Ladies and gentlemen, good day and thank you for standing by. My name is Lee Ray and I will be your conference operator today. At this time, I would like to welcome everyone to the Broadridge Second Quarter Fiscal Year 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to turn this call over to your host, Mr. Edings Thibault. You may begin your conference.

Thank you, Lee Ray. Thank you, everyone and good morning, and welcome to Broadridge's second quarter fiscal year 2019 earnings call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of Broadridge.com. Joining me on the call this morning are Tim Gokey, our President and CEO; and our CFO, Jim Young. Before I turn the call over to Tim, a few standard reminders. We will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slide and a more complete description on our Annual Report on Form 10-K. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Thank you, Edings; and good morning, everyone. Broadridge had a strong second quarter and is well positioned for the full year and beyond. I also want to share with you this morning my confidence in Broadridge’s future the message I have been delivering to our clients and associates since becoming CEO on January 2nd. Finally, I will close with a more detailed overview of our second quarter business highlights before handing it over to Jim to cover the financial results in detail. So let’s get started on Slide 4. Broadridge had a strong second quarter and is well positioned for the full year and for 2020. We recorded strong 7% growth in recurring revenue. We signed over $100 million in recurring sales, new Q2 record. It sets us up very well for the year. And as Jim will describe, we are confirming our full year guidance. As we discussed in our last call, event-driven revenues declined significantly relative to a spike in the second quarter of 2018 leading to quarterly EPS that is below last year, but more than 40% above 24 months ago. As Jim will discuss, we significantly increased growth investments in Q2 based on our confidence in the full year. A key takeaway today is we finished the quarter exactly in line with our expectations and we entered our second half where we typically earn 70% or more of our annual earnings fully on track to deliver double-digit EPS growth in line with our full year guidance. Those are the headlines. And now, before jumping into the business highlights, I want you our investors to hear the same message that I’ve been delivering to our clients and associates since I took my new role. So let’s turn to Slide 5. First, the works that Broadridge does is…

Thanks, Tim, and good morning, everyone. Before reviewing our second quarter results, I'll make a few callouts. First, we had a strong second quarter. We notched record sales and strong recurring revenue growth and EPS, while lower than last year was aligned with our expectations, strong recurring revenue growth in Q2 was powered by exceptional position growth in our ICS business. Thanks to a company record second quarter, we posted record first half sales of $124 million, up 102% over the first six months of last year and still up nicely even without the UBS wealth plan. The pipeline remains strong. Second, profit growth. Second quarter adjusted EPS fell 29%. The decline was driven by the impact of lower event-driven revenue and higher SG&A spend, much of that driven by higher growth investments in what is a seasonally small quarter for our earnings, which brings me to my third callout, guidance. With the first half results in line with our expectations and approximately 70% of full year earnings to go, we are reaffirming our fiscal year 2019 guidance. I will also detail our expectations for Q3 as we expect a significant shift in quarterly revenue and earnings for the fourth quarter to the third quarter as a result of the new revenue accounting standard. This is something we flagged in the past, but we are providing additional revenue and adjusted EPS guidance in order to help you understand both the top and bottom-line impact of the change. I’ll address each of these in more detail in my commentary. Before we turn to the slides, a quick reminder, all current period numbers or on an as-reported basis under ASC 606. Unless otherwise noted, all growth rates are calculated using prior year as reported under ASC 605. This is consistent with the…

[Operator Instructions] And the first question comes from the line of David Togut from Evercore ISI. Your line is now open.

Thank you. Good morning. I appreciate all of the helpful callouts on the quarter especially the moving pieces within event-driven and distribution. Could you drill down a little bit more into the drivers of recurring revenue fee growth for the second half of fiscal 2019 and into FY 2020 both for ICS and GTO? Perhaps those also that might not be apparent to us, for example, we know you have a very large brokerage client onboarding equity and fixed income trade processing in the next six months. What’s the materiality of that? How can we think about that from a modeling perspective?

Sure Dave, it is Tim and then I will – I am going to say couple things and then hand it to Jim to give any additional color. So, we feel very good about our recurring fee revenue growth over the second half and into 2020. The – we certainly don’t expect the same level of stock record growth that we’ve seen in the first half of this year. We expect some moderation in that, obviously in the equity side, it was a very small quarter and as we look forward, we see that being in mid-single-digits. On the interim side, we see that being more in upper-single-digit. When we then look at the onboarding of new clients, we are taking on particularly on the GTO side, we have a great honor of taking on some larger, more complex, more transformational deals and I think that will create modestly additional lumpiness in terms of the way that new revenues come on in terms of the growth rate that we might see in any individual quarter. The significant deal that you mentioned related to an important tier-1 client of ours is on track and we would expect that to be coming online either at the very end of this year or sometime early in next year. That will be a nice positive for us. It’s not going to be something that is transformational and outside change in our growth rate. But I think it’s just an indication of the good head of team that we have. I think, just more broadly before hand it to Jim to give any additional color, we’ve talked about the $300 million revenue backlog that we have and that is something that really gives us confidence we’ve added to that as we have had the very strong closed sales this quarter. So that really gives us confidence about our ability to continue to drive our recurring revenue growth by bringing on these clients over the next 12 to 18 months and it really is a nice addition to being to have that revenue visibility going forward. With that, I am going to give it to Jim for any additional color.

And Tim, I think you covered it well. I would just maybe round out with event fees, obviously we continue to guide to 10% to 20% down for the full year which implies a much more moderate compare year-over-year for event fees. So I think that gives you good insight as how that plays out and as Tim said, the recurring revenues are really in track and when you look through the reported versus the pro forma, it’s a pretty smooth growth performance continuing on with incremental absolute additions to our recurring revenue from all of our new sales. So, continued on with bringing that backlog live.

Great. And then, to the extent event-driven ends up being a little bit more volatile than you expect in the second half potentially to the downside, do you have some levers you can pull on the cost structure to protect earnings?

David, obviously you know, event is part of lives here. So, obviously, we planned for all eventualities that we can foresee. Usually the event we’ve got pretty good visibility for two to three months out and then some sort of good analytical insights into how things play out. Specifically, we enter every year with a commitment to try to deliver on our plan which for you means our guidance. So, we think through kind of all the puts and takes.

Just finally, closed sales growth excluding the UBS booking in the second quarter?

Yes, Dave. Thanks for asking that question. Clearly, sales was very strong for the second quarter. And UBS, very landmark deal. It is the largest deal in Broadridge history, but sales increased nicely without the UBS deal and beyond the UBS deal, we feel great about important deals like the very significant EPTM deal with large agent bank, a large communications deal with a North American bank. So, we saw good sales. We have a strong pipeline and what we are really seeing is that the themes of neutralization are really resonating with our clients and it really for us reinforces the long-term growth opportunity.

Understood. Thank you.

Thank you so much. And the next question comes from the line of Oscar Turner of SunTrust. Please ask your question.

Hey, good morning. Thanks for taking my question.

Good morning, Oscar.

Good morning. So, first question is another on recurring fee growth. Based on the 3Q outlook, it seems like 2019’s recurring fee revenue growth is on track towards the lower-end of your 5% to 7% range for the year. Just wondering is that the right way to think about it or should we expect to see an acceleration in the 4Q 2019 based on either new GTO business or other tow-ins?

Oscar, obviously, we said it’s 6% recurring revenue growth today with reaffirming our guidance of 5% to 7%. So, I think you should take it straight as we are reaffirming our guidance of 5% to 7%. If you ask us our feeling at the mid-weight point, we feel awfully good when sort of the core driver of the business are going so well. As Tim mentioned, not only when you’ve got ICS clicking and then you’ve got the level of backlog and active implementation going on with GTO, you can’t help but feel confident and both this year and as we look out in the future years. So, very much in line more and more the same performance.

Okay. Thanks. And then, just on the incremental investment spend, so what - if you can parse out how much of that spend was related specific to the onboarding of new GTO clients as opposed to other technological initiatives?

Yes, after – look, the investment spend we feel very good about onboarding of clients doesn’t fall in that category, because that becomes capitalized as a doing until those go live. But when you look at the things that we are investing in, we are investing significantly in network value and in applying artificial intelligence to help our clients get more value from the work that we do for them and to improve liquidity in the fixed income market. We are investing across block chain, cloud, digital. All of those are investment areas in the first half and it’s related to more events than it is to GTO onboarding. And I am going to give it to Jim for some additional color.

And Oscar, just keeping Tim’s color was spot on and just to give the context. Remember, we are talking about we manage our SG&A and investments over a full year, not any one particular quarter. So, as we look at the full year and 3% to 5% SG&A growth, this is all normal course work for us although. As Tim pointed out, we really like the quality of the spend in this given case.

Okay. I appreciate that clarification. And last one, just on the wealth management platform. Any commentary on the progress there? And also do you have any commentary on discussions with other wirehouses?

Sure. Thank you for asking about that. I think the important thing for people to know is that we have a robust and healthy wealth management business today. It’s nearly a $400 million business with a lot of different solutions all of which have their own head of steam in terms of sales pipeline and client onboarding and all of those things. The vision goes forward is how to take those things and make them interoperate better and create the front to back platform in the future, which is what we are working together with UBS on. The early stages of that are right on track going very smoothly between our sales and UBS. It is a large and complex project and will come online for some time. But there has been strong industry interest in that and definitely other significant players, you look at the – really view the market for this as sort of the top 20 broker/dealers and the interest among that group has been gratifying. And so, we will have future discussions. But for the moment, we are focused on UBS and on the other portfolios of strong products we have today.

Okay. Thank you.

Thank you so much. And your next question comes from the line of Peter Heckmann of Davidson. Please ask your question.

Good morning. Thanks for taking my questions. I wanted to check in – can you just talk a little bit more about your bookings forecast for the full year, probably a little ahead of where you would normally be. I think, at the six months point, does that bookings number start to look potentially somewhat conservative? Or could you say that may perhaps the high end is maybe looking more likely at this point?

Thank you for asking that question. We are definitely in a very strong position relative to where we usually are at this time a year and that is very gratifying. We don’t typically comment on our guidance here until we have in sales until we sort of get there because, as you know, things can be lumpy and timing of things can be uncertain. That said, when we look at the pipeline of conversations that we have are in the midst of, and how those are going to progress through the year. We feel very, very good about this year that makes us feel good about next year as well. And it really again sort of reinforces for us how the themes of mutualization and helping our clients be transformed to new technologies are resonating so well and so we do feel we have a good head of momentum here.

Great, great. And then, as regard to the print mail and fulfillment business, how do you look at and then as well, for postage, how much of a drag do you think the secular move to electronic from paper, how much drag do you think there is on that portion of the business? And then, what does that translate into in terms of the drag on total organic revenue growth?

Yes. Let me take the two questions in reverse order. So let’s start with the distribution and then come back to customer communication. So, as you know, distribution carries low or in many cases no margin and as we move paper to digital, the growth of that will slow and eventually strength leading to higher margins for Broadridge overall. And so, those are all the reasons that we always encourage people, I know, Pete, you know this. But we always encourage people to focus on recurring revenue or on total fees. And for this quarter, distribution shrinkage $48 million it definitely was a drag on our top-line. In this particular quarter, about two-thirds of that related to event and about one-third related to customer communication. Getting back and just talking about where we are on customer communications, when we took this on a little over 2.5 years ago, there were really three primary goals that we had. One was around achieving strong synergies and at this point, we have either implemented or have line of sight on synergies that are twice what our goal was. And while we – we like to be on the top-line with that business. It is – those synergies are driving nice earnings growth within that business. The second piece was around being the consolidation points for large in-house players as they began to lose volume. That is taking more time to materialize. We have good conversations that they haven’t materialized. What we are seeing is, stronger than we expected core sales of smaller deals. And we have a very nice revenue backlog to onboard in that business. At the same time, there is this large client that we talked about at the time of acquisition that is in the process of leaving us. They have taken longer than we have expected. But that continues to put top-line pressure on the business overall. And at some point, we reach the crossover and where the new sales outweigh the ongoing – that ongoing departure. And then, the third piece was around creating network value in digital that has emerged more slowly than we expected. We are not seeing any note that is ahead of us on that, but it is emerging more slowly. We do have some interesting early engagements that could be two points in terms of carrying things forward. So, all in all, we are seeing earnings growth, slower top-line than we expected, slower digital than we expected, but with some good underlying indicators in all three of those areas.

Okay, okay. So, in the aggregate, we should see relatively more of the decline come from the distribution side and just a move away from print is, maybe keeps customer communications more – would you say flattish? Or you think it’s if you are able to win some of these new clients and that we drive some new opportunities, but you still have seen secular conversion to electronic where some of that stuff may just go away forever. Do you think that, based on what you are seeing in your book of business is that rate is 1% or 2% or 3% a year?

Yes, Pete. When we think about the opportunity there, there is no question that there is within the current client base there is going to be and we are going to work on people to drive a sort of a almost negative organic from a conversion to digital standpoint and see people moving out of the print into the digital which we are hoping to capture and create a nicely growing digital business. So that would be a headwind in the overall heat on the fee revenue side for that business and certainly on the distribution revenue side of that business. I think the question for us will be, what is the rate that we can bring on new clients, because there is a very strong value proposition for – when you look at the market opportunity, 75% of it is in-house players. And if they lose scale, they lose their per minute cost go up and we have the ability to bring those on to our platform which is at this point, the most scaled, the most technologically advanced platform in North America. Give the advantage to bring them on and give them benefit and help them manage that wind down on their side. So, we think this can be a modestly positive business. We would say, low to mid-single digits. And then, we are going add a nice conversion from print to more across to digital.

And Pete, Tim just mentioned all of that, just obviously, circle the years, all embedded in our full year guidance, always embedded in our multi-year numbers and sort of the way we think about the growth of the business. So, we anticipate all these dynamics and as Tim said, there is some chances for some nice contributions.

Got it. Got it. I appreciate it.

Thank you so much. Your next question comes from the line of Chris Donat of Sandler O'Neill. Your line is now open.

Hi, good morning gentlemen.

Hey, Chris.

Wanted to ask one question on – or a couple questions on the third quarter guidance. Just thinking about the total revenue number and those $50 million range there. Should we be thinking about, like the high and low-end is timing with the revenue recognition as the swing factor or is there are just a bunch of other swing factors in that number?

Pete, you got it exactly right. One of the things that’s new for us is exactly that is the split between Q3 and Q4 as I mentioned historically, all this March and April activity, it didn’t require positioned by the quarter because it all fell into the fourth quarter. Now we are going to have this split between the quarters and it historically moves between March and April in corporate calendar. So that’s exactly right. We want to make sure that as our first quarter sort of having to line that up and obviously we are not a quarterly guidance company in that respect. So we wanted to make sure we give ourselves some room for that. No impact on sort how we look at the second half or the full year. But obviously as we try to give you direction on Q3 which is much about trying to get you guys an appreciation for the shift of a lot of this recurring regulatory work falling into the third quarter. So, longwinded answer to your exactly phrased question.

Okay.

And Chris, just to add on that, it’s – a lot of activity and it just and that happens that those days, right at the end of March are amongst our heaviest mailing days of the year. And so, a day here and there can make a difference. So that’s why we wanted to give such a wide range.

Yes, I appreciate. Yes, we have actually looked to some of the SEC data and can sort of see that happen. And then, I guess, related to the third quarter guidance, because we can now back into your implied fourth quarter, since we got first half of the year, third quarter and full year, it looks like your implying EPS growth, like quarter-on-quarter in the fourth quarter of call it, 15% to 30% and when we look back at fiscal 2018, you grew 86% going third quarter to fourth quarter. Is sort of that, 15% to 30%, is that what you are thinking and making sure I am doing the math sort of right here?

Yes, we can follow-up on sort of the specifics. But remember, 2% year-to-date guiding to 9% to 13% for the second half squarely double-digit growth, clearly on a reported basis, heavy growth falling in the third quarter and less growth contribution obviously in the fourth quarter. So, I am going to work through any sort of true-up on that. But clearly calling for a nice double-digit earnings growth in the second half with a wide disparity in the growth numbers between Q3 and Q4.

Okay. Thanks very much.

Thank you so much. And your next question comes from the line of Puneet Jain from JPMorgan. Your line is now open.

Yes, hey. Thanks for taking my question. So, continue on margins, so your second half like – in the first half margins are down by about 100 basis points year-on-year and you obviously expect significant expansion in the second half. So, is second half expansion going to come mostly from somewhat easier comps and also, if can also comment on incremental margin drivers in the business model over the medium-term?

So, Puneet, this is Jim. Sorry, the second question first. We’ve obviously, that’s been a lot in this morning sort of talking about the event margins, which come in and out at very high margins with all the last year when we had EPS up 103% with event fees up 220% and then seeing inverse this quarter. But if you take that out, those are always going to be good and we think those are nice contributors over the long-term. But we think about our model, our regulatory communication business continues to be a really healthy margin business, and that's really drives our profitability for the full year, especially in the back half, we have both those regulatory communications listing margins. Obviously, on the GTO side, we continue to add clients at margins well above our both GTO segment average and our corporate average. But those contribute nicely and then obviously some of the newer products around data and analytics. For instance, come in at very high contribution margins, very accretive to the overall business. So, again, we continue t like the mix. We have obviously said for a long time that, we feel very comfortable with 50 basis points of margin expansion per year. We have more delivered on that over the last three years and certainly in the last six years, well above that. Obviously, we are calling for somewhere in the neighborhood of 70 basis points this year as it is often the case, we pick up a lot in the second half, just because that’s where you’ve got the bulk of the recurring revenues which is really, really where we make our money. So, at this stage, we feel really good about where we are in our margins and levers and I think, we’ve got a pretty good track record of delivering on that that margin expansion.

And, Puneet, I would just add to that, just model a 50, in this case, 50 or 70 basis points per year. That’s something that we do feel really good about between as Jim said, the business mix, I would say, there is a long-term driver there in terms of the mix of fee revenue versus distribution revenue, but even within fee revenue we have some nice ongoing mix. Operating leverage as we grow and just the ongoing organic efficiencies that we are always pursuing. So, the combination of those things, I think really gives us a lot of ability to continue to drive that increased margin for the long-term.

And can you also comment on your backlog? And how fast pipeline is converting into new signings?

Yes, thank you for that. The backlog, we go into that in detail once a year. When we last talked about it, it was just under $300 million with the success that we’ve had in sales that has grown since then. And the timing of the onboarding of that is really varies by product area, Puneet. There are certain simpler and sort of smaller products that onboards within – even within three months. There is a whole group of things that are six to twelve months. There are some longer and more complex projects that can be out as far as, as we’ve seen in some of the larger more transformation as we talked that can be as long as 24 to 30 months. So, it really is based on the product mix and I only think of it is as – there is certain percentage of that comes from the first year and then a big chunk in the second year and sort of almost all done in the third year when you look at the overall basket in terms of trying take our new sales and translate that into future revenues.

Okay. Thank you.

Thank you so much. And presenters, we have no further questions at this time. You may continue.

Okay, that concludes our questions of the day. I want to thank everyone for listening in today and for the call. We are really excited about the momentum this quarter that it shows for the things that matters and that will benefit our long-term investors and so, we thank you for listening today.

Thank you, presenters and thank you ladies and gentlemen. This concludes today’s conference call. We appreciate your participation. You may now disconnect. Have a good day.