Broadridge Financial Solutions Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2023

Key Takeaways

  • Recurring revenues grew 8% on a constant-currency basis to $840 million and adjusted EPS rose 11%, reflecting strong growth and disciplined expense management.
  • The firm highlighted its 93% recurring fee model, robust sales backlog and digital solutions demand, and reaffirmed full-year guidance for 6–9% recurring revenue growth and 7–11% EPS growth.
  • In the Governance (ICS) segment, revenue rose 10%, led by 9% equity and 6% fund position growth, new digital communications client wins and launch of a pass-through voting pilot.
  • Capital Markets recurring revenue climbed 12% on BTCS market-share gains and new sales, while Wealth & Investment Management revenue fell 3% due to lower license fees; the UBS platform rollout is now expected mid-2023.
  • Free cash flow conversion improved to 51% as client platform spend fell to $78 million, positioning Broadridge to return to historical cash flow levels in fiscal 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Broadridge Financial Solutions Q2 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good day, and welcome to the Broadridge Fiscal Second Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. At this time, I'd like to turn the conference over to Eddings Thibault, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Allison, and good morning, everybody, and welcome to Broadridge's 2nd 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.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. 1, we will be making forward looking statements on today's call regarding Broadridge that involve risks.

Speaker 1

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 ks. 2, we'll 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 the comparable GAAP measures can be found in the earnings release and presentation. With that done, let me now turn the call over to Tim Gokey. Tim?

Speaker 2

Thanks, Eddings. 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, followed by a 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 1st, on Slide 3, Broadridge delivered another strong quarter.

Speaker 2

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. 2nd, 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.

Speaker 2

Rates continued 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's resilient business model with 93% recurring fee revenues continued to perform. Moreover, our long term business drivers remain healthy.

Speaker 2

We're benefiting from a 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 bottom line growth. 3rd, investor participation in particular remains at very healthy levels. Broadridge benefited from mid to high single digit position growth across both funds and equities, and we expect to see further growth ahead in the second half. 4th, we are executing on our long term growth initiatives. We're innovating in governance, including pass through voting, tailored shareholder reports and digital communications.

Speaker 2

And we continued our strong momentum in capital markets. 5th and finally, we are reaffirming our guidance for the full year. We continue to expect to deliver 6% to 9% recurring revenue growth constant currency, expanding margins and 7% to 11% adjusted EPS growth. Now let's turn to Slide 4 for a review of our results. Beginning with our governance or ICS business, which reported another strong quarter.

Speaker 2

The biggest driver of our 10% growth in ICS Continues to be new sales in our Fund Solutions and Customer Communications businesses. Equity position growth remains strong, driven by double digit growth in managed accounts and mid single digit growth in non managed accounts. Unpositioned growth, while still healthy, slowed to 6% as investors rotated away from the traditional active strategies into ETFs and passes. 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 remains strong as evidenced by significant interest amongst our asset management clients to offer their investors, Both institutional and retail choice on how their underlying shares are voted.

Speaker 2

Just yesterday, we launched a new pilot for individual investors with another leading 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 fulfill a critical need for the industry. Beyond our regulatory products, we're seeing strong demand for digital communications with the 2nd major client signing for our wealth and focus platform during the quarter. This omnichannel product suite offers enhanced investor engagement, while delivering near term cost savings through increased digitization of critical communications.

Speaker 2

That is proving to be a compelling combination for our customer communications clients. We've been investing steadily in building these capabilities over the past 2 years and I'm pleased to see that investment now turning into meaningful revenue with key clients. Turning to Capital Markets. Recurring revenues rose 12%, driven in part by the continued strong performance of Broadridge Trading and Connected for BTCS, where our market share gains are driving growth. I was also pleased to see cross selling start in Broadridge.

Speaker 2

Our other capital markets products also performed well as our themes of simplifying globally, front to back and within the front office are resonating with clients. We also continue to see progress in digital ledger repo with a 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 onto the latest generation of our workstation with continued very positive feedback.

Speaker 2

We've now completed development of all 29 platform areas and testing for 26 to 29. We are working closely with the new management at UBS as they refine their approach to rolling out the remainder of the platform. And we We continue to expect to begin to recognize revenue in mid calendar 2023. Our sales pipeline is strong and as Edmund will discuss, Our investment levels have decreased as we shift into this new phase. Moving to closed sales.

Speaker 2

Year to date closed sales were $94,000,000 Client engagement around our next generation technology remains high and our pipeline entering calendar 2023 is stronger than it ever has been. As a result, our sales expectations for fiscal 2023 are unchanged. I'll close my remarks on Slide 5. Over the past several weeks, I've met with more than 30 CEO and C suite clients in North America and Europe. The message from them is clear.

Speaker 2

They are continuing to push on next generation technology. They are looking for long term partners that invest in their business and they like a 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 mission critical infrastructure we provide that enables corporate governance and powers trading and investing and is coupled with our 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 by building or acquiring critical solutions and adding talent and technology.

Speaker 2

These investments are playing a key role in driving the strong revenue growth we And 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 BTCS business is helping to drive the growth of our capital markets franchise and we continue to progress wealth and investment management.

Speaker 2

By aligning with the long term needs of our clients, we're attacking a $60,000,000,000 market opportunity and we're scaling into a global fintech leader. In an uncertain market, our resilient business model driven by recurring revenue, client focus and a long track record of disciplined expense management gives us the visibility and confidence to deliver for shareholders. As a result, we're reaffirming our full year guidance for 6% to 9% constant currency recurring revenue growth and 7% to 11% adjusted EPS growth. And in turn, we expect to deliver at or above the higher end of our 3 year objectives. When we do that, it will be the 4th consecutive 3 year period in which we've delivered on our objectives.

Speaker 2

Finally, we're past the peak investment period on our platform solutions, positioning us 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 and 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' clients.

Speaker 2

So thank you. Now I'll turn the call over to Edmund for a review of our financials.

Speaker 3

Thank you, Tim, and good morning, everyone. I'm pleased to share the results Another strong quarter where recurring revenue growth and continued disciplined expense management drove double digit adjusted EPS growth even in the challenging macroeconomic environment. We continue to see organic recurring revenue growth from converting our sales backlog to revenue and healthy position growth. This performance in Q2 and the continued execution of our strategy gives us the confidence to reaffirm our fiscal 2023 guidance. As you can see from the financial summary on Slide 6, Recurring revenues rose to $840,000,000 up 8% on a constant currency basis, all organic.

Speaker 3

Adjusted operating income increased 23% as we lapped elevated investment in fiscal 2022 and realized the benefit from targeted cost that we initiated in Q4 2022, both of which more than offset the impact of the lower event driven revenue. AOI margins of 13.4 percent expanded 220 basis points and adjusted EPS rose 11% to $0.91 Finally, we delivered closed sales of $65,000,000 I'll note that the operating income growth is being offset by lower discrete tax items in Q2 2023 and interest rates. On taxes, we continue to project an overall tax rate of 21% for fiscal 2023. 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 in our ICS segment. Let's get into details of Q2 results starting with recurring revenue on Slide 7.

Speaker 3

Recurring revenue grew 8% to $840,000,000 in Q2 2023, marking a 2nd 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% 3 year growth objective. Let's turn now to Slide 8 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 to $467,000,000 with regulatory at 9% and double digit growth across all other product lines.

Speaker 3

The 9% increase to $181,000,000 in regulatory revenue was driven by continued growth in equity and fund positions. Data Driven Fund Solutions revenue grew 11% to $96,000,000 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 $27,000,000 led by growth in our registered shareholder solutions. Finally, we continue to benefit from strong demand in our customer communications business, Our recurring revenues rose 11% to $163,000,000 driven by new client wins in print and growth in our higher margin digital business. Turning to GTO, recurring revenues grew to $373,000,000 or 6%, driven by new sales and continued strength in our capital markets including BTCS.

Speaker 3

Capital Markets revenues grew 12 percent to $235,000,000 again propelled by strong growth from BTCS, New sales and higher fixed income trading volumes. Wealth and Investment Management revenues declined by 3% to 138,000,000 Growth from sales was offset by a decline in license revenue as we grew over a large client renewal from Q2 2022. 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. I'll turn to Slide 9 for a closer look at volume trends.

Speaker 3

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.

Speaker 3

Mutual fund position growth moderated from Q1 2023 levels, but still grew 6%, 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 has continued higher trading by institutional investors more than offset The lower activity at our retail wealth management clients. As we lap a strong Q4 2022, we continue to Expect full year trading volume growth to be essentially flat for the year.

Speaker 3

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 4 points and internal growth primarily positioned growth in trading volumes also contributed 4 points. Foreign exchange impacted recurring revenue by 2 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.

Speaker 3

I'll finish the discussion on revenue with a view of total revenue on Slide 11. Total revenue grew 3% in Q2 to $1,300,000,000 with recurring revenue being the largest contributor driving 4 points of growth. Event driven revenue was down $27,000,000 from the prior year and was a headwind of 2 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, But they are not an optional activity and over the long term event driven revenue will grow in line with fund and ETF position growth.

Speaker 3

Looking ahead to the second half of fiscal twenty twenty three, we expect the combination of higher contest activity and lower mutual fund activity will have us trending towards the low end of the $240,000,000 to $260,000,000 range that we've seen in recent years. Low to no margin distribution revenues increased by 3% and contributed 1 point to total revenue growth as the higher volumes in 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 January postal rate increases and higher customer communications volumes have a dilutive impact on our reported adjusted operating income margin. Turning now to margins on Slide 12.

Speaker 3

Adjusted operating income margin for Q2 2023 was 13.4%, A 220 basis points improvement over Q222, twenty twenty two 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, 2022. Our progress through Q2 gives us increased confidence that we will be able to offset inflation and FX impacts and deliver on our margin expansion objective of approximately 50 basis points for fiscal 2023. Let's move ahead to closed sales on Slide 13. 2nd quarter closed sales of $65,000,000 which brings our year to date total to $94,000,000 that's 16% off of H122.

Speaker 3

Strong ICF sales in the quarter were powered by the large digital wealth and focus sales that Tim mentioned earlier. As a reminder, closed sales are historically weighted towards the Q4. And given our robust pipeline, We remain on track to achieve our full year closed sales guidance of between $270,000,000 to 310,000,000 I'll turn now to cash flow and capital allocation on Slide 14. I'll start with a reminder that Broadridge's cash flow generation is Typically negative in the fiscal Q1 and strengthens over the course of the year. And we're seeing that trend play out again this year.

Speaker 3

Q22223 free cash flow improved to $104,000,000 up 2 76% from $28,000,000 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 2023 was $78,000,000 a reduction from last year's $154,000,000 and less than half of the Q1 2023 level of $163,000,000 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 2023, we expect client platform Spending to continue to be lower than last year, keeping us on track to deliver free cash flow conversion that is higher than fiscal 2022.

Speaker 3

We remain confident that we will return to more historical levels of free cash flow conversion in fiscal year 2024. 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. Let's turn now to Slide 16 to review our fiscal year 2023 guidance followed by some final thoughts on the 2nd 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 And before I move on from guidance, let me briefly discuss our second half outlook, which is embedded in that full year guidance.

Speaker 3

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 4th quarter as we recognize 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 is showing continued equity and fund position growth in a seasonally larger second half of the fiscal year.

Speaker 3

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 2023 and a return to a more historical conversion level in fiscal 2024.

Speaker 4

We have a

Speaker 3

resilient business Financial model with a proven track record of performance through the economic cycle, and we are reaffirming our fiscal year 2023 guidance. With that, let's take your questions. Operator?

Operator

Thank you. We will now begin the question and answer session. And our first question today will come from David Togo of Evercore ISI. Please go ahead.

Speaker 5

Good morning. I'll ask my question and follow-up together 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?

Speaker 2

And I'm sorry, was that the follow-up as well, David?

Speaker 5

No, that's the first question. The second question It's really the guide to decelerating stock record growth in the second half to mid single digit from 9%. What's behind the deceleration in stock For growth in the back half.

Speaker 2

Okay, perfect. Hi, Mike.

Speaker 3

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 2023 in November that we expected the annualized revenue On the existing and in flight contracts that we're working on to be roughly 100,000,000 And the amortization associated with all of the build and conversion costs to be roughly about 65,000,000 We continue, as I said in my prepared remarks, to expect to recognize revenue in mid calendar 2023. This will not be at the full annualized amount that I just mentioned and that we shared in November. The fiscal 2024 specific amount will be subject to the rollout approach that UBS has and we'll 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.

Speaker 3

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.

Speaker 2

Yes. And I think just to reiterate, I think I think Evan said it was right. And David, they're really for us, this is something we continue to be really excited about in terms of The broader $16,000,000,000 opportunity in wealth management 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 to other clients as live software. That makes a real difference in the other sales discussions, Which is why we're seeing a building sales pipeline, not for other transformational deals, but for a series of components.

Speaker 2

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 Quite elevated levels of stock record growth over the past couple of years, well above historic sort of mid single digit norms. And Last year, really despite a 20% decline in the market, investor participation remained very healthy with very good growth. We can't really predict the market, but given its ups and downs, our best indicator is really our forward testing.

Speaker 2

And that really gives us very good visibility into Q3 and pretty solid visibility into Q4. 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, A little bit stronger for equities than for funds, but I think 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

Speaker 3

of years ago, sort of not

Speaker 2

to the growth rate, but the overall level really underscores a fundamental lift that has taken place driven by free trading, app based investing, younger investors being involved in the market. And that sort of one time effect is then building on the continued growth driven by longer term trends, including growth in managed accounts and more recently direct indexing.

Speaker 3

And David, I'd just add to Tim's points. Again, Equity position growth of 9% is flat to last year and the testing that Tim just mentioned Continues to be in line with what our expectations were in our original guidance and what we have as well at that mid High single digit level. So we are reaffirming 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.

Speaker 3

But again, we said mid to high single digits and We still expect that level to play out.

Speaker 5

Understood. Thanks for that.

Operator

And our next question today will come from Peter Heckmann of D. A. Davidson. Please go ahead.

Speaker 6

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 Moving to direct indexing, it still seems fairly early, but conceptually, could we see Managed accounts and direct indexing continue to generate really interesting growth that leads to Strong growth in equity positions, but potentially fund positions continuing to slow down. And if that could be How do you think about the any relative change in economics due to mix shift?

Speaker 2

Yes. Thanks, Peter. It's Tim. I do think that this is one of those things. It's 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 On top of things we're all familiar with like 401s and IRAs and ETFs and managed accounts, It is pretty early days.

Speaker 2

I think it is even too early to really Pick it up in the numbers, you sort of begin to see it as a sort of like the bears to breezes if you're trying to sort of talk about tailwinds. And I do think it's one of those things that could gain traction. There's a lot of benefits for investors in it relative to tax efficiency. So not a big driver today. I think of it as not necessarily something that is going to lead to a I'd like 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 the long term trends that we've seen.

Speaker 2

And if we see it begin to have a real measurable effect, then we'll begin to talk about it and break it out. But we're not Seeing it really as an independent thing yet, but we are seeing it as one of the things that gives us confidence in the long term.

Speaker 6

Okay. That's fair. And then just on the Retirement plans at Broadridge and how you see that potentially being a tailwind For continued growth in retirement plan participants.

Speaker 2

Yes. I will I'll let Edmund add on to this, but Retirement is not a huge direct part of our business. We do serve all of the retirement record keepers in their client onboarding. And then we serve a lot of the 401 market in our mutual fund trade processing. So we have A couple of our smaller businesses that directly serve.

Speaker 2

And then obviously, it's a big factor for all of our wealth management clients. It's a big portion of Wealth Management. So, we don't see a I'm not sure that we're going to be sitting here a year from now saying we have a significant change in growth 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 will be generally a tailwind for a couple of our smaller businesses.

Speaker 3

Yes. 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 if this legislation goes 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 while small right now, this is generally a tailwind for us and we'll be more specific about the economics as it plays out.

Speaker 6

Great. That's helpful. Appreciate it.

Operator

Our next question today will come from Darrin Peller of Wolfe Research. Please go ahead.

Speaker 4

Hey, guys. How are you? I wanted to touch base on we always have this Seasonal pickup in the second half for bookings, for closed sales that we have to like we have to prepare for, which is to 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. So maybe just make sure we get a little more color on what the actual drivers are of your conviction on the pipeline and what parts of the business they're 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, I mean, how much conviction Do you have now and are you seeing any of those numbers flow through to the wealth side coming out of again, I know the UBS contract will be But it's not going to be very profitable.

Speaker 4

So it's really relying on other contracts and other revenues to complement that platform. Are you seeing any evidence of that yet? Thanks guys.

Speaker 2

Yes, Darren. I'll start and Edmund can add on. I think as you say, where we are right now is seasonally at a very normal place. And when we look at our pipeline and then sort 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 for the second half and their stage of maturity. So As we reiterate today, that's really what we're looking at.

Speaker 2

Specifically on the wealth side, we said in the call 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 build. So that's Where that stands, but I think the quality of the conversations gives us a lot of A lot of good feeling. And then I just want to come back to I discussed this in my prepared remarks, but the 30 plus meetings that I've had with CEOs and other C suite executives over the past month. And Just in those conversations, there's a 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 plates, which is why they like the componentized approach that delivers things And delivers value along the way. And so there's a lot of positivity around us as a partner.

Speaker 2

And those I think are the things that have Led to our pipeline being really at an all time high and that then combined sort of the stages of where those things

Speaker 3

are in the pipeline is what allows us to feel And Tim, I'll add one important point. And Darren, I know you know this, the closed sales that Tim has just been Discussing here the in year closed sales have aren't as impactful on our full year recurring revenue. It's the revenue backlog We've already closed, which is now 12% of recurring revenue. That's the big driver of our growth. So I think 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.

Speaker 4

And just on the wealth side, just as a quick reminder of where that's Yes. How much evidence you're seeing that you're going to be able to take advantage of the platform, the UBS platform you built out?

Speaker 2

Yes. I think that comes back to the anecdotally when I think about the specific conversations that I'm involved in and enthusiasm as people see those components and see them live. And then numerically, it really comes back to The pipeline and comparing that year over year, 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, but we have the news on the pipeline and

Speaker 3

We have the news on the pipeline and what we said in Q1 was that we expect incremental sales of $20,000,000 to $30,000,000 in that wealth and all that Tim is saying I think gives us confidence in that number.

Speaker 4

We feel pretty good about that.

Speaker 3

Which again we feel good about and reaffirms our belief The business case and the overall return for the company here.

Speaker 4

Guys, just one quick follow-up is on the position side. Obviously, position growth and equity Mutual fund is really out of your control. It's a market dynamic. But there's clearly there's some correlation to what people have in their savings accounts and what they could do Getting stocks or anything else in that matter in terms of investing. And so I guess just looking forward maybe into 'twenty four and beyond that I know it's early, but If you do see a change in the patterns of position growth rates, I mean, is this company do you feel that the drivers outside of that are strong enough to sustain the medium In terms of type targets you've been showing, it seems like there's a lot of wood in the fire to provide for sources of growth, but I'd just love to hear your thoughts.

Speaker 4

Thanks.

Speaker 2

Yes. I think, Darrin, when we've looked sort of at the and it's true that In past times when there have been significant dislocations like 1999 and 2008, in those Excluding times, physician growth went to 0, didn't go negative, went to 0. If you look at The growth of our ICS GTO is clearly just driven by pure technology sales not related to physician 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 Revenue from new sales versus internal growth from physicians. So clearly, If physician growth were to go all the way to 0, that would reduce our overall growth rate.

Speaker 2

And, 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.

Speaker 3

Yes. And again, I'll just add to Tim's point. Physician growth, We have a very diversified business. Physician growth drives 20% of our overall recurring revenue. So I'll point that out.

Speaker 3

But I'll just reiterating a point that Tim made. You won't be surprised. We look 6 months out and have confidence in that information and we come and share that with you. You won't be surprised, we won't be surprised and we have the flexibility in our model to make adjustments and ensure that we're still on line with our Growth objectives and guidance that we give if we see anything like that.

Speaker 2

That's fair.

Speaker 4

All right. Thanks guys.

Operator

Our next question today will come from James Faucette of Morgan Stanley. Please go ahead.

Speaker 7

Thank you very much. Just wanted to follow-up on questions around the rollout of the wealth platform UBS and the leverage that potentially you get with other customers. I think it makes sense that, as those start to go live, That should improve sales cycles, etcetera. But what about from an implementation perspective? Are there things that you're Learning in this process with UBS that should allow you to make commitments to potential customers in terms Their own new implementations even if it's just for specific pieces or modules.

Speaker 7

And how should we think about that on a go forward And creating that flywheel.

Speaker 2

Yes, sure, sure. And first of all, James, welcome to the call. Great to have you on. And I do think, look, there have been lots of lessons learned in the work with UBS. I think in the future we would break things like this into smaller pieces and do them a little bit differently.

Speaker 2

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 We've converted all to Agile. Where we are in the Agile spritz, the number of story points left, the velocity and the story points. What are when you get into the testing, what are the expected defects? What are the defects on the defects when they're retested?

Speaker 2

How do you model all that out from a capacity standpoint? And we've built a whole platform around that, which we're now using rolling out to the rest of the company. And so it's It's been a pretty incredible maturation, as well as just becoming much, much more mature on leveraging AWS. A lot of this new technology for UPS is all based in the cloud and our maturation around that And around the development productivity that we're seeing is something that I'm very, very excited about. So we've talked about How this work is really driving the technology transformation of Broadridge to be the true SaaS company of the future.

Speaker 2

And I think that piece is really playing out well. So thank you for the

Speaker 7

Great. And then just wanted to ask a question related to headlines that we started to get Some inquiries from investors on and that's related to tailored shareholder reports and given the pending SEC Regulation on TOEJ shareholder reports. Can you provide some color on how Broadridge is becoming involved or the opportunity involved in creation and production These reports to help offset some of the admittedly small headwinds associated with notice and access fees.

Speaker 2

Yes, absolutely. So, to Taylor's shareholder reports, As a reminder to everyone, what for the annual and semiannual reports that people get around fund communications, 2 communications a year. Instead of getting either a link to or a notice of a very long report that's difficult People will receive investors will receive a 2 to 3 page summary just like summary prospectus years ago. And we are we think this is very positive for investors. All the testing shows that it is much, much clearer for For investors to see, it's more cost effective for funds in the long term report.

Speaker 2

It's much more digestible to be e delivered and we're big fans of e delivery. So a lot of positives all around. For us, as we said on the last call, There is a slight fly in the line that we get paid right now for these notices. I think we said $30 some $1,000,000 and that will go away. In the meantime, as we talk to our fund clients, this change, while it sounds simple, creates some real complexities for them.

Speaker 2

The reports are the mandate is the reports come to investors Not with a sort of generalized expense table that pertains to many different share classes, but that is tailored specifically to the share class That investor has. And so in talking to our fund clients, we talked to 1 fund complex who Today does 200 different reports. In the future, they are 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 around data management, Concerning that data and composing it digitally and being able to send that, that's something that's a real strength of ours.

Speaker 2

And so We think that there is an opportunity for us to really help the industry. We've had a couple of webinars, one with Ignite, 1 with Nixa among the best attended webinars for those groups over the past year because there's a lot of interest in the fund industry How do they meet this mandate, which is on one hand is sort of 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 fund clients. We definitely think we can help be part of that solution.

Speaker 7

That's great. Thank you so much.

Operator

Our next question is from Puneet Jain of JPMorgan. Please go ahead.

Speaker 8

Hey, thanks for taking my question. I know like you talked about that the stock record growth can slow down to mid single digits in the back half of the year. Can you desegregate that 5% or so growth into benefit from secular tailwinds like 0 commission, direct indexing And any potential macro headwinds there?

Speaker 2

Puneet, it's Tim. And I'll let Edmund add on this. It is what we have is very specific testing where we're able to measure right now how many physicians are there in these funds, which allows us to say 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 tailwinds. What we do know is things like The positions in managed accounts were growing at double digit rate.

Speaker 2

The positions on non managed accounts were growing more mid single digits, so we can see that differentiation. You could do some math on that. So that's where we when we talk about the tailwind, we can incrementally measure that and that's maybe a point or 2. And then broadly, it's driven by the macro with these additions. But I'm going to see if Edmond can do it.

Speaker 3

Yes. Well, you hit on many of the So I was just going to hit on. The one thing I'd do first, Puneet, is just to be clear, we are saying mid to high single digit growth. So that 5% would be sort of at the low end What we expect here. So I just want to be clear on what's been in our guidance and continues to be what we're reaffirming here.

Speaker 3

And as Tim said, it's very hard to desegregate between macro and other, but we've talked previously about broad based Growth in online and full brokers and large accounts and midsize and small accounts as well in 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.

Speaker 8

Got it. And it was good to know that your pipeline is strong, but are you seeing any changes in client behavior over the last few quarters in terms of maybe Delays in decision making or flow deals through the pipeline and any changes in client preferences for outsourcing versus insourcing given The macro pressure that they might be facing right now.

Speaker 2

Yes. I would say, clients are definitely busy. They our banking clients Do have money. And it's an interesting question for us, which is we do best when they have money and sort of just enough money. If they have too much money then they like to build it in house and they don't have any money, it's hard for them to fund the projects.

Speaker 2

So it has to be sort of just right, is the sweet spot for our sales. So I do think that the conversations, there's a lot of thought before people go forward. There's There's a lot of work to get these over the goal line and we certainly feel like that feel that and I'm sure you're hearing that from others. At the same time, we're moving ahead. We got a lot of stuff done in the month of December.

Speaker 2

As for the preferences for in house versus 3rd party, I think if I go back 12 months ago, people had a lot of money. And you could 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 the regulatory change that is coming. There are so many things that People are having to address coming in from the SEC and others that they have a lot on their plate and getting help Yes, it's very useful.

Speaker 2

So it's and you have to segment that a little bit by size of institution. Certainly all the Tier 2 institutions are strongly

Operator

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.

Speaker 2

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 2nd quarter performance and our outlook for the full year that our growth drivers remain healthy, our business is resilient and that with our investment cycle increasingly behind us, our free cash flow is strengthening.

Speaker 2

So thank you very much. We look forward to continuing the conversation next quarter.

Operator

The conference has now concluded. We thank you for attending today's presentation and you may now disconnect your lines.

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