is stronger than it ever has been.
As a result, our sales expectations for fiscal 'twenty three are unchanged.
I'll close my remarks on slide five.
Over the past several weeks I've met with more than 30, CEO and Cc clients in North America and Europe .
The message from them is clear.
They are continuing to push on next generation technology.
They are looking for long term partners that invest in their business.
And they'd like to Componentized approach that creates value along the way.
These critical needs are strongly aligned with our strategy and direction and I'm confident that broadridge is well positioned for growth in a market that remains uncertain.
That confidence starts with our strong market positions across all three of our franchises based on the mission critical infrastructure, we provide that.
That enables corporate governance and powers trading investing and it's coupled with a strong track record of innovation and client service.
We've invested to bring more value to clients and to meet their need for next generation technology that building or acquiring critical solutions and adding talent and technology.
These investments are playing a key role in driving the strong revenue growth we reported today.
We expect to see over the balance of the year.
Importantly, we're innovating.
As we talked about today, we're continuing to deliver new governance solutions.
Our digital communications capabilities are gaining traction in the market.
Our <unk> business is helping to drive the growth of our capital markets franchise.
And we continue to progress wealth and investment management.
By aligning with the long term needs of our clients were tackling 60 billion dollar market opportunity and we're scaling into a global Fintech leader.
In an uncertain market.
<unk> business model, driven by recurring revenue high focus and a long track record of disciplined expense management.
Gives us the visibility and confidence to deliver for shareholders.
As a result, we are reaffirming our full year guidance for six 9% constant currency recurring revenue growth and 711% adjusted EPS growth.
And in turn we expect to deliver at or above the higher end of our three year objectives.
When we do that it'll be the fourth consecutive three year period in which we've delivered on our objectives.
Finally, we're past the peak investment period in our platform solutions.
Additionally, as to begin to return to a more historical strong free cash flow conversion and giving us additional flexibility to drive returns for our shareholders.
In sum Broadridge is delivering on the growth plan, we shared at our last Investor day.
I want to close by thanking our associates.
The work Broadridge does is important.
It makes a difference for millions of investors.
None of it would be possible without our associates talent.
Knowledge and effort.
Which enables us to deliver exceptional products and service at scale for our clients and for our clients client.
So thank you.
Now I'll turn the call over to Edmund for review of our financials. Thank you Tim and good morning, everyone.
I'm pleased to share the results from another strong quarter, where recurring revenue growth.
And continued disciplined expense management drove double digit adjusted EPS growth, even in a challenging macroeconomic environment.
We continue to see organic recurring revenue growth from converting our sales backlog to revenue.
In healthy position growth.
This performance in Q2, and the continued execution of our strategy gives us the confidence to reaffirm our fiscal 'twenty three guidance.
As you can see from the financial summary on slide six recurring revenues rose to $840 million up 8% on a constant currency basis.
All organic.
Adjusted operating income increased 23% as we lapped elevated investment in fiscal 'twenty, two and realize the benefit from targeted cost actions that we initiated in Q4 22.
Both of which more than offset the impact of the lower event driven revenue.
Oh, why margins of 13, 4% expanded 220 basis points and adjusted EPS Rose 11% to 91.
Finally, we delivered closed sales of $65 million.
I'll note that the operating income growth is being offset by lower discrete tax items in Q2, 'twenty three and interest rates.
On taxes, we continue to project, an overall tax rate of 21% for fiscal 'twenty three.
And I'll remind you that while higher interest expense, partially offsets operating income growth the interest rate impact at the Broadridge level is fully offset by higher float income and our Ics segment.
Let's get into the details of Q2 results starting with recurring revenue on slide seven.
<unk> revenue grew 8% to $840 million in Q2 'twenty three.
Marking a second consecutive quarter near the higher end of our full year guidance range of 6% to 9%.
Our recurring revenue growth was all organic again, keeping us on track to exceed our 5% to 7% three year growth objectives.
Let's turn now to slide eight to look at the growth across our Ics and GTO segments.
We continue to see growth in both of our segments.
Ics recurring revenues grew 10% all organic.
$467 million with regulatory at 9%.
And double digit growth across all other product lines.
The 9% increased to $181 million in regulatory revenue was driven by continued growth in equity and fund positions.
Data driven fund solutions revenue grew 11% to 96 million propel.
Propelled by revenue from sales in our data and analytics products and higher float revenue in our mutual fund trade processing unit.
Our issuer business revenue increased 12% to 27 million led by growth in our registered shareholders solutions.
Finally, we continue to benefit from strong demand in our customer communications business, where we're covering revenues rose, 11% to 163 million driven.
Driven by new client wins in print.
And growth in our higher margin digital business.
Turning to GTO recurring revenues grew to $373 million or 6% driven.
Driven by new sales and continued strength in our capital markets, including BTC, Yes.
Capital markets revenues grew 12% to 235 million again propelled by strong growth from BTC S, new sales and higher fixed income trading volumes.
Wealth and investment management revenues declined by 3% to $138 million.
Growth from sales was offset by a decline in license revenue as we grew over a large client renewal from Q2 'twenty two.
As a reminder, license revenues can impact quarterly revenue growth and we expect to grow over impact in Q3 for capital markets and in Q4 for wealth management.
Looking forward, we expect GTO full year organic growth to be within our targeted 5% to 7% range.
Now, let's turn to slide nine for a closer look at volume trends.
We had solid position growth for both equities and funds.
As you can see by our results investor participation in financial markets has remained steady despite market volatility.
And we continue to be encouraged by this long term tailwind equity position growth of 9% was driven by continued double digit growth in managed accounts.
Looking to the seasonally larger second half.
Our testing continues to show mid single digit growth and with those results. We continue to expect equity position growth in the mid to high single digit range for the full year.
Mutual fund position growth moderated from Q1, 'twenty three levels, but still grew 6% larger.
Largely driven by the growth in passive funds.
We expect to see continued mid single digit growth in the second half.
Turning now to trade volumes on the bottom of the slide.
Trade volumes grew 5% on a blended basis in Q2.
Driven by double digit fixed income volume growth a modest equity volume growth.
Continued higher trading by institutional investors.
More than offset the lower activity at our retail wealth management clients.
As we lap a strong Q4 'twenty two we continue to expect full year trading volume growth to be essentially flat for the year.
Let's now move to slide 10, where we summarize the drivers of recurring revenue growth.
Recurring revenue growth of 8% was all organic and this organic growth was balanced between net new business and internal growth.
Revenue from closed sales and our continued high retention from existing customers contributed four points.
And internal growth primarily positioned growth in trading volumes also contributed four points.
Foreign exchange impacted recurring revenue by two points with the bulk of that impact coming in our GTO business as you can see in the table on the bottom of the slide.
I'll finish the discussion on revenue with a view of total revenue on slide 11.
Total revenue grew 3% in Q2 to one 3 billion with recurring revenue being the largest contributor driving four points of growth.
Event, driven revenue was down $27 million from the prior year and was a headwind of two points as mutual fund proxy activity slowed to a historically low level.
The lower mutual fund proxy activity is driven by the timing of fund and ETF board elections as funds reacted to the combination of weaker markets and record withdrawals.
Board elections for these funds may be pushed back from time to time.
They're not an optional activity and over the long term event driven revenue will grow in line with fund and ETF position growth.
Looking ahead to the second half of fiscal 'twenty three.
We expect the combination of higher contest contest activity and lower mutual fund activity will have us trending towards the low end of the $240 million to $260 million range that we've seen in recent years.
Low to no margin distribution revenues increased by 3% and contributed one point to total revenue growth.
As the higher volumes and customer communications and the impact of the July postal rate increases offset lower event driven activity.
We continue to expect double digit distribution revenue growth for the full year.
And I'll reiterate that the elevated distribution revenue from July and January postal rate increases and higher customer communications volumes have a dilutive impact on our reported adjusted operating income margin.
Turning them now the margins on slide 12.
Adjusted operating income margin for Q2, 'twenty three was 13, 4%.
A 220 basis points improvement over Q2 'twenty to drill.
Driven by the operating leverage in our business.
Higher float income continued disciplined expense management and the impact of targeted cost actions that we initiated at the end of Q4 'twenty two.
Our progress Q2 gives us increased confidence that we will be able to offset inflation and FX impacts and deliver on our margin expansion objectives of approximately 50 basis points for fiscal 'twenty three.
Let's move ahead to close sales on slide 13.
Second quarter closed sales of $65 million, which brings our year to date total to $94 million at 16% off of H 122.
Strong icf's sales in the quarter were powered by the large digital wealth and focused sales that Tim mentioned earlier.
As a reminder, closed sales are historically weighted towards the fourth quarter.
And given our robust pipeline, we remain on track to achieve our full year closed sales guidance of between $270 million to $310 million.
I'll turn now to cash flow and capital allocation on slide 14.
I'll start with a reminder, that Broadridge is cash flow generation is typically negative in the fiscal first quarter and strengthens over the course of the year.
And we're seeing that trend play out again this year.
Q2, 23 free cash flow improved to $104 million up 276% from $28 million last year.
Free cash flow conversion calculated as free cash flow over adjusted net earnings was up 10 points over last year to 51% driven by operating cash flow improvement.
This improvement was the product of higher earnings.
Strong working capital management, and most notably a year over year and sequential decline in the level of client platform spend as we expected.
Total client platform spend for Q2, 'twenty $3 78 million.
A reduction from last years $154 million and less than half of the Q1, 'twenty three level of $163 million.
The wealth platform accounted for the majority of the investment in the quarter and the lower spend is a strong indicator of our progress in completing the development of that project.
As we remain on track to recognize revenue on the wealth platform in mid calendar 'twenty three we expect client platform spending to continue to be lower than last year keeping.
Keeping us on track to deliver free cash flow conversion that is higher in fiscal 'twenty two.
We remain confident that we will return to more historical levels of free cash flow conversion in fiscal year 'twenty four.
On slide 15, you see that the client platform spend is our most significant use of cash and that we continue to return capital to our shareholders through the dividend.
Turning now to slide 16 to review our fiscal year 'twenty three guidance followed by some final thoughts on our second quarter results.
We are reaffirming our full year guidance on all of our key financial metrics.
We continue to expect 6% to 9% constant currency recurring revenue growth.
Driven by healthy growth across Ics and GTO.
Approximately 50 basis points of adjusted operating income margin expansion.
And adjusted EPS growth in the 7% to 11% range.
In closed sales between $270 million to $310 million.
And before I move on from guidance, let me briefly discuss our second half outlook, which is embedded in that full year guidance.
We expect Q3, adjusted EPS growth to be in the low to mid single digit range as the impact of continued recurring revenue growth is partially offset by lower capital markets license revenue.
We expect adjusted EPS growth to be higher in the seasonally larger fourth quarter as we recognized the benefit of growth in our proxy business and the timing of investments.
Finally, let me reiterate my key messages.
Broadridge delivered strong Q2 financial results.
Demand for our mission critical technology is strong and our testing showing continued equity and fund position growth in the seasonally larger second half of the fiscal year.
We are now past the peak period of investment and again driving strong free cash flow in Q2, 2030, and we continue to expect our client platform spend to be lower than last year, resulting in improved free cash flow conversion in fiscal 'twenty three.
And a return to a more historical conversion level in fiscal 'twenty four.
We have a resilient business and financial model with a proven track record of performance through the economic cycle.
We are reaffirming our fiscal year 'twenty three guidance.
With that let's take your questions operator.
Thank you.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause for a moment to assemble our roster.
And our first question today will come from David Toga of Evercore ISI. Please go ahead.
Good morning, I'll ask my question and follow up.
Gather upfront.
First.
Both Tim and Edmunds, you reiterated your view that you'll recognize revenue from the UBS contract in mid calendar 2023, what does the annualized revenue and profit run rate look like from that contract kind of once you're up and running.
And I'm, sorry was that the follow up as well David.
That's that's that's the first question. The second question is really the the guy to decelerating stock record growth in the second half to mid single digit from 9% you know, what's what's behind the deceleration and stock record growth in the back half.
Okay perfect.
Maybe I'll start off with the first question and good morning, David and thanks for the question.
I mentioned on our last call in Q1 for Q1 'twenty three in November that we expected the annualized revenue on the existing and in flight contracts that we're working on to be roughly 100 million and the amortization associated with all of the.
The build in conversion cost to be roughly about 65 million.
We continue as I said in my prepared remarks to expect to recognize revenue in mid calendar 'twenty. Three this will not be at the full annualized amount that I just mentioned and that we shared in November fiscal the fiscal 'twenty four specific amount will be subject to the rollout approach that UBS has and we will.
I have a more definitive view of what those near term economics are when we finalize those plans and as we've previously mentioned I'll go on to say that we do expect it to be dilutive to margins, but we can offset that and continue to deliver margin expansion I think the important thing as we mentioned we both mentioned in our prepared remarks is that we're now.
Past that peak period of investment and expect to return to more historical free cash flow and be able to deliver on our long term financial objectives.
Tim I'll, maybe turn it to you for the second component.
Yeah.
And I think I, just just to to reiterate I think.
Hi.
Having said was right and David to really you know for US This is.
Something we continue to be really excited about in terms of the broader 16 billion dollar opportunity in wealth management and and how this positions us and as we look at the components that we've created for UBS and how we are now able to show those two other clients as live software that makes a real difference in the other sales discussions you know which is why we're <unk>.
Getting a building sales pipeline not for other transformational deals, but for a series of of of components. So we feel good about that.
Turning to the second part of your question.
Or the follow up question on our guide for the second half of the year in terms of stock record growth I think clearly we have been at a quite elevated levels of stock record growth over the past couple of years, well above historic sort of fat a mid single digit norms.
And last.
Last year really despite a 20% decline in the market investor participation remained very healthy with that with very good growth. So.
We can't really predict the market.
But given that its ups and downs, our best indicator is really our forward testing and that really gives us very good visibility into Q3.
And pretty solid visibility into Q4 and.
And really it's based on that testing that we expect to see mid to high single digit growth in the second half of the year.
And a little bit stronger for equities than for funds, but I think you know collectively call it mid to high single digits.
And.
We do think the fact that it's not sort of going back to levels of a couple of years ago sort of not the growth rate, but the overall level really underscores that our fundamental lift that has taken place driven by free trading at based investing.
Young investors being involved in the market and that sort of one time effect is on building on the continued growth driven by longer term trends, including Gulf in managed accounts and more recently direct indexing and David I'd, just add to Tim's point, you know again.
Equity position growth of 9% is flat to last year and the testing that Tim just mentioned continues.
Continues to be in line with what our expectations were in our original guidance and what we have as well at that mid to high single digit level. So we are re affirming our guidance and outlook on that and again the same thing with the fund position growth as well you saw a little bit of a deceleration sequentially in that but again, we said.
Mid to high single digits, and we still are we still expect that level to play out.
Understood Thanks for that.
Yeah.
And our next question today will come from Peter Heckmann of D. A Davidson. Please go ahead.
Hey, good morning, everyone. Thanks for taking my question I wanted to see if you had any thoughts about where we are in the process of moving to direct indexing. It still seems fairly early but.
Conceptually could we see a managed accounts and direct indexing continue to generate really interesting growth.
That leads to a strong.
Strong growth in equity positions, but potentially fund positions continuing to slow down and if you if that could be the case, how do we think about the.
Any relative change in economics due to mix shift.
Yeah. Thanks.
Thanks, Peter it's Tim.
Do think that this is one of those things it's.
Are the latest in a long series of investment product innovations that have helped drive sort of the broad trend that we call. The democratization of investors and you know on top of you.
Things, we're all familiar with like four O encase, and Iras and Etfs and managed accounts.
It is it's pretty early days I think it is.
You know even too early to really sort of pick it up in the numbers you sort of begin to see it as a sort of a you know like the.
The barrister breezes, you know if you're trying to sort of talk about tailwind.
And I do think it's one of the things that I could gain it could gain traction there is a lot of benefits for for investors in it relative to tax efficiency so not.
Not a big driver today.
I think of it as not necessarily something that is going to lead to a I.
Liked to be here, telling you, it's going to lead to some sort of fundamental change in our growth trajectory I think it is something that just really supports.
Pardon me the long term trends that we've seen.
And.
If we see it begin to.
You can have a real measurable effect then we'll begin to talk about it and break it out but we're not we're not seeing it really as an independent independent thing yet, but we are seeing it as one of the things that gives us confidence in the long term.
Okay. That's fair and then just on the secure to Plano legislation you should remind us.
Yeah.
A portion of the business related to retirement plans at Broadridge and.
And how you see that potentially being a tailwind for us for continued growth in our retirement plan participants.
Yeah, I will I'll, let edman add onto this but.
You know retirement is.
Not a huge direct part of our business, we do serve all of their retirement record keepers.
They're in their client Onboarding.
And then we serve a lot of the four one K market and our mutual fund trade processing. So we have a couple of our smaller businesses that directly serve and then obviously it's a.
A big factor for all of our wealth management clients. It's a you know.
Big portion of wealth management, so I we.
We don't see a.
Yeah, I'm not sure that we're gonna be sitting here a year from now, saying, we have a significant change in growth because of our because of this but it is something that is going to put more money.
Directly into investing help our clients help their ability to invest and I think it will be generally a tailwind for a couple of our smaller businesses, yeah, and the only thing I'll add to what Tim said is that we do have in our mutual fund trade processing unit economics, driven by assets under administration and retirement accounts and if this legislation.
Those through and we see the increase in the amount of retirement accounts and assets. Then we should expect to see some uptick in those assets as well. So overall I think you know while small right. Now this is generally a tailwind for us and it will be more specific about the economics as it plays out.
Great. That's helpful. I appreciate it.
Our next question today will come from Darrin Peller of Wolfe Research. Please go ahead.
Hey, guys.
How are you I wanted to touch base on we always have this seasonal pick up in the second half for bookings.
For closed sales that we have to like we have to prepare for which is honestly sort of to be expected. I think you guys were around 20% to 20, maybe 21, 22% of your budgeted bookings in this quarter, which is again seasonally normal.
Just make sure we get a little more color on what the actual drivers are of your conviction on the pipeline or what what parts of the business as they are coming from.
For the second half of the year to meet those targets that you guys have for the full year and just as a part of that.
How much conviction do you have do you have now and where are you seeing any of those numbers closer to their wealth side coming out of again, I know that UBS contract will be up and running but it's not going to be very profitable. So it's really relying on other contracts on other revenues a compliment that platform.
Are you seeing any evidence of that yet thanks guys.
Yeah Darrin.
I'll start and Edmond Ken can add on.
Thank.
As you say where.
Where we are right now is seasonally at a very normal place and when.
When we look at our our pipeline and instead of the stages of deals in the pipeline for the second half. It is it's very similar to previous years in terms of the coverage of deals in the second half and their stage of maturity. So.
As we reiterate today, that's really that's really what we're looking at.
Specifically on the wealth side, Yeah, we said in the call last.
Last time that our pipeline is up 25% year over year is not to the stage, where we're beginning to see it in the sales numbers as much as it is sort of in the pipeline built so that sort of.
Where where that stands but I think the quality of the conversations gives us.
It gives us a lot of.
A lot of a lot of good feeling and then I just wanted to come back to.
Yes.
This in my prepared remarks, but the 30 plus meetings that I've had with Ceos and <unk> and other C suite executives over the past months and just in those conversations there as you know.
Our continued focus on next generation technology, a lot of energy around modernization.
Digitization.
And at the same time management teams have a lot on their plate, which is why they liked the component hazard approach that delivers things.
And delivers value along the way.
So there's a lot of positivity around us as a partner and those are the things that have led to our pipeline being really at an all time high and and that then combined with sort of the stages of where those things are in the pipeline is what allows us to feel confident about the rest of the year and Tim I'll I'll add one important point.
I know you know this that the closed sales that Tim has just been discussing here. The in year closed sales have you know aren't as impactful on our full year recurring revenue. It's the revenue backlog that we've already closed which is now 12% of recurring revenue that's a big driver of our growth. So.
Everything Tim said is correct, but the revenue backlog is what gives us the confidence in our ability to be able to hit the guidance. This year.
And just on the wealth side, just as a quick reminder of where that's.
Yes, how much how much evidence youre seeing that youre going to be able to take advantage of the platform. The UBS platform you built out.
Yes, I think that comes back to the.
The you know anecdotally when I think about the specific conversations that I'm involved in.
And kind of enthusiasm as people I see those components and see them live and then numerically it really comes back to that.
The pipeline and comparing that at year over year, which which there is a substantial increase so I think this is more of a topic.
That we don't have the news on the actual sales that we we have the news on the pipeline and and there'll be ongoing topic. When we have the news on the pipeline and what we said in Q1 was that we expect incremental sales of 20 to 30 million then that wealth and all the timber side I think gives us confidence in that number will fill in particular.
Which again, we feel good about and reaffirms our belief in the business case and the overall return for the company here.
Guys. Just one quick follow up is on the physician side, obviously position growth and equity mutual fund is really out of your control, it's a market dynamic.
But there is clearly there's some correlation to what people have in their savings accounts and what they could do it didnt stocks or anything else in that better in terms of investing in so.
Just looking forward maybe into 'twenty, four and beyond but I know, it's early but if you.
If you do see a change in the patterns of business growth rates. I mean does this company do you feel that the drivers outside of that are strong enough to sustain the medium term type targets, you've been showing it seems like theres a lot of <unk>.
A lot of wood on the fire to provide for sources of growth, but I would just love to hear your thoughts.
Yeah, I think Darren.
You know when we look sort of at the end. It is true that in past times when they've been significant dislocations like 1999 in 2008 are in those extreme times position growth went to went to zero. It didn't go negative went to zero.
If you look at the.
The growth of our our Ics and GTO is clearly just driven by pure pure technology sales not related to position growth and then if you look at the growth of our Ics business, it's been about half and half in the past couple of years in terms of our.
Revenue from new sales versus internal growth from from physicians. So I.
Clearly if a physician growth forward to.
Go all the way to zero that would that would reduce our our overall our overall growth rate.
And you know, but that has never had not happened for an extended period. So I think.
We wouldn't have any reason right now to think that our medium term growth plans wouldn't be the same yeah and again I will just add to Tim's point position growth, we have a very diversified business position growth drives you know 20% of our overall recurring revenue. So I'll point that out, but I'll just reiterate a point that Tim made you won't be surprised we.
Look six months out and have confidence in that information that we come and share that with you you won't be surprised we won't be surprised when we had the flexibility in our model to make adjustments and ensure that we're still online with our growth objective our growth objectives and guidance that we cut that we'd get if we see anything like that.
That's fair alright, thanks, guys.
Our next question today will come from James Faucette of Morgan Stanley . Please go ahead.
Thank you very much.
Wanted to follow up on questions around the rollout of the wealth platform with UBS and and the leverage that potentially you could get with with other customers I think it makes sense that as those start to go live.
Should improve sales cycles et cetera, but what about from a an implementation.
Perspective, you know or are there things that you're learning in this process with UBS that.
Should allow you to make commitments to potential customers in terms of their own new implementations, even if it's just for specific pieces or modules and then how should we think about that on a go forward basis and creating that flywheel.
Yeah sure sure and first of all James a welcome to welcome to the call Great to have you great to have you on.
And I do think look there've been lots of lots of lessons learned in AR and the work with UBS I think you know in the future we would break things like this into into smaller pieces and do them do them a little bit differently. So that's definitely a learning but Moreover.
We have built a lot of muscle as we have gone through this in terms of our project management technology tracking.
The level of.
Our ability now to look at.
Yeah, we've converted all the agile where we are in the agile spreads the number of story points left the velocity and the story points.
What or what or when you get into the testing what are the effect of defects, whereas the defects on the defects when they retested, how do you model all that out from a capacity standpoint, and we built a whole platform around that which we're now using rolling out to the rest of the company and so it's been it's been a pretty a pretty incredible maturation.
As well as as just you know becoming much much more mature on leveraging AWS you know a lot of this new.
Allergy for UBS is all it's all based on the cloud and our maturation around that and around the development productivity.
That we're seeing is a you know something that I'm very very excited about it. So we've talked about how <unk>. How this work is really driving the technology transformation of our broadridge to visa to SaaS company of the future and I think that piece is really is really playing out well. So thank you for the question.
Right and then just wanted to ask a question.
Related to the headlines that we sort of get some inquiries from investors on and that's related to tailored shareholder reports and giving given the pending FCC.
Regulation on to shareholder reports you can provide some color on how broadridge is just becoming involved or the opportunity to be involved in the creation and production of these reports to help will help offset some of the admittedly small headwinds associated with notice and access fees.
Yeah.
Absolutely so.
So so tailored shareholder reports as a reminder to everyone.
What for the annual and semi annual reports of people get around fund communications telecommunications a year.
Instead of getting a either a link to or a notice of a very long report that's difficult to read people receive investors will receive a two to three page summary, just like summaries prospectus a years ago.
And we are we think this is a very positive for investors.
All of the testing shows that it is much much clearer for investors to for investors to see it's more cost effective for funds in the long voluntary reports its much more digestible to be delivered in and we're big fans of E delivery. So a lot of positives all around for.
For us as we said on the last call. You know there is a slight flying that we get paid right. Now for these notices are I think we said $37 million three and that will and that will go away.
In the meantime, as we talk to our fund clients. This.
This change while it sounds simple.
Create some real complexities for them.
The the reports.
Our the mandate is the reports coming from investors not with a sort of a generalized expense table that pertains to many different share classes that that is tailored specifically to the share class that investor has and so in talking to our fund clients.
We talked to one one fund complex, who today does 200 different reports in the future they're going to need to do 1200 different reports so the scale of the work on them in terms of even though the reports are short creating them in a very tailored way specific to each investor There's a lot of complexity there and that's all about.
Data management.
Converting that data and composing a digitally and being able to send that definitely is a real strength of ours and so we think that there is an opportunity for for us to really help the industry. You've had a couple of of Webinars, one with ignite one with Nixer among the best attended Webinars.
Those groups over the past year, because there's a lot of interest in the fund industry about how do they meet this mandate, which is on one hand, it is sort of you know.
It sounds like it makes sense from an investor standpoint, but if you're the one having to actually deliver it it's tough and so.
We are.
Definitely working to find clients. We definitely think we can help be part of a part of that solution.
That's great. Thank you so much.
Our next question is from kidney Shane of J P. Morgan. Please go ahead.
Hey, Thanks for taking my question.
I know like you talked about that the stocks at the crude then.
Slow down to mid single digits in the back half of the year can.
Can you disaggregate that 5% or so growth and to benefit from secular tailwind like Pedro Commission direct indexing.
And any potential macro headwinds.
Baird.
Puneet is Tim and I'll, let Edmond yeah add on this is it is what we have is <unk>.
Very specific testing, where we're able to measure <unk>.
Now how many physicians are there are any funds, which allows us to say you know when we and how does that compare to where it was last year and that's where we get the growth numbers for we don't have specific data on macro versus tailwind.
What we do know is things like.
The positions and managed accounts were.
We're growing at a double digit rate the positions of non managed accounts, we're growing more mid single digits. So we can see that that differentiation you can do some math on that.
So that's why we when we talk about the tailwind we can incrementally measure that and that's maybe a point or two.
And then you know broadly it's driven by the by the macro with these with these additions, but I'm gonna see if that will happen.
You hit on many of the points that I was just going to hit on the one thing I'd do first puneet is just to be clear, we're saying mid to high single digit growth.
That 5% would be sort of at the low end of what we expect here. So I just wanted to be clear on what's been in our guidance and continues to be what we're reaffirming here and as Tim said.
It's very hard to desegregate disaggregate between macro and other but we've talked previously about broad based growth in online and full brokers in large accounts in mid sides, a mid sized and small accounts as well and managed accounts and self directed accounts and we continue to see solid.
Growth across each of those areas and that I think seeing that broad based growth is what continues to give us the confidence in the guidance here.
Got it and it was good to know that the pipeline is strong.
Any.
And using client behavior over the last few quarters in terms of maybe delays in decision making or flow through.
Through the pipeline.
Changes in client preferences for outsourcing versus insourcing doing.
The macro pressures that they might be facing right now.
Yeah.
I would say.
Our clients are definitely busy.
They are banking clients.
Do you have money.
And you know, it's an interesting way of threat, which is.
We just we do best when they have money and sort of just enough money. So if they have too much money than they like to build and build it in house and don't have any money, it's hard for them to find the project. So you have to be sort of just right as the sweet spot for for ourselves. So I do think that Ah you know the conversations there's there's a lot of thought before people.
If I go forward, there's a lot of there's a lot of work to get these over the goal line and and we certainly feel like that I feel that I'm sure you're hearing that hearing that from others.
At the at the same time, you know, we're moving and we got a lot of stuff done in the month and the month of December .
As for the preferences for our in house versus versus third party.
I think.
If I go back.
12 months ago people had a lot of money and you can sort of feel some of the conversations flowing a little bit more toward well, maybe I should build this maybe I should build that and I think when you look at where things are now.
I don't know if it's the money I think it's as much all of the regulatory change that is coming there are so many things that people are having to address coming in from the FCC and others that are are they.
They have a lot on their plate and getting help is that oh.
Very useful so it's it's a and you have to segment that a little bit by size of institution.
Certainly all of the tier two institutions are strongly looking for for health.
Okay. Thank you.
At this time, we will conclude our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you. This is Tim I'll, just close things off I want to thank everyone for joining us this morning.
I hope that what came through is how pleased we were with our second quarter performance.
Our outlook for the full year.
That are growth drivers remain healthy.
Our business is resilient.
And that with our investment cycle increasingly behind us our free cash flow is strengthening so thank you very much we look forward to continue the conversation next quarter.
The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.
Yeah.