Good morning and welcome to the Broadridge Second Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded.I would now like to turn the conference over to Edings Thibault, Head of Investor Relations. Mr. Thibault, please go ahead.

Thank you, Dana. Good morning, everyone, and welcome to Broadridge's fiscal second quarter 2020 earnings conference 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 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 slides 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.

Thank you, Edings, and good morning. I'll begin today with some key highlights on the second quarter, which are on slide 4. Broadridge continued to execute well in a mixed quarter.Recurring revenues rose 7% to $648 million, driven by strong revenue from sales, as well as contributions from recent acquisitions. I'm especially encouraged by the second quarter record, $39 million of revenue from closed sales, which show the impact of our strong backlog and client demand.Lower market driven activity prevented an even higher result and we expect organic growth to pick up in the second half, leading to an 8% to 10% year for recurring revenue.That said, event driven activity came in significantly below our expectations, leading to a 5% decline in adjusted EPS in a seasonally small quarter. We now expect a lower level of event driven activity to persist into the second half of fiscal 2020.Importantly, our recent acquisitions are performing strongly. Both RPM and TD Ameritrade, which we acquired in Q4 are significantly ahead of last year and ahead of our expectations. It's great to see the revenue synergies playing out early. Broadridge's 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 excluding the UBS mega deal from a year ago.Looking forward, we've now entered the more significant second half of the year where we typically generate more than 70% of our earnings. I'm pleased to say, we remain on track to achieve our recurring revenue and adjusted EPS guidance for the full year. We expect recurring revenue growth of 8% 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…

Thanks, Tim, and good morning, everyone. Our Q2 financial results had some very positive signs, but were below our own expectations. However, we are on track to deliver against our fiscal year 2020 guidance and long-term objectives. Before reviewing our results, I'll make a few call-outs.First, event-driven activity. Event fees declined notably from Q2 a year ago, driving a decline in our second quarter earnings. Event fees were also 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 1.5% in the quarter. New revenue from sales contributed a Q2 record $39 million or 6 points to organic growth in the quarter. That strong result was offset by negative internal growth. We expect organic growth to pick up in the second half as sales contributions remained strong and internal growth flips to positive.Fourth, capital, two updates here. The first is M&A. Since our last call, we have announced two additional tuck-in acquisitions ClearStructure and FundsLibrary. That brings our fiscal year-to-date M&A investments to approximately $310 million. The second update is our debt offering. We issued $750 million in 10-year senior notes at a 2.9% coupon in early December, highlighting the value of strong capital structure.The fifth call-out is the Broadridge private cloud. In the second quarter, we recorded charges of $33 million representing a non-cash loss on hardware assets to be transferred to IBM and other related charges. Sixth and final, guidance. Our overall guidance remains broadly unchanged. However, given the slow start to the year in organic growth, we expect organic growth to have less of a contribution to our…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Togut with Evercore ISI. Please go ahead.

Thank you. Good morning. I'd just like to clarify, one part of your updated guidance for fiscal 2020, Jim. I think initially in the FY 2020 guide, you were expecting a four 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 four points from M&A and four to six points organic. But with M&A coming in about six percentage points to recurring revenue year-to-date that implies organic about two points lower more like two to four percentage points. So is that correct in the way I'm thinking about that? And then my follow-up really is on the internal revenue growth, which you have down 3% on slide 7. Is that really almost all just the decline in event-driven, or is there some other components there that we should focus on?

Yeah David. As I said in my remarks, we now see organic growth at 3% to 4%. And I also said that, we expect acquisitions to be another five-plus points, which gets us back to this range of 8% to 10%. As we look at that internal growth, I think it's important to remember that 3% to 4% is comprised of the softer first half at 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 it 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 you're seeing in that internal growth is a function of trades some of the weaker mutual fund communications that Tim referenced driving that. When we look in the second half and we think about the strength of our proxy season a couple of comps just easing a little bit we think that internal growth flips to positive. So it's that combination of continued strength on revenue from 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 there?

No. This is really the equity volumes that some of the industry has seen much weaker. We were down 16%. And so in hindsight not a big surprise, but clearly that's something that usually is sort of neutral to positive. So we were down 16% that's going to put some pressure on revenue growth at the margin.

Understood. Thank you very much.

The next question comes from Patrick O'Shaughnessy with Raymond James. Please go ahead.

Hey, good morning, guys. So just wanted to drill down a little bit more into the underlying drivers behind lowering the full year organic recurring revenue guide to 3% to 4%. I know you spoke about this a little bit in your prepared remarks, but maybe if you can summarize kind of what are the key moving parts to take that 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 2021 and beyond for organic recurring revenue growth?

Patrick I'm going to start, this is Tim, and then I'm going to let Jim add on to that. I think one of the broad points is really implicit in what 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 are our drivers of organic growth, it's really around position growth and then revenue from new sales.And in the seasonally small first half, that position growth doesn't really have a chance to come through and have the impact that it does for the full year. Remember that 70% of our proxy business is in the second half.So, I think we see that position growth coming through and having a bigger impact in the second half, a turnaround in some of the smaller internal growth factors 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 the acceleration in the second half.And then what you're going to see is that building from Q3 into Q4 so the exit rate in Q4 I think is -- will be the strongest part of the year and that gives us a good feeling about 2021.

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

Sure. The -- some of our -- our large 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 managed account holders, a couple of the -- our larger clients are taking a little different view on that and that's something that we think will persist over time. And so they're just doing some fine-tuning about who they send what to. And so that is -- didn't have that much of an impact in the first half. It will have some impact in the second half and that's built into all the forecasts and guidance that we've given.

Great. Thank you.

The next question comes from Ken Hill with Rosenblatt Securities. Please go ahead.

Hi, good morning. Had a question on the IBM deal, I know you talked about it a little bit in the prepared remarks. But I was hoping you can 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.

Yes. Ken thanks for asking that question and I'll start and let Jim add in anything that I missed. But we're really excited about this. As I said in my prepared remarks, it's a real step forward in our hybrid multi-cloud strategy. We think it's going to enable us to really speed our time to market. It's going to offer enhanced resiliency. It is going to allow us to offer new capabilities over time and really we think improved strength of our SaaS offering.Importantly, -- and I didn't get into this as much on the cause not a substitute for our public cloud strategy and we continue to invest strongly with AWS. We have 80 teams at work refactoring various applications and modernizing them and we see that as a real modernization approach.But the nice thing about the private cloud approach is it doesn't require any change to the applications. It doesn't require any client testing and also there were a number of our associates that moved to IBM. So, those associates will be able to continue to support us and have great career tracks.So, we think it's a win for our clients it's a win for our associates and it does -- when we talk about what's the impact on our operating expense, it is more efficient. And that is going to enable us in the near-term to increase our investment in terms of moving to the public cloud and developing our application.So, it really is a nice move away from spending money on running servers and things like that to being able 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 what it will also free up is capital dollars that we're investing. So, in addition to the expense today we have capital dollars that we won't have in the future.

Okay. Thanks for the detail there. One quick one though on closed sales. I think after the first quarter, you guys were up 103% and then the latest update was up double-digits year-to-date basis. Is there any more color you can provide on just second quarter activity?

Second quarter we felt really nice about. We have ended the first half really where we had hoped to for the first half. And so it was -- if you take out the very large deal from last year, it was about on track with last year. And the timing between first and second quarter I think something happened in Q1 that is great that they happened as early as they did. So, we feel really on track in terms of delivering on our full year sales guidance.

Okay. Thanks for taking the questions.

Next question comes from Peter Heckmann with D.A. Davidson. Please go ahead.

Hey good morning gentlemen. Just a couple of follow-ups. In terms of the M&A that's contributing to fiscal 2020 just in terms of a rough number, the $39 million this quarter, we're thinking it's somewhere around $140 million for the full year?

Yes, the $39 million peak for this quarter is--

The sales contribution.

The revenue from sale not specifically the M&A number.

Pete, sorry, I may have misunderstood it. Just remember we're taking about five points -- better than five points of growth coming from M&A and our recurring revenue for this year.

Okay five points to recurring. Okay. And then in terms of a little bit softer revenue in customer communications. Are you seeing any acceleration to e-delivery or e-billing that's playing into that, or is it other issues?

We're just -- and you're a little soft, we're approximating the question, Pete, but it is -- I think, I would say, yes and no is my answer, which is we do definitely see continued traction on digital and that's a very positive thing. But that's not the cause of what you're seeing this quarter.So what you're seeing this quarter is really very much around the post-sale business and the change we saw in really volumes there. And again, we projected those volumes going forward for the second half.And we'll -- just because I -- as you say digital it sort of gets my juices flowing. I can't help, but talk about that a little bit. If you look at some of the things that we have going on in digital over the past two years, we have onboarded more than 100 mutual fund complexes and transitioned from DST onto our next-generation cloud-driven digital platform.And we really transferred that like-to-like in the initial instance, but that platform has significant capabilities that those funds aren't using today. And so we think that's a really nice digital opportunity for us over time and -- that we'll see some nice acceleration there. So we do remain excited about digital, but that wasn't the impact this quarter.

Got it. Thank you.

The next question comes from Chris Donat with Piper Sandler. Please go ahead.

Good morning. Thanks for taking my question. Hi. Tim wanted to follow-up something you said in your prepared remarks about the volume of new mutual fund ETF sales in the quarter and 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 to zero trading fees? It seems to me like you might see some adjustment in some of the ETFs that were branded by a large broker that now may be just less interesting or I might be wrong. But anyway I'm just curious if you're seeing any change in end market demand for some ETFs?

Yeah. I don't think that we are seeing anything related to the zero trading. I think when we look back and try to correlate this and you can imagine that we spent a few late nights trying to – well, yeah, not me, but the team here as I said a few late nights trying to correlate that and we really see -- the best correlation we see is really with the VIX and with volatility and so we had in periods of high volatility there can be a lot of rebalancing activity.So I was calling it new sales and new purchases, but a lot of this has to do with the things that decisions that individual investors may not be making themselves, but is happening as a matter of rebalancing of large portfolios and our in-managed accounts. And so I'm not taking us on the zero trading side, and 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 since you've done a lot of them. As we think forward to fiscal 2021, whatever I assume you're keeping the same playbook in terms of accretion. But can you just remind us what's your expectations are for accretion from the four acquisitions you cited in the press release for example? What's a reasonable expectation for what they'll contribute?

Yeah, Chris. Hi, this is Jim. As you recall most of these acquisitions in the first year which is everything we're talking about because as 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. There are -- as Tim mentioned, a couple of the businesses are overperforming already and doing pretty well. So, nice contributions.In the grand scheme of brokerage earnings nothing that moves the needle, but nice contributions above our business case, which means that we get a little bit of contribution above and beyond the plan, but nothing that is significant in that respect and worthy of callout.

Yeah. I think I would say that they're not accretive in the first year their margins do increase over time. I think that's really built into the 50 basis points per year that we tend to talk about and have delivered on for a long time. So I would really think about it that way.It is just a case to talk a little bit more broadly about M&A and I've talked before about how we see this as an evergreen opportunity for Broadridge, because there's always change and all these teams creating new opportunities. And we've really seen this year that play out in terms of when we can make these companies sort of under our umbrella using our master services agreement, our sales force, our servicing, how that really adds value to them and why it has such good returns from this over time.And just you're not -- we're not buying these and holding them as sort of separate things and ending up as a collection of stuff. They're being nicely integrated into our product offers and into our service delivery. So we think this is really something that is an important part of our growth strategy that will continue.This year it is at a higher level than it typically has been. And as you know, we take a lot of time, looking at what are the things that we would like to own and we do that well in advance. And many of these conversations, many of these are companies we've been talking to for many years. We don't necessarily control when they decide they want to transact, but it's nice that we have with our balance sheet and leverage and other things, we have the ability to act when people do want to transact and we think, we have really nice business cases around these.

Thanks. That’s very helpful.

[Operator Instructions] The next question comes from Darrin Peller with Wolfe Research. Please go ahead. Mr. Peller, your line is open.

Good morning, guys. This is Andrew on behalf of Darrin Peller. Just want to touch upon wealth management briefly. Are you guys seeing any incremental interest in the market due to the UBS announcement over the last couple of quarters? And how is that translating into the closed sales you've seen in the last couple of quarters?

Yes. I'll take that. It's Tim. Thank you, Andrew. We are definitely seeing a lot 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 pleased to say we finished on track. And so, we're excited about that. We're seeing a lot of interest 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 -- so that is good.In terms of specifically on the broad platform, the momentum, in terms of closed sales it's really too early for that. These are long conversations and people want to see it further along in the build, but those conversations are very positive. What we have seen is, we do have a lot of component solutions in and around that platform and those have had nice momentum.I mentioned the sale of an adviser compensation solution to a leading wealth manager. That was the largest sale ever for that business and that is a really nicely growing business for us and plays right into things like Reg BI, if you think about the number of conversations we're having with clients about Reg BI and all the solutions that we bring to the table, the communication solutions, the advisory solutions and with Fi360, they really to help people really looking to their portfolios and make sure that they are suitable, so lots of good things happening in wealth. It's a really nicely growing area for us.And then I have to just do a callout to Mike Alexander, who just this past week, we asked to take leadership of this combined business, which we're now bringing together under one leadership. So, we feel really good about it and continue to make good progress.

Thanks. And then, with regards to the customer communications business, it continues to be a headwind in the ICS segment. When should we expect you start to grow over the one large client that you called out in the past, or is it a couple of other clients that you see some declines in?

Yes. I'm glad you asked that, so we can just clarify this because, in what we talk about externally as customer 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 client -- those departing.This quarter, it was not the transactional 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 that business was stable. It didn't grow, but it didn't shrink either. And -- so the 3% you saw -- minus 3% you saw this quarter was related to the postsale business 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 haven't gone down, it has been a nice contributor to earnings. And because of synergies and other things in the acquisitions, it has been growing earnings over the time that we've been talking about it. So, that's where that is. It is -- it was stable this quarter. I'm not putting out the mission accomplished sign here, but that transition off of the larger client is complete now.

No, appreciate the color.

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Gokey for any closing remarks.

Yes, I would just like to thank everyone for being on the call today. We remain very excited about our revenue from closed sales, about the level of sales activity, the backlog, the M&A performance. We're looking forward to increase in organic in the second half. And we just remain really confident and excited about what our long-term opportunity is. And I'll just 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 that they face and transformations that they're looking to do and the alignment of what we are doing with what their needs are, I feel very optimistic about the future of Broadridge. Thank you.

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