Broadridge Financial Solutions Inc (BR) — Q3 2020 Transcript

Thank you, Andrew. Good morning, everyone, and welcome to Broadridge's fiscal third 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 can be found in 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. Before turning to our financial and strategic results, I want to start with the human impact of the COVID virus as it continues to extend its reach around the world. With our Broadridge home base and nearly 10,000 associates and family members in the New York metropolitan area, our team has seen up close the toll this virus takes on so many. We have lost co-workers, family members, friends and neighbors. Our hearts go out to all of them and to the many still fighting this disease. We also see the economic dislocation experienced by so many in our communities here and around the world. These are challenging and difficult times. At Broadridge, our focus has been first and foremost on the safety and health of our associates. We’ve also focused on serving our clients, helping them meet incredible challenges they face as a result of the crisis. And we are stepping up to help communities in which we operate around the world. Seeing how our teams are supporting one another, their families, and our clients all in the face of significant change has been inspiring. I’ve never been more proud to be a Broadridge associate. Thank you. With that important backdrop, let me lay out where we’ve been, where we are, and where we are going? Despite the challenges in the New York area, Broadridge as a global company is resilient, is performing well and has real opportunities ahead. The COVID crisis has reinforced the essential nature and the importance of what we do. To carry out this mission, we have invested to ensure the health and safety of our associates as they carry out their essential duties. As a result, our operational performance has been exceptionally strong. That strength led us to continued growth and solid financial results in the third quarter on which Jim will elaborate further. Finally, as we look forward, we see real opportunity in the post-COVID world. These unprecedented times have reaffirmed the essential nature of what Broadridge does. In these volatile and uncertain times, critical infrastructure powering investing, governance and communications has never been more important. Throughout the crisis, our scalable and resilient technology platforms have processed remarkable market volumes that are multiples of normal. Deploying our capital markets and wealth management clients has enabled end investors to buy and sell securities, generate liquidity, continue investments, and react to rapidly evolving outlooks. This performance will continue to be tested as we navigate uncharted waters and restart the global economy. We have also enabled tens of millions of investors to track their holdings and other key information during this period of high uncertainty and volatility. From distributing billions of dollars of checks to sending and receiving boarding information, to reassuring investors with timely confirmation statements, the flow of information has remained open. Finally, now more than ever, strong corporate governance is critical. As companies face unprecedented economic and health challenges, the role of the Board of Directors has never been more important. We are proud of how we have worked to ensure vital communications and voting remain in place. Our technology and people have ensured that companies can conduct their annual meetings safely while enabling continued shareholder engagement. As a result of our central role in securities trading and corporate governance, many of our operations have been deemed essential service providers under guidance provided by the federal government and other government authorities. We’ve been in contact with the SEC and other regulators to help them better understand resiliency and challenges faced by our financial system, as trading volumes rise and companies move to online annual meetings. Eleven states to date have provided temporary relief to enable virtual-only annual meetings, reinforcing the importance of strong and timely corporate governance. This essential work is possible only through our engaged and highly expert associates. At Broadridge, the service-profit chain where engaged associates deliver for satisfied clients, leading to strong financial outcomes defines our culture and sits at the heart of our delivery. Thus, our thinking from the beginning of the crisis started with the health and safety of our nearly 13,000 associates around the globe. We first instituted a work-from-home policy in Asia as COVID began to spread in January. As the pandemic became more widespread in March, we moved quickly to institute a work-from-home mandate for all of our non-production associates in Europe and North America. By mid-March, we extended that to include India. We are now operating fully on a work-from-home basis with 87% of associates now involved in production. As work-from-home is a normal part of our business continuity planning, this has been a smooth transition. We’ve also taken strong measures to ensure the safety of our production associates, working closely with our onsite medical teams and third-party experts and in line with CDC guidance. We equipped our associates with masks and gloves, closed cafeterias, and instituted onsite food delivery. We removed economic pressure to work by providing extended leave for those who are ill, quarantined, or whose family members are in a high-risk group. We mandated temperature checks at the beginning of every shift. In New York, which has been the most impacted by COVID, we’ve reduced staffing to below 50% to maximize social distancing, redistributing work to other facilities. These measures have been effective, and we will continue to take every action possible to protect our associates in the months ahead. As we protect our own associates, we are acutely aware of the impact this crisis is having on the communities in which we operate. We’ve already committed $1 million in grants for charities and schools globally in our 12 largest operating regions. These funds were focused on organizations targeting hunger relief for vulnerable populations, critical medical services and equipment, and school supplies for remote learning. We also want to support the charitable giving of our associates as they generously support their communities, and we’ve allocated an additional $500,000 to double match charitable donations made by associates. Our engaged associates and leading technology platforms have delivered exceptional operating performance. Our resilient and scalable technology processed huge spikes in both equity and fixed income trading volumes flawlessly, keeping our clients operating when others had challenges. Our production facilities managed strongly not only during the peak of proxy season but at quarter-end and month-end statements, as well as during a volatility-driven surge in other communications related to trading. In some instances, communications needed to shift to new locations in time to meet demand. We are working with clients and regulators, and we’ve now successfully moved past the peak of the season. We show very good results during these unprecedented times. Broadridge differentiated itself as the right solution to these critical functions. At the same time, public companies have rapidly shifted to move their annual meetings to a virtual format. We pioneered virtual shareholder meetings, or VSMs, in 2009, and steadily grew them to 326 meetings last year. This year, more than 1,500 clients have already contracted with us through VSMs. Virtual shareholder meetings are different from the webcast or simple Zoom-type meetings that many of us have been attending the past few weeks. We leverage our unique capabilities to validate shareholders, moderate questions and enable voting, all in real-time. Our team mobilized across Broadridge to make this possible at dramatically larger scale than ever before, making a difference in keeping corporate governance on track. Finally, we supported our clients, including stepping up to help them with work for either their own facilities or those of suppliers who were unable to handle their needs. The strongest relationships are created during difficult times, and our ability to be there for our clients in their time of need has strengthened our relationships for many years to come. Our strong operating response resulted in strong financial performance. Indeed, our third-quarter results and fiscal year outlook underline the resilience of our business model and the strength of our value proposition, even in the context of sharp declines in GDP that are already becoming apparent. Despite headwinds from significantly lower event-driven revenues and a shift in proxy timing, Broadridge reported solid third-quarter results, with recurring revenue growth of 9% and adjusted EPS growth of 5%. Closed sales rose 20%. Our outlook for the full year calls for continued growth. We expect to continue to see recurring revenue growth in the 8% to 10% range. To reflect the full impact of COVID, including lower event-driven revenues, we’ve modified our adjusted EPS full year growth guidance to 5% to 7%, which Jim will explain in detail. Importantly, we also remain on track to hit our full year guidance for closed sales of $190 million to $230 million. Our pipeline is strong, and the ability to achieve anywhere in that range demonstrates the importance and value of what we do. I’m also pleased to note that Broadridge remained on track to deliver at or above the midpoint of our three-year adjusted EPS growth objective of 14% to 18%. Even with the impact of COVID and cyclical blows from event-driven activity, our goal is to achieve that objective despite those headwinds, which is a testament to the long-term demand trends driving our business and the investments we have made to support our growth and the hard work of so many on our team. Let me now turn the call over to Jim for a more in-depth review of our financial results, guidance and some early thoughts on FY’21. Jim?

Thanks, Tim. Like Tim, I’m deeply saddened by the toll the virus has taken on the Broadridge family. We are still grieving, but we are resilient, and it is impossible not to feel intense pride in the way our associates have responded. They are truly delivering in remarkable ways. Thank you to all our associates, and a special thank you to our production teams. Now, our results. I’m pleased with our performance in the third quarter, even given the impacts related to COVID. It was consistent with the outlook we provided in early March, and our performance and outlook highlight the resilience of our business. I’ll begin on Slide 10 with six key points. First, the net impact of COVID on our recurring revenue in the third quarter was modest, but there were more notable impacts in individual product lines. Organic recurring growth was 3% in the third quarter, and we expect high single-digit organic growth in Q4 as we benefit from an increase in volatility and the shift of some proxy work from Q3 to Q4. Second, the weak event activity trends we saw in the first half of the year have continued and are now being exacerbated by COVID. This is the lowest event activity we have seen in six years. Third, we recorded a 20% increase in sales in the third quarter, with notably higher sales in March due to our strong pipeline of new opportunities. We have confidence that we can deliver on our sales guidance even in this environment. Fourth, our strong balance sheet. Our investment-grade credit rating and $1.5 billion of liquidity give us ample flexibility to fund our operations, repay our maturing notes, and support our dividend. There is no substitute for a healthy balance sheet and access to capital, which also gives us the comfort and confidence to focus on doing what is right for the business. Fifth, guidance: factoring in our full quarter’s impact of COVID, we are reiterating our guidance for recurring revenue growth while trimming our adjusted EPS guidance due to a further drop in event activity below what we previously expected. Sixth and finally, as is tradition, we will not provide formal guidance on next fiscal year until we report our fourth quarter. But I think it’s important to provide some perspective on how the business may perform in the recession, including a very preliminary view on recurring revenue growth. Let’s turn to Slide 11 and our revenue growth drivers. Our recurring fee revenues rose 9% in the quarter, with healthy new sales additions contributing five points to growth. Most implementations have long lead times and are initiated months before go-live. Importantly, we did not see much impact on-boarding processes in March. It is clearly something we are keeping an eye on, but the pandemic continues to unfold. We saw the biggest COVID impact in internal growth, although the net effect was neutral. The headline here is that exceptional trade growth driven by high volatility related to the crisis was largely offset by the COVID-driven shift of certain proxy work from the third quarter to the fourth quarter. These big revenue factors essentially neutralized each other. I will touch on these again in my review of each business. Acquisitions are performing well and contributed six points of growth. We'll start to analyze two of our larger acquisitions next quarter, so the overall impact from acquisitions should decline modestly in the fourth quarter. Looking to next quarter, we expect organic revenue growth to improve meaningfully; the improvement should come from the combination of sustained strong sales-to-revenue performance and positive internal growth boosted by strong stock record growth and the realization of the known proxy timing shift from Q3 to Q4. Moving down to total revenue, total revenues increased 2% to $1.25 billion as recurring revenue growth was partially offset by a sharp decline in event-driven and related distribution revenues. Let's dive deeper into each of our business segments, starting with ICS. On Slide 12, recurring revenues grew 2%, with a solid net new business and acquisition gains each contributing three points. Organic growth dipped negative due to COVID timing and other impacts. The biggest driver of our decline in organic growth was a timing shift in proxy. As you may recall, with the implementation of the new revenue recognition standard last year, the Q3 and Q4 mix is very sensitive; each day represents about $5 million, so it only takes a couple of days of movement to shift meaningful revenue between quarters. This year, COVID-related safety measures, including staff level reductions and social distancing, moved some of our dates out by a few days. This shift lowered our third quarter revenues by $15 million to $20 million. Importantly, stock record growth remained very healthy at 7%, and with much of the quarterly volume now shipped, we expect high single-digit stock record growth in the fourth quarter as well. The proxy catch-up, coupled with the dramatic pickup in demand for virtual shareholder meetings that Tim described, should lead to a notable pickup in our equity proxy revenue line next quarter. Mutual fund and ETF interim revenues benefited from a positive mix shift. Underlying record growth was zero as the fund industry experienced record outflows in March. Customer communications and fulfillment revenues rose 3%, as the decline in equity markets triggered a wave of portfolio rebalancing, which drove a 24% increase in the volume of prospectuses we sent out. Customer communications revenues were also up 3%, which was nice to see. Rounding out ICS recurring revenues, continued growth in data analytics revenue was partially offset by lower revenues from securities market value and interest rate-sensitive products, as well as a retirement fund trading and custody business, following the big market declines and the Fed’s decision to slash rates. Looking ahead, ICS is on track for mid to high single-digit organic revenue growth in the fourth quarter, given the combination of a strong proxy season, the pickup from the proxy timing shift, and a modest pickup in post-sale volumes, shaping up to be a strong finish to the year. As I noted in my callouts, event-driven revenues declined sharply to $39 million. As you'll see on Slide 13, third quarter event-driven revenues were at their lowest level since 2014, reflecting a continuation of the trend we've seen all year and new COVID-related delays. As the crisis unfolded, we have seen a couple of notable proxy campaigns pushed into fiscal ‘21 and high-profile proxy fights set aside. So we are now anticipating additional declines in event-driven revenues in the fourth quarter. Our significantly reduced full year forecast of $155 million would take us back to fiscal ‘13 levels and mark our weakest Q4 for event revenue since fiscal ‘12. Let's turn to our GTO business on Slide 12, which reported very strong results for the third quarter. Revenues rose 23% on 11 points of organic growth. The biggest driver was exceptional trading growth of 28% in equities and 19% in fixed income. As Tim noted, it is a testament to our technology and our associates that we handled record volumes so flawlessly. As a reminder, about 30% to 40% of the GTO business is volume sensitive to trading activity. The majority of our contracts are based on trading bands, so not every trade translates into incremental revenue. We also continue to achieve strong net new business additions and pickups from licenses. The recent acquisitions performed well, adding meaningful revenue. Beyond the higher trading volumes, the impact of the COVID crisis on our GTO business was limited. We did see one large license contract slip out of the quarter and ultimately close in April. More generally, we are keeping a very close eye on our client onboarding schedules, and most plans are on schedule at this time. Looking ahead to the fourth quarter, we expect to see strong sales-to-revenue growth and continued higher trading volumes, although below levels in March. In the fourth quarter, we expect GTO organic revenue growth to be in the high single-digit range and total growth in the high teens. Turning to Slide 15, in this uncertain economic environment, our balance sheet is a source of strength. At the close of the quarter, our available liquidity was $1.5 billion, comprised of $402 million in cash balances and $1.1 billion remaining on our committed $1.5 billion revolving credit facility. Moreover, our debt maturity profile further enhances our liquidity outlook. Over 75% of the fixed portion of our debt does not mature for six or more years; our only maturity less than six years is $400 million of senior notes coming due in September 2020. We anticipate having ample excess cash and revolver availability to refinance this maturity. Our revolving credit facility has one financial covenant: a debt leverage ceiling, which we are well below. An important factor in our capital planning is our credit rating. We’ve remained committed to our strong investment-grade credit rating while taking a balanced and disciplined approach to capital allocations. Given the environment and our recent M&A, we are focused in the near-term on reducing our leverage ratio from about 2.4 times, which is a little elevated with extra cash on the balance sheet, to about 2 times by June 30. As a result, it is unlikely we will do any meaningful share repurchases in the fourth quarter. Underpinning our capital planning is our free cash flow. Broadridge generated free cash flow of $82 million for the first nine months of the year. We continue to expect healthy free cash flow in the fourth quarter, where we typically generate most of our free cash flow. Two other callouts. First in our operating cash flow, you can see the impact of the large investment we are making to develop the UBS and industry Wealth Management platform, which is on schedule. Second, we are keeping a watchful eye on collections, which have been very healthy so far during the crisis. We've invested $339 million in tuck-in M&A fiscal year-to-date, which includes our acquisition of Funds Library that closed at the end of February. Finally, we remain committed to our dividend, and earlier this week, our Board approved our next dividend payable on July 2. I've made a lot of comments about our outlook in my discussion of our results. So let me sum up here with our full year guidance on Slide 16. We expect total recurring revenue growth in the 8% to 10% range for fiscal '20, including organic growth of 3% to 4%. Our outlook for the fourth quarter implies high single-digit organic growth, with an additional 4 to 6 points from acquisitions for total recurring growth of low to mid-teens. Taking into account event-driven revenues of approximately $155 million, down from our previous estimates of $175 million to $195 million, and a modest decline in distribution revenues, we're guiding to total revenue growth at the low end of 3% to 6%. We continue to expect our full year adjusted operating income margin to be about 18%. We're expecting adjusted EPS growth of 5% to 7%, down from our prior guidance of about 8%. The biggest driver of the decline in our EPS guidance is our outlook for event-driven revenue. We've also de-risked our outlook for the excess tax benefit to $12 million from $20 million. Notably, the reduction in event and excess tax benefit combined represents approximately $0.20 or 4 points of EPS growth. Finally, a comment on sales. Our guidance for closed sales in the range of $190 million to $230 million remains unchanged. While our sales pipeline is strong, the challenges of remote work in the stressed economic environment make a wide range especially appropriate. All in all, I would consider this a pretty strong performance if we close out the year with adjusted EPS growth of 5% to 7% in the face of a $90 million downdraft in event fees and in-range sales in this environment. In this outcome, it would mean achieving a 16% or better three-year adjusted EPS compared to our target of 14% to 18%. We all know the economic outlook is uncertain, and many of you have asked about the outlook for Broadridge beyond our fiscal fourth quarter with so much unknown. I won't provide a 12-month outlook until August. However, we do want to share with you some of our preliminary thinking about how Broadridge may perform, at least from a revenue perspective, in a recession. Let's move to Slide 17. Our first point of reference is to look back at the last downturn in 2008. We’re a stronger company today, and it's worth noting how Broadridge performed in the global financial crisis, which began in fiscal '09. While the impact varied by business, total Broadridge was able to sustain recurring revenue growth of 5% in the first year of the crisis. In the second year, that distinctly financial services-focused crisis, Broadridge posted modest positive growth despite big client consolidations and lower trading volumes. By 2011, Broadridge had returned to mid-single-digit organic growth. These crises are very different, and we are better positioned today than we were in 2008 with no clearing business, more diverse revenue streams, and a much stronger GTO business. I'll turn to my final Slide 18. There's no easy way to dimension the exact size and shape of the COVID recession. But our initial planning approach has been to assume that we are in a prolonged recession with tough macroeconomic conditions extending through our fiscal '21. We feel this is a prudent way to prepare for the year ahead while keeping our eye on the large opportunities in front of us. Assessing our business in a recession scenario is important to first ground ourselves in those aspects of our business that we believe are uniquely resilient. First, our biggest revenue growth driver is the conversion of sales to revenue. We currently estimate our revenue backlog to be about $330 million, which is equivalent to 11% of our approximate $3 billion in recurring revenue. This gives us a strong starting point to generate revenue growth without any new sales. Second, one of our most important growth drivers is position growth in our governance business. While we expect position growth to be moderate in a recession, we take comfort that aggregate position growth stayed modestly positive even at the low point of the global financial crisis. Third, we have a long track record of client revenue retention, which we believe will help us well in a potentially more challenging sales environment. And fourth, the core of what we do is mutualization across the financial services industry, which historically performs well in tougher times. Customer communications, an example of a historically lower growth business, is not cyclical and should perform steadily through a recession with even more opportunities ahead. To be sure, there are definitely headwinds that we expect to confront in this COVID recession. First, because we are beneficiaries of market volatility, we would expect to face tough comparables in trading and post-sale volumes in the second half of next year. Second, lower assets under administration resulting from market declines in interest rates may impact our fees in our mutual fund processing and transfer agency businesses. We're experiencing this now in Q3 and Q4. Third, our clients may not be able to engage in onboarding activities in the same way, which could delay onboarding. Frankly, though, we're not seeing this at this point. Clients could also contract for smaller or fewer licenses for certain on-premise software. Overall, our preliminary work indicates recurring fee growth in the low single digits in a tougher recession, which would again demonstrate the resilience of our business. Again, this represents a preliminary view and is based on our current outlook. We will learn more with the passage of time and more data, and we will be back in August with our Q4 results and latest thinking on fiscal '21. Let me wrap up here, as I know I've given you a lot to digest. In summary, after a solid third quarter, we expect to close out fiscal '20 with very healthy organic recurring revenue growth and strong sales. Our strong balance sheet and ample liquidity keep us well positioned to navigate a challenging environment. Above all, we have the technology, culture and people to grow and succeed. Now I’ll hand it back to Tim.

Thanks, Jim. Broadridge is well positioned to weather any economic downturn, and I've directed our team to prepare for an extended period of economic weakness. As always, we will balance the competing imperatives of investing for what we believe is a very strong future with delivering bottom line growth in the near-term. Like others, we will use this time to evaluate where we're devoting resources and to concentrate our efforts on those most relevant in the new environment. I'm confident we'll find the right balance, and I look forward to updating you on our next earnings call. I'm convinced that a long-term focus has never been more important. As we emerge from the crisis, the world will be a different place. As I talk to clients, it is clear that the fallout will cause permanent shifts in the way they operate, which will strengthen the long-term drivers of our growth. We must ensure we are ready to help our clients with these challenges. First and foremost, the existing trends driving our growth around mutualization, digitization and data will only strengthen in this new normal. A major driver of mutualization has been the need by our clients to reduce the cost and complexity of their operations. Now, as financial services firms come to grips with slower growth and near-zero interest rates, their need to transform their business with next-generation technology will only increase. The Wealth Management industry, which was already in transition, will only face more pressure to evolve. The need for digitized communications will grow. The challenges faced in the investment management industry have accelerated. As I noted at the outset of my remarks, the importance of strong corporate governance will only increase as investors ensure that boards apply hard-earned lessons about business and financial risk. However, the impact of COVID will do more than simply confirm existing trends. It will cause more fundamental changes in client operations. Every business leader has been forced to think more deeply about the resilience of their technology and operations, creating an even greater impetus to adopt the right industry solutions with proven scalability and resilience. Simply put, the cost and risk of going it alone has never been greater. The impact of working from home is accelerating digital literacy and the demand for digitized communications. Whether they're signing up for digital content or using remote learning tools, more people are relying on digital communications in every facet of their lives. This will only increase the pressure on financial services firms to raise the bar on delivering enhanced digital communications, whether it be a bill, statement, or regulatory disclosure. All these trends play to Broadridge’s strength and will fuel our growth over the next decade or more. In times of uncertainty, business fundamentals are more important than ever. Broadridge’s fundamentals are strong. We have a highly resilient business model with recurring revenues under long-term contracts built on providing mission-critical services for leading institutions. We have a strong investment-grade balance sheet, high liquidity, and a long history of balanced capital allocation, including a dividend that has increased every year since Broadridge became a public company. Finally, we have a track record of delivering growth backed by 97% client revenue retention, a $330 million sales backlog, and favorable long-term trends that have been reinforced by the crisis. So while the near-term remains understandably uncertain, we are well positioned, and the longer-term opportunity for Broadridge has never been stronger or more clear. Before I close, I want to speak directly to our associates around the globe listening to this call. To all of you working from home and in our production facilities, thank you. You've risen to the challenge under more difficult conditions than any of us could have imagined a few months ago. Thanks to you, our financial system has begun to adapt to the biggest economic shock of our lifetime, keeping vital services open to millions around the globe. I'm truly proud to be part of your team. And the best is yet to come. Thank you. We are now open for questions.

Thank you. Good morning, Tim and Jim. Hope you are both well and healthy. My question really relates to the early thought process you laid out, Jim on fiscal '21. Really with three specific points of clarification. First, on position growth, are you assuming position growth falls from high single to low single-digit in fiscal '21? The second is on event-driven revenue. Are you assuming a further decline in event-driven revenue for 2021, if so, how much? And then third, how are you thinking about managing expenses, to the extent of revenue picture for 2021 is challenged as you’ve laid out?

Thank you, David. In our preliminary growth scenarios, we expect position growth to range from high single-digits to low single-digits, and potentially even flat, similar to what we experienced during the global financial crisis. This assumption is part of our planning for these scenarios. Regarding event revenue, while it's not considered recurring revenue and we haven't detailed it yet as it may be too early, we are currently looking at significantly low figures of $155 million, reminiscent of levels seen seven to eight years ago. Overall, this serves as a reasonable foundation to begin our projections. We will provide more insights about event revenue in August, acknowledging that it is often the hardest metric to nail down.

Yes, I don't know, Jim, do you want to continue on the expense side, or would you like me to grab that? Okay, we're not in the same room, so we're doing this over a WebEx. So you can imagine the hand-waving that's going on. The important thing as we go into next year is that we positioned ourselves for the future. And we think, as I said earlier, there are real opportunities that are going to come out of this. And so we will definitely be investing in '21. At the same time, given our scenarios around revenue growth, we need to match our expense growth as well. And so we'll be looking very carefully at all of our expenses. As you heard me say, we'll be looking at all the areas of investment we have to make sure that we're really focused on the ones that have the biggest impact in this new environment.

Understood, stay safe.

Hi, good morning. It's great to hear everyone. I wanted to follow up on the event-driven aspect; I'm not sure if "cycle" is the best term, but has there been any fundamental change in the event-driven area from the corporate proxy perspective or for mutual funds that might affect things? I understand there are various factors regarding contested proxies and similar issues, but what is the overall situation regarding mutual fund activity?

Yes, absolutely. Event-driven revenues are core to our business. They can be quite volatile. They're an attractive high-margin business, and they grow over time in line with stock record growth. What we're seeing right now is cyclical. We are not seeing any changes to the underlying structure for different reasons, both mutual fund proxies and equity contests are at cyclical lows. Typically, in these periods of high stress, fund companies do what they can to put off these events. So, we wouldn't expect to see anything come back significantly on the mutual fund side. On the equity contest side, we've clearly seen a pullback in activism during this part of the crisis, but many people are saying that will come back in the future. So we'll have to see how that goes. The good news is that we're delivering 5% to 7% adjusted EPS growth in the face of this $90 million pullback in events this year, and we won't be facing that grow over next year. So I think with those points, we feel good about the contribution event will make in the future.

That's helpful. As we consider the conversations you're starting to have regarding potential new business opportunities, can you provide us with more details about that? Is it still too early to determine where those new opportunities might arise with existing clients, or are you starting to receive inquiries from potential new clients? I believe there are many banks and brokerage firms that have realized their technology is lacking since March and April.

Yes, I think as you said, these long-term conversations, it is definitely true that many firms experienced challenges. I think that the trend toward mutualization will accelerate, as in-house platforms make even less sense. And a firm's ability to invest in those things versus other priorities that are more customer-facing will be even lower. So we do see significant long-term opportunity. Those discussions typically do take a while. In terms of the other opportunities we are seeing, we certainly expect what we're seeing with virtual shareholder meetings will provide some benefits. Obviously, there are states that did give a temporary reprieve, so those will go the other way. But I think people are going to see the success of this season and how well those are going, as we're getting very good feedback on them. That trend will continue. As I said in my remarks, we believe that the trend towards digital communication continues to represent a real opportunity.

Okay. Thanks very much, stay safe, guys.

Thank you.

Nice, guys. Glad to hear you. Are you doing okay? Look, I mean, I think it's really something, and it's impressive to see the March closed sales growth rate still strong per your comments. I guess I'd really just be curious to hear where you're adding business in this kind of environment, like what kind of calls you're getting inbound for what specific businesses. I mean, the resilience of your business is clearly showing through versus a lot of other companies that are covering the market overall. But, what can you actually add? What's the highest demand right now, if we just start there?

Yes. First of all, we just talked about March. It was interesting because we didn't have any sales that were above a $1.5 million in March. We had a lot of different solutions. As you know, we have a pretty wide solution set, so it was gratifying to see such a nice increase across a broad array of products. As we look forward and think about the sales that will happen in the next six months or so, those are based on conversations that are already taking place. There's a nice balance of conversations across both the communication side of the business and the technology side of the business with some pretty exciting solutions that we are discussing with clients. As we look at the period beyond that, we see that these conversations typically take longer to mature, but we are monitoring our pipeline information of new opportunities, and that is holding very nicely. What we're seeing is not just the continuation of sales, but also the continuation of pipeline building.

Can you comment on your ability to execute contracts and acquire new business in a more remote working environment? Also, could you provide an update on BRCC area's growth this quarter? Is there any new information on the post-sale prospectus dynamic or any additional details you can share about that growth profile? Thank you.

Yes, okay. Both are good topics. So on implementations, this is certainly something that we are watching very carefully. We have been really impressed with how smoothly the transition to working from home has gone, and it's going reasonably well for our clients as well. We are not seeing a drop-off in productivity relative to our onboarding projects. It is something we regard very carefully, but we have not seen any change or pushback in our major projects to date. On the BRCC side, we did see significant progress. In that communications and fulfillment line, there's the post-sale piece in those BRCC properties, which is the transactional print piece. The post-sale dynamics were very healthy relative to all of the trading activity, and that more than compensated if you recall, we were anticipating a bit of a downtick based on some changes in how people are handling managed accounts. But that was more than offset by the volatility. On the BRCC side, as I mentioned at the last call, the offloading of major compliance is complete. We did see modest growth in Q3 from higher transaction volumes as the second quarter of stabilization led to slight growth. For the year, we're expecting BRCC to contribute to earnings but not to revenue growth. We continue to have discussions with large clients about outsourcing their in-house transactional communications, which is part of our long-term hypothesis. We are also making progress on digital with more than 100 bond fund complexes on a digital platform. We expect further growth as they begin to take advantage of new capabilities. Therefore, we feel especially in this uncertain environment we have a very stable business, and we're feeling very solid about it.

Okay, that's good to hear. All right, stay safe, guys, and thank you.

Thank you.

Hi, thanks for taking my question. I hope you all are safe. So, Tim, you have been quite acquisitive recently. Should we expect a pause in M&A activity given everything that's going on related to COVID and the market?

Yes, Puneet. Great question, and we did make a lot of investments in fiscal '20. We really like what we got, and it’s making a nice impact on our business, particularly on the wealth management side. That has left us with a little bit elevated leverage because we like being investment grade; we like to be at 2.0. We will work that down here over the next quarters, as we have very strong cash flow. As we look forward, we want to position ourselves to be very flexible going forward. So I'll ask Jim to comment further and give us any additional color on that.

Tim got it right. I think our near-term goal is to end the year much closer to our two times number, which I think keeps us in really good shape and gives us a lot of flexibility for all of our capital allocation priorities. I think it will leave us in a great position to be opportunistic down the road, but we'll be making sure that we are ready, nimble, and healthy.

And then how does the economics of virtual shareholder meetings like meaningful projects give us a sense of the scale and the magnitude of potential impact you might get there from virtual shareholder meetings?

Yes, Puneet, a great question. These are not major events in and of themselves; think of a ticket price of anywhere from $10,000 to $15,000 per meeting. So by themselves, they’re nice but not going to materially impact the ICS line. What it does do, though, is it really cements our relationship with those companies, with the Corporate Secretary and the Assistant Corporate Secretary, which leads to deeper relationships over time. Our vision, as you know, is to provide a holistic approach to the annual meeting where we facilitate several services in and around the annual meeting. We've been doing the proxy piece, and we believe this position will provide further growth.

Got it, and who would you compete with in the business for virtual shareholders meetings?

Well, for virtual shareholder meetings, it's not just doing a WebEx or a webcast; there are real capabilities required to validate shareholders and provide voting in real-time. The transfer agents have created a competing offering, basically, and we provide information to them to allow them to do that. Their offerings are much more nascent than ours. We’ve been doing it for a long time and can execute more efficiently. Therefore, we do have a strong advantage in this space, and we think we can perform really well for people.

Got it, thank you.

Hey, good morning. Maybe to follow up on your earlier commentary on development. Any update on your UBS build-out? I think it sounds like that CapEx spend is still taking place as expected, but are there any changes in the development timeline or the go-live timeline with that one?

Yes, thank you for that question. That really remains very much on track, and we are excited about the overall opportunity in Wealth Management and with UBS. We have appointed Mike Alexander to lead our Wealth Management business. This is a key step. We are investing significantly in that engagement for UBS and for the platform to really create what we think is the platform of the future that will be very attractive for others in the industry, and that project remains on track. This is an example of a large project that could have seen adjustments, but we are working effectively in a remote environment. From a broader perspective on wealth, we feel really good about the overall opportunity. When looking at the M&A we've done over the past year, a fair bit of it has been in and around Wealth Management. We are having a number of discussions with large wealth managers; while nothing is imminent, there are real pain points we can solve around helping people move to more open architecture platforms in the future.

Great, appreciate that. And then just a quick clarification question. You've mentioned a couple of times the $330 million sales backlog. Is the number at the end of March, or are you referring to the number that you guys previously discussed as of the end of fiscal 2019?

Yes, Patrick, this is Jim. It's one and the same. We will do a final true-up at year-end, but our estimate right now is that it is somewhat similar, meaning we've added $120 million-plus in sales this year, and we’ve onboarded somewhat similar amounts. Obviously, if we have the strong Q4 that we're planning, we would be adding to that in the fourth quarter. Again, we’ll come back and true this up in August.

Great. Appreciate it. Thank you.

Good. I want to summarize here and just mention that we just paid our dividend. This is something we continue to think is important going forward. So we remain committed to our dividend, and I think it's important in the context of the call for that to be out there. Thank you for joining today. These are unprecedented times, and because of what we do and how we are doing it, Broadridge is resilient and performing strongly. We expect, as Jim said, a strong fourth quarter. While there is uncertainty around ‘21, we are positioned well, and we see real opportunities as the world evolves to a new normal. Thank you very much for joining today, and we appreciate the support.