Broadridge Financial Solutions Inc (BR) — Q2 2023 Transcript

Thank you, Allison, and good morning, everybody, and welcome to Broadridge's second quarter fiscal year 2023 earnings call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our CEO; and our CFO, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. One, we will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides and a more complete description in our annual report on Form 10-K. Two, we'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge'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?

Thanks, Edings. 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-positioned to grow even in an uncertain market. First, on Slide 3, Broadridge delivered another strong quarter. Recurring revenues rose 8% on a constant currency basis, with strong growth across both our segments. Adjusted EPS rose 11%, driven by the combination of strong growth and disciplined expense management. Second, this performance highlights the strength and resilience of our business. Clearly, the market backdrop remains uneven. Equity markets rose slightly in the quarter, capping off a year of strongly negative returns. Rates continue to rise. Volatility remained high. Asset managers pulled back on discretionary expenditures, and the dollar remained very strong. In the face of this uncertainty, Broadridge's resilient business model, with 93% recurring fee revenues, continued to perform. Moreover, our long-term business drivers remain healthy. 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. Third, 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. Fourth, we are executing on our long-term growth initiatives. We're innovating in governance, including pass-through voting, tailored shareholder reports, and digital communications, and we continued our strong momentum in capital markets. Fifth 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. 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 remained strong, driven by double-digit growth in managed accounts and mid-single-digit growth in non-managed accounts. On position growth, while still healthy, slowed to 6% as investors rotated away from 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 among our asset manager clients to offer their investors both institutional and retail choice on how their underlying shares are voted. Just yesterday, we launched a new pilot for individual investors with another leading passive asset manager, and we're in discussions with several other fund complexes. We're also continuing to work with our fund clients to develop our future roadmap for tailored shareholder reports, which will fill a critical need for the industry. Beyond our regulatory products, we're seeing strong demand for digital communications, with a second major client signing for our wealth and focused platform during the quarter. This omnichannel product suite offers enhanced investor engagement while delivering near-term cost savings through increased digitization of critical communications. That has proven to be a compelling combination for our customer communications clients. We've been investing steadily in building these capabilities over the past few 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 Solutions, or BTCS, where our market share gains are driving growth. I was also pleased to see cross-selling start to contribute to new sales as well as we won a new client in the quarter that has long been targeted by BTCS, and that made the decision to switch now based on their trust in Broadridge. 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 advisers are transitioning under the latest generation of our workstation with continued very positive feedback. 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 continue to expect to begin to recognize revenue in mid-calendar '23. 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. Year-to-date Closed sales were $94 million. Client engagement around our next-generation technology remains high, and our pipeline entering calendar '23 is stronger than it ever has been. As a result, our sales expectations for fiscal '23 are unchanged. I'll close my remarks on Slide 5. Over the past several weeks, I have met with more than 30 CEOs and C-suite clients in North America and Europe. The message from them is clear. They are continuing to push our 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. These investments are playing a key role in driving the strong revenue growth we reported today, 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. By aligning with the long-term needs of our clients, we're attacking a $60 billion 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 three-year objectives. When we do that, it will be the fourth consecutive three-year period in which we've delivered on our objectives. Finally, we're past the peak investment period in our platform solutions, 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 will 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. So thank you. Now I'll turn the call over to Edwin for a review of our financials.

Thank you, Tim, and good morning, everyone. I'm pleased to share the results from another strong quarter where recurring revenue growth and continued disciplined expense management drove double-digit adjusted EPS growth, even in 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 '23 guidance. As you can see from the financial summary on Slide 6, recurring revenues rose to $840 million, up 8% on a constant currency basis, all organic. Adjusted operating income increased 23% as we lapped elevated investment in fiscal '22 and realized the benefit from targeted cost actions that we initiated in Q4 '22, both of which more than offset the impact of the lower event-driven revenue. AOI margins of 13.4% expanded 220 basis points, and adjusted EPS rose 11% to $0.91. Finally, we delivered closed sales of $65 million. I'll note that the operating income growth is being offset by lower discrete tax items in Q2 '23 and interest rates. On taxes, we continue to project an overall tax rate of 21% for fiscal '23. 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 the details of Q2 results, starting with recurring revenue on Slide 7. Recurring revenue grew 8% to $840 million in Q2 '23, marking a second consecutive quarter near the higher end of our full-year guidance range of 6% to 9%. Our recurring revenue growth was all organic, again, keeping us on track to exceed our 5% to 7% three-year growth 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 million, with regulatory at 9% and double-digit growth across all other product lines. The 9% increase to $181 million in regulatory revenue was driven by continued growth in equity and fund positions. Data-driven Fund Solutions revenue grew 11% to $96 million, propelled by revenue from sales in our data and analytics products and higher float revenue in our mutual fund trade processing unit. Our issuer business revenue increased 12% to $27 million, led by growth in our registered shareholder solutions. Finally, we continue to benefit from strong demand in our Customer Communications business, where recurring revenues rose 11% to $163 million, driven by new client wins in print and growth in our higher-margin digital business. Turning to GTO, recurring revenues grew to $373 million or 6%, driven by new sales and continued strength in our capital markets, including BTCS, Capital Markets revenues grew 12% to $235 million, 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 million. Growth from sales was offset by a decline in license revenue as we grew over a large client renewal from Q2 '22. As a reminder, license revenues can impact quarterly revenue growth, and we expect to grow over impact in Q3 for capital markets and in Q4 for Wealth Management. Looking forward, we expect GTO full-year organic growth to be within our targeted 5% to 7% range. Now let's turn to Slide 9 for a closer look at volume trends. We had solid position growth for both equities and funds. As you can see by our results, investor participation in financial markets has remained steady despite market volatility, and we continue to be encouraged by this long-term tailwind. Equity position growth of 9% was driven by continued double-digit growth in managed accounts. Looking to the seasonally larger second half, our testing continues to show mid-single-digit growth. And with those results, we continue to expect equity position growth in the mid to high-single-digit range for the full year. Mutual fund position growth moderated from Q1 '23 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 and modest equity volume growth as continued higher trading by institutional investors more than offset the lower activity at our retail wealth management clients. As we lap a strong Q4 '22, we continue to expect full-year trading volume growth to be essentially flat for the year. Let's now move to Slide 10, where we summarize the drivers of recurring revenue growth. Recurring revenue growth of 8% was all organic, and this organic growth was balanced between net new business and internal growth. Revenue from closed sales and our continued high retention from existing customers contributed 4 points, and internal growth, primarily position 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. I'll finish the discussion on revenue with a view of total revenue on Slide 11. Total revenue grew 3% in Q2 to $1.3 billion, with recurring revenue being the largest contributor, driving 4 points of growth. Event-driven revenue was down $27 million 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. Looking ahead to the second half of fiscal '23, we expect the combination of higher contest activity and lower mutual fund activity will have us trending towards the low end of the $240 million to $260 million range that we've seen in recent years. Low to no margin distribution revenues increased by 3% and contributed 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 and 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. Adjusted operating income margin for Q2 '23 was 13.4%, a 220 basis point improvement over Q2 '22, 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 '22. 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 '23. Let's move ahead to Closed sales on Slide 13. Second quarter closed sales of $65 million, which brings our year-to-date total to $94 million, that's 16% off of H1 '22. Strong ICS sales in the quarter were powered by the large digital wealth and focused sales that Tim mentioned earlier. As a reminder, closed sales are historically weighted towards the fourth quarter. And given our robust pipeline, we remain on track to achieve our full-year closed sales guidance of between $270 million to $310 million. I'll turn now to cash flow and capital allocation on Slide 14. I'll start with a reminder that Broadridge's cash flow generation is typically negative in the fiscal first quarter and strengthens over the course of the year. And we're seeing that trend play out again this year. Q2 '23 free cash flow improved to $104 million, up 276% from $28 million last year. Free cash flow conversion calculated as free cash flow over adjusted net earnings was up 10 points over last year to 51%, driven by operating cash flow improvement. This improvement was the product of higher earnings, strong working capital management, and most notably, a year-over-year and sequential decline in the level of client platform spend as we expected. Total client platform spent for Q2 '23 was $78 million, a reduction from last year's $154 million and less than half of the Q1 '23 level of $163 million. The wealth platform accounted for the majority of the investment in the quarter, and the lower spend is a strong indicator of our progress in completing the development of that project. As we remain on track to recognize revenue on the wealth platform in mid-calendar '23, 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 '22. We remain confident that we will return to more historical levels of free cash flow conversion in fiscal year '24. 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 '23 guidance, followed by some final thoughts on the second quarter results. We are reaffirming our full year guidance on all of our key financial metrics. We continue to expect 6% to 9% constant currency recurring revenue growth driven by healthy growth across ICS and GTO, approximately 50 basis points of adjusted operating income margin expansion, and adjusted EPS growth in the 7% to 11% range and closed sales between $270 million to $310 million. And before I move on from guidance, let me briefly discuss our second half outlook, which is embedded in that full year guidance. We expect Q3 adjusted EPS growth to be in the low to mid-single digit range as the impact of continued recurring revenue growth is partially offset by lower capital markets license revenue. We expect adjusted EPS growth to be higher in the seasonally larger fourth quarter as we 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. We are now past the peak period of investment and again, driving strong free cash flow in Q2 '23, and we continue to expect our client platform spend to be lower than last year, resulting in improved free cash flow conversion in fiscal '23 and a return to a more historical conversion level in fiscal '24. We have a resilient business and financial model with a proven track record of performance through the economic cycle, but we are reaffirming our fiscal year '23 guidance. With that, let's take your questions.

Good morning. I'll ask my question and follow-up together upfront. First, both Tim and Edmund, 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? The second question is 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 record growth in the back half?

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

That's the first question. The second question is 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 record growth in the back half?

Okay. Perfect.

I'll start with the first question. Good morning, David, and thank you for the question. In our last call in November regarding Q1 '23, I mentioned that we anticipated the annualized revenue from existing and in-progress contracts to be around $100 million, with associated amortization for all build and conversion costs estimated at about $65 million. As I indicated in my prepared remarks, we still expect to recognize revenue in mid-calendar '23; however, this will not reflect the full annualized amount I previously mentioned and shared in November. The specific figure for fiscal '24 will depend on the rollout strategy that UBS implements, and we will have a clearer understanding of the near-term financial implications once those plans are finalized. Additionally, as we have discussed earlier, we do expect this to negatively impact margins, although we believe we can counterbalance that and achieve margin expansion. Importantly, we are past the peak investment period and expect to return to more typical free cash flow levels, allowing us to meet our long-term financial goals. Tim, I'll pass it to you for the next part.

I want to reiterate that Edmund is correct. We're really excited about the broader $16 billion opportunity in Wealth Management and how it positions us. We've developed components for UBS that we can now showcase to other clients as live software, which enhances our sales discussions and is contributing to an increasing sales pipeline, not just for major transformational deals but for several components. We feel positive about this. Regarding your follow-up on our guidance for the second half of the year regarding stock record growth, we've been experiencing elevated stock record growth levels over the past couple of years, significantly higher than the historical mid-single digit norms. Despite a 20% market decline last year, investor participation remained strong, showing good growth. While we cannot predict the market, our best indicator is our forward testing, which provides us with solid visibility into Q3 and reasonably good visibility into Q4. Based on that, we expect to see mid to high-single-digit growth in the second half of the year, slightly stronger for equities than for funds, but collectively mid to high-single digits. We also believe the fact that we are not returning to levels from a couple of years ago, in terms of growth rates but overall levels, highlights a fundamental shift driven by factors like free trading, app-based investing, and younger investors entering the market. This one-time effect is building on ongoing growth trends, including managed accounts and, more recently, direct indexing.

And David, I'd just add to Tim's point. 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 to 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. But again, we said mid to high-single digits, and we still expect that level to play out.

Understood. Thanks for that.

Good morning, everyone. Thanks for taking my question. I wanted to know your thoughts on the progress of moving to direct indexing. It seems like it's still in the early stages. However, could managed accounts and direct indexing potentially continue to show significant growth, which might lead to strong equity position growth while fund positions slow down? If that’s a possibility, how do you view any changes in economics due to this mix shift?

Yeah. 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 401(k)s and IRAs, ETFs, and managed accounts. It's pretty early days. I think it is even too early to really sort of pick it up in the numbers; you sort of begin to see it as a sort of like the barest of 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 are 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 the growth trajectory. I think it is something that just really supports the long-term trends that we've seen. 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.

Okay. That's fair. And then just on the Secure 2.0 legislation. Can you just remind us that the portions of the business related to retirement plans at Broadridge and how you see that potentially being a tailwind for continued growth in retirement plan participants?

I'll let Edmund elaborate on this, but retirement is not a significant direct aspect of our business. We do support all the retirement record keepers during their client onboarding, and we handle a substantial portion of the 401(k) market through our mutual fund trade processing. We have a few smaller businesses that directly focus on this area, and it plays a major role in wealth management for our clients. I don't anticipate that we'll be discussing a major change in growth related to this a year from now. However, it will channel more funds into investing, benefiting our clients and enhancing their investment capabilities. Overall, I believe it will provide a positive impact for some of our smaller businesses.

Yeah. And the only thing I'll add to what Tim said is that we do have in our mutual fund trade processing unit, economics driven by assets under administration and retirement accounts. And if this legislation goes through and we see the increase in the number 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.

Great. That’s helpful. Appreciate it.

Hey, everyone. I wanted to discuss our usual seasonal increase in bookings during the second half of the year, which we need to prepare for. It's pretty much to be expected. I believe you achieved about 20 to 22% of your projected bookings this quarter, which is typical for this time. It would be helpful to get more insight into what specifically is driving your confidence in the pipeline and which areas of the business those prospects are coming from for the latter part of the year to reach your annual targets. Additionally, how confident are you feeling now? Are you seeing any impact on the wealth side as we approach the UBS contract launch? I understand it might not be highly profitable initially, so we’re really counting on other contracts and revenues to support that platform. Have you noticed any signs of that yet? Thanks, everyone.

Yeah, Darrin. 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 very similar to previous years in terms of the coverage of deals in 00 for the second half and their stage of maturity. So as we reiterate today, that's really what we're looking at. Specifically on the wealth side, we said in the call last time that our pipeline is up 25% year-over-year. It's 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 sort of where that stands. But I think the quality of the conversations gives us 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. 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 are in the pipeline is what allows us to feel confident about the rest of the year.

And Tim, I'll add one important point. And Darrin, I know you know this, the closed sales that Tim has just been discussing here, the in-year closed sales aren't as impactful on our full-year recurring revenue. It's the revenue backlog of what 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.

And just on the wealth side, can you provide a quick reminder of how much evidence you're seeing that you'll be able to take advantage of the UBS platform you've built out?

I believe this relates to my discussions and the excitement people express when they see those elements in action. On a numerical level, it ties back to the pipeline, which shows a significant year-over-year increase. While we may not have updates on actual sales, we do have positive news regarding the pipeline, and this will continue to be a relevant topic.

We have the news on the pipeline and what we said in Q1 was that we expect incremental sales of $20 million to $30 million in that wealth and all that Tim is saying I think gives us confidence in that number, which, again, we feel good about and reaffirms our belief in the business case and the overall return for the company here.

I have a quick follow-up regarding position growth. While position growth and equity in mutual funds are largely influenced by market dynamics, there is a noticeable correlation between what people hold in their savings accounts and their investment activities, such as in stocks. Looking ahead to 2024 and beyond, it may be early, but if there's a shift in position growth rates, do you believe the external drivers are robust enough to support the medium-term targets you've outlined? It seems like there are numerous opportunities for growth, and I would appreciate your insights on this. Thank you.

I think, Darrin, looking back at past significant disruptions like in 1999 and 2008, we saw position growth drop to zero during those extreme periods. However, the growth of our ICS is primarily driven by technology sales rather than position growth. Over the last couple of years, our ICS business growth has been approximately evenly split between revenue from new sales and internal growth from positions. So, if position growth were to drop to zero, it would indeed lower our overall growth rate, but that hasn’t been the case for an extended time. Therefore, we currently have no reason to believe that our medium-term growth plans will change.

Yeah. And again, I'll just add to Tim's point, position growth drives 20% of our overall recurring revenue. So I'll point that out. But just reiterating a point that Tim made, you won't be surprised. We look six 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 aligned with our growth objectives and guidance that we provide if we see anything like that.

That’s fair. All right. Thanks, guys.

Thanks very much. Just wanted to follow up on questions around the rollout of the wealth platform with UBS and the leverage that potentially you get with other customers. I think it makes sense that as those start to go live, it should improve sales cycles, et cetera. 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 of their own new implementations even if it's just for specific pieces or modules? And how should we think about that on a go-forward basis in creating that flywheel?

Sure. First of all, welcome to the call, James. It’s great to have you here. There have been many lessons learned during our work with UBS. In the future, we plan to break projects like this into smaller pieces and approach them differently, which is certainly a valuable lesson. Additionally, we have significantly improved our project management and technology tracking. We have transitioned to an agile methodology, allowing us to monitor where we are in the agile sprint, the remaining story points, and our overall velocity. In the testing phase, we are now able to anticipate expected defects and track any issues with retesting. We have developed a comprehensive platform for capacity planning, and this is now being rolled out across the company. Our experience has led to considerable growth in our use of AWS, with much of the new technology for UBS being cloud-based. This maturation process and the increase in development productivity are very exciting for us. We believe this work is driving Broadridge's transformation into a genuine SaaS company, and we are seeing this transformation unfold positively. Thank you for your question.

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 shareholder reports. Can you provide some color on how Broadridge is becoming involved or the opportunity to be involved in the creation and production of these reports to help offset some of the admittedly small headwinds associated with notice and access fees?

Certainly. Tailored shareholder reports will provide investors with a concise two to three-page summary, rather than lengthy reports that can be hard to navigate. This approach is expected to enhance clarity for investors and improve cost-effectiveness for fund communications. While there's a small reduction in payment for these notices, the change introduces significant complexities for fund clients. They will need to create a greater volume of tailored reports specific to each investor's share class. For instance, one fund complex currently produces 200 different reports, but will need to handle 1,200 in the future. This places a demand on data management and report generation. Our expertise in this area positions us to assist the industry effectively. We've hosted informative webinars that attracted considerable interest, as fund clients look for ways to adapt to these new requirements. We are actively collaborating with them to help navigate this transition.

That’s great. Thank you so much.

Thank you. This is Tim. I'll just close things off. I want to thank everyone for joining us this morning. I hope that what came through is how pleased we were with our second quarter performance 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. So thank you very much. We look forward to continuing the conversation next quarter.