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Broadridge Financial Solutions Inc (NYSE:BR)
Q3 2019 Earnings Call
May. 7, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Ann, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Broadridge Third Quarter Fiscal Year 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to your first speaker for today, Mr. Edings Thibault. Thank you. You may begin your conference.

Edings Thibault -- Head of Corporate FP&A and Investor Relations

Thank you, Ann. Good morning, everyone, and welcome to Broadridge's third quarter 2019 earnings call. Our earnings release and the slides that accompany this call may be found on the investor relations section of broadridge.com.

Joining me on the call this morning are Tim Gokey, our CEO and President; and our CFO, Jim Young. Before I turn the call over to Tim, a few standard reminders. We will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slide and a more complete description on our annual report on Form 10-K.

We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to their comparable GAAP measures can be found in the earnings release and presentation.

Let me now turn the call over to Tim Gokey. Tim?

Tim Gokey -- President and Chief Executive Officer

Thank you, Edings. And good morning, everyone. Broadridge reported solid third quarter results and is poised to deliver another strong year of recurring revenue growth, double-digit EPS growth, and strong closed sales. We also continue to make excellent progress against key growth initiatives across governance, capital markets and wealth management. And we announced two tuck-in acquisitions that enhance our capabilities in key strategic areas, as well as our ability to hit our 3-year objectives and to deliver long-term growth.

This morning, I will review our key guidance points, walk through our business results and share our progress against these important growth initiatives. Then, I'll hand over to Jim to walk through our financial results in more detail.

As you know, the ASC 606 accounting change has had a big impact on our quarterly results. Jim will help you bridge between our reported figures and our underlying results. He will also provide further insights on our fiscal 2019 guidance.

So let's get started on page 4. Broadridge reported solid third quarter results. Recurring fee revenues rose 20% to $767 million and total revenues rose 14% to $1.95 billion, in line with the guidance we gave last quarter. Excluding the impact of the accounting change, recurring revenues grew 4% and total revenues were up 1%. Third quarter adjusted EPS was $1.59, ahead of our outlook. Event driven revenues were a healthy $68 million, contributing to the strength of our quarterly EPS.

With nine months of the year now complete and with visibility on more than 80% of the proxy season, Broadridge is very well positioned to deliver another strong year with recurring revenue growth in the mid-single digits and double-digit adjusted EPS growth.

Looking ahead to the end of the year, we are reaffirming or raising our outlook across all three of our most important guidance points. First, we are reaffirming our expectations for recurring revenue growth of 5% to 7%, though for the lower end of that range. Second, we are reaffirming our guidance for adjusted EPS growth of 9% to 13%. And third, we are raising our outlook for closed sales on the back of record year-to-date results and the continued strength of our sales pipeline.

Outside of these three key guidance point, we're lowering our overall outlook for total revenue growth, primarily as a result of lower than expected distribution revenues. These distribution revenues carry little to no margin and we are therefore also raising our margin outlook, reflecting this improved mix as well as our own work to deliver on cost.

The changes to our revenue and margin guidance are a reminder that changes in distribution revenue have little impact on our operating profit. That's why we emphasize recurring revenue growth and separately event driven revenue, rather than total revenue, as a best metrics for Broadridge. Simply put, they are much more aligned with our profitability.

Given our focus on sustainable long-term growth, I'm even more pleased that we're positioned to deliver another year of strong double-digit earnings growth, while continuing to invest in digital communications, in fixed income network benefits and in emerging capabilities like cloud and blockchain.

The strength of our recurring revenue business model, combined with a lot of really good work across the Company enables us to both deliver strong returns and make critical investments for growth. The outlook for fiscal 2019 also leaves Broadridge very well positioned to achieve our 3-year year Investor Day growth objectives for 2020, as well as continued growth beyond 2020.

Let's turn to slide 5 to review our business results and the progress we've made against our growth initiatives. Before I begin my overview, I want to note that I will be referring to growth rate, which exclude the impact of the accounting change. Jim will take you through the impact of this change in detail. But I think it's more helpful if I focus on the underlying business trends.

I'll begin with our ICS business, which continue to generate strong results, with 6% underlying recurring revenue growth. Excluding Customer Communications, which as we've discussed in the past, continues to cycle through the loss of a large client. ICS revenues were up 14%, reflecting both strengthen in our regulatory communications, as well as strong demand for our data and analytics offerings.

Consistent with the outlook we shared on our last call, both stock and interim record growth slowed somewhat in the third quarter. Stock record growth slowed to 3% in the quarter as we comped a robust 11% from a year ago.

With less than 20% of proxies expected to be distributed in May and June, we expect full year stock record growth to be in the mid-single digit range. Interim record growth, which covers both mutual fund and ETFs also slowed a bit to 6% in the third quarter versus 8% a year ago. We expect full year interim growth to be in the mid to high single-digits. Event driven revenues in the third quarter were ahead of our expectations, driven by higher mutual fund proxies due to recent fund consolidations.

When fund companies merge, they typically need to get approval of their individual fund shareholders to shift fund management to the new corporate entity. That requires a proxy vote and such activity benefited our results in the third quarter.

Now let's turn to our GTO business, where third quarter revenue was essentially flat with a strong Q3 of 2018 and growth was slower than last quarter. There were several temporary factors driving that slowdown in growth. First was the impact of lower trading volumes, as you recall, equity trading volumes rose 28% year-over-year in the fiscal third quarter of 2018.

Against that strong comparable, FY19 equity volumes were 6% lower. A second factor was longer implementation cycles as we discussed last quarter. We expect both these temporary factors will subside and that GTO revenue growth will re-accelerate in the mid-single digits in the fourth quarter.

Turning to sales. We reported $37 million of closed sales in the quarter, pushing our year-to-date number up to a record $161 million. Notable signings included two sales of our GPTM platform capabilities to US banks, a great sign of attraction we're gaining in the market as we continue to make progress on-boarding some of our early clients.

We expect to close out fiscal 2019 on a strong note and we are raising our guidance for closed sales to $200 million to $240 million from $185 million to $225 million. Beyond our financial results, I'm excited by the progress we've made against key growth initiatives across governance, capital markets and wealth management and will further strengthen our ability to drive long-term value for our clients and shareholders.

In our governance business, our path to long-term growth lies in creating and delivering next generation communications that empower retail shareholders, their strength in governance and to drive down our clients' costs, made a small but important step forward on that path with the launch of our new proxy voting app last month. The new proxy vote app is available on both the Apple and Android app stores and it creates an intuitive, streamlined experience to drive more meaningful engagement.

Investors will be able to vote directly in the app and we see an important regulatory and educational information on board of director elections and DFC (ph) decisions. We're also working with our broker-dealer clients to streamline the voting process within their app and to enhance their email communications. And it is working. One of our smaller clients have already reported a meaningful uptick in voting during the current proxy seasons, as their clients find it easy to engage on governance matters with the new technology.

Speaking of the investor experience, the issue of end to end vote confirmation in proxy voting remains an important focus. Working in tandem with institutional investors, corporate issuers and broker dealers, we submitted a joint comment letter to the SEC to make end-to-end vote confirmation a reality and increase confidence in the integrity of the corporate governance process. Using technology or to enhance the proxy process is a win-win for all parties. Individual investors find it easier to make their voice heard. Our broker partners get an enhanced relationship with their clients. Corporate issuers see higher engagement with their shareholders, all of which commence the important role that Broadridge plays as a critical infrastructure provider at the center of corporate governance. Beyond proxy voting, we're working with more than 130 mutual fund complexes to help them prepare to implement a new notice and access 30e-3 rule using our technology to help them capture the communications preferences of their shareholders across 1,200 plus broker dealers. That same technology also allows for those shareholders to opt all the way into e-delIvery, bypassing notice and access altogether and creating additional savings for those funds.

Progress on all three of these initiatives offers great insight into how we built our governance franchise by driving value to constituents, investors, issuers, funds, regulators, and broker dealers. We're using technology to make it easier and more cost-efficient for shareholders to vote across multiple platforms. We're helping lead the industry to find common sense solutions that strengthen governance, and we're working with our clients to help them implement lower cost alternatives to physical mail. These changes are right for the industry, and they benefit investors.

Turning to our GTO business. I'm excited by the progress we're making in on-boarding new clients. We're off to a strong start and working with UBS to build our integrated wealth platform. We're moving beyond the planning stage into execution and ramping up our development team, to deliver on our commitments. We also continue to work with a major client to bring its US equities business on to our SaaS technology platform. This (inaudible) implementations should contribute to the re-acceleration of revenue growth as we expect in the fourth quarter.

These implementations are critical for two reasons. First, as they progress, we can begin to recognize revenue turning sales backlog into revenue growth. Second and bigger benefit, is that other potential clients can see how modern technology platforms can streamline their operations, not just in theory but in real practice. It's no coincidence that as we bring more major clients under our platform, we are seeing heightened interest from other players and learning how we can help them.

M&A is another important part of our long-term investment strategy, and we're investing approximately $100 million to tuck-in acquisitions that will strengthen our existing mutual fund business and broaden our wealth management product line. First, we announced the acquisition of TD Ameritrade's retirement custody and trust assets. This business, which provides mutual fund and ETF trading and cut fee services to record-keepers and third-party administrators, will build on our industry and Matrix business. This is combined $420 billion (ph) of retirement assets under administration to solidify Broadridge's position as one of the largest third-party providers of fund, trading, fee-processing in custodial solutions. And the incremental scale will enable us to invest more aggressively to build out our technology platform.

Second, we acquired Rockall Technologies, a SaaS-based provider of securities based lending and collateral management solutions for wealth management firms. Rockall not only extends our product line in wealth management also it gives us new front office capabilities that we can eventually incorporate into our broader wealth platform. These acquisitions are exciting and they continue our successful approach of acquiring small to mid-sized businesses that grow our core franchises to strengthen our capabilities.

No different than the past, M&A will continue to play an integral pat in our growth and investment strategy going forward. Even in a highly competitive M&A market, we continue to find value creating opportunities that are tightly aligned with our strategic roadmap and where we can add unique value. The TD and Rockall deals are both great examples and we remain on the lookout for additional M&A investments.

So let me wrap up my comments with a summary of my key messages. First, Broadridge announced solid third quarter results, with 4% pro forma recurring fee revenue growth and strong earnings growth. Second, as three quarters complete, and good visibility into Q4, we're well positioned to deliver strong full year 2019 results, including double-digit EPS growth. And third, Broadridge is making great progress against our key growth initiatives. We continue to make strides in developing next-generation regulatory communications and in strengthening our governance business. In capital markets and wealth management, we've also made strong progress in delivering an integrated technology platform that will help our clients reduce the cost and complexity of their operations. And our recent M&A activity provides us with additional scale to invest and will extend our wealth management product suite. These steps and others give me confidence that Broadridge is on track to deliver more value to our clients and long-term growth for our shareholders.

Before, I turn it over to Jim. I want to thank Broadridge's more than 10,000 associates across the globe for the important work they do, delivering for our clients, and thereby enabling better financial lives for millions of investors. Jim?

Jim Young -- Corporate Vice President, Chief Financial Officer

Thanks, Tim, and good morning, everyone. Before reviewing our results, I'll make a few callouts. First, Broadridge had a solid third quarter. We delivered on our third quarter recurring revenue and total revenue guidance and exceeded the high end of our EPS range on healthy event fees and continued cost discipline. Second, as discussed previously, the ongoing implementation of the new ASC 606 accounting standard had the effect of shifting a large chunk of recurring fee proxy associated distribution revenues into the third quarter that previously under ASC 605 would have been recorded in the fourth quarter. Accordingly, reported growth rates, comparing the third quarter last year under 605 to the third quarter this year under 606 are not indicative of the underlying performance of the business. Therefore, in addition to, on an as reported basis, we are providing in today's presentation recurring and total revenue growth rates where revenue for Q3 and year-to-date fiscal '18 are under 606 to provide a more meaningful view of our top line performance.

And before I move on to my final call-out, I'll remind you that while the impact of the accounting change is material to the third and fourth quarter growth rates, on a reported basis, the expected full-year impact on results and growth rates is immaterial. Third and final, guidance. With three quarters of the year behind us and our visibility into full year proxy revenues, we are reaffirming or raising our FY19 guidance for the three most important guidance points. One, we are reaffirming our outlook for recurring fee revenue growth; two, we are reaffirming our adjusted EPS growth guidance range; and three, we are raising our closed sales guidance. Additionally, we are lowering our total revenue growth guidance to reflect our outlook for reduced low to no margin distribution revenue and FX headwinds. And finally, we are raising operating margin guidance on the margin accretion from the reduction in our outlook for low to no margin distribution revenues.

I'll give more color on each of these and where the ranges we expect to finish in a few minutes. Let's move on to the slides.

I'll begin on Slide 6. On a reported basis, recurring revenue was up 20% and event fees were up 3% and total revenue was up 14%. However, as I said in my opening call out, the ongoing implementation of the new accounting standard in fiscal 2019 shifted significant equity proxy revenues from the fourth quarter to the third quarter and fiscal '18 is reported under ASC 605. Therefore, a more meaningful comparison is to fiscal '18 Q3 revenue results under ASC 606, as shown on this page. On this basis, recurring revenue grew 4%, event fees were flat, and total revenue was up 1%. These results were consistent with the Q3 guidance we provided in February. Again, the accounting change is expected to have a material impact on the fiscal '19 third and fourth quarter growth rates only, while the full-year impact will be immaterial. We provided fiscal 2018 results under ASC 606 by quarter, revenue type and segment on pages 19 and 20 in the appendix of this presentation.

Let's move on to Slide 7 for the drivers of revenue growth. I will start with a more important metric, recurring revenue growth on the bottom half of the slide. Recurring revenue growth was up 4% on an ASC 606 basis in the third quarter. Organic recurring revenue growth was 3%, slightly below the 4% to 7% growth we have seen consistently over the last nine quarters or so. We think this is a temporary dip. On-boarding of new business across ICS and GTO continue at a very healthy clip. 6 points of growth from new sales is very consistent with our performance over the last two plus years. Conversely, internal growth, which has also been a consistent contributor of growth was modestly negative, as we lap exceptionally strong trading volumes and one-timers in GTO in the third quarter of last year. In the fourth quarter, we expect internal growth to return to positive territory with continued mid single-digit position growth in ICS and less difficult trading volume comps in GTO.

Moving now to total revenue. Total revenue grew 1% to $1.2 billion in the third quarter. The 4% recurring growth translated into 3 points of total revenue growth, and event driven revenues benefited from increased mutual fund proxy activity and were flat against very healthy levels in the prior year.

Distribution revenues declined and the weaker Canadian dollar and British pound continued to be a headwind, causing an additional 1 point of drag in the quarter. The nine month year-to-date revenue results on a reported and 606 basis can be found on slides 13, 14 and 15 in the appendix.

I'll now move to slide 8. On a reported to reported basis, adjusted operating income rose 68% to $256 million in the third quarter of fiscal 2019. This exceptional growth rate was primarily the effect of implementing ASC 606 on recurring revenues. Relative to our expectations, event fees were a bit higher and with their high incremental margins contributed nicely in the quarter.

Also, as expected, SG&A expense growth in the quarter moderated to 4% versus the prior year. We expect SG&A growth to continue to moderate in the fourth quarter. Adjusted EPS rose 59% to $1.59 per share in the third quarter. A notably higher tax rate explains the growth differential between the 68% adjusted operating income growth and the 59% adjusted EPS growth. Our effective tax rate was 23% for the quarter, up from 12.9% a year ago.

The biggest driver of that change was a drop in the excess tax benefit or ETB to $1 million from $16 million a year ago. As we have discussed, this is a difficult line item to forecast. With year-to-date activity lagging well behind our original $25 million forecast, we are reducing our ETB outlook to $20 million. This has the effect of increasing our expected effective tax rate for fiscal '19. We've provided additional detail on slide 17 in the appendix.

Let's turn to slide 9 from a -- additional color on our segment results. Our ICS segment reported strong underlying results. As I said at the outset, the impact of ASC 606 revenue accounting change was most pronounced in our ICS segment. When applied to our fiscal '18 ICS results, the new standard shifted $97 million of recurring fee proxy revenues in the fourth quarter into the third quarter. So while reported ICS recurring fee revenue growth was nominally 31%, underlying growth was a strong 6%. Organic growth was 5%, reflecting the continued strong growth, excluding Customer Communications that Tim discussed.

Looking at the growth drivers at the bottom of the slide, net new business gains were modestly offset by the client loss and customer communications. Internal growth remain positive and return to a more normalized level after the exceptional Q2 interim record growth. As Tim noted, we expect stock record growth to finish the year on a healthy note. ASC 606 only had a minimal impact on GTO revenues in the third quarter and revenue growth was flat. As we indicated last quarter, GTO experienced a brief well and on-boarding activity in the second and third quarters, which resulted in more modest net new business contributions, totaling 3 points of growth.

Internal growth turned from a consistently positive contributor to a drag of 3 points in the third quarter, resulting in overall flat growth. That decline in internal growth was driven by tougher trading comps, as equity trades contracted 6% comping 28% a year ago. In addition, certain one-time fee items a year ago also contributing to the negative internal growth. As we look to the fourth quarter, we expect the impact of most of these temporary pressures to ease and that GTO will return to growth in the 4% to 6% range, driven by positive internal growth and new on-boardings.

Moving to slide 10, in capital allocation. Broadridge generated $120 million of free cash flow in the third quarter and $172 million year-to-date. The new revenue recognition standard does not impact the timing of our free cash flow and accordingly, we expect the free cash flow will once again be heavily weighted to the fourth quarter of the fiscal year.

Broadridge invested $46 million in capital expenditures year-to-date and returned just over $250 million to shareholders, including $155 million in dividends and $97 million in net share repurchases. Following the close of the quarter, we announced the acquisitions of TD Ameritrade Trust Company assets for $62 million and Rockall Technologies for $37 million. The TD transaction is expected to close in June. The two businesses combined represent less than 1% of annual recurring revenue.

Given our typical upfront reinvestment in newly acquired businesses, we expect little or no EPS accretion in fiscal 2020 from these deals, although we expect both to generate very attractive returns over time.

Our adjusted leverage ratio of 1.5 times at the end of the third quarter remains below our long-term target of 2.0 times. As Tim mentioned, we continue to look for attractive M&A opportunities and have ample capital capacity.

I'll finish off with our guidance on slide 11. First, we are reaffirming our recurring revenue guidance range of 5% to 7%. We expect to be in the lower half of this range. As we've been indicating all year, this means the fourth quarter will be down on an as reported basis. However, on an ASC 606 basis, the quarter will grow nicely in line with the full-year guidance, reflecting continued growth in ICS and the pickup in GTO.

We are reducing total revenue growth guidance to approximately 1%. This reduction is attributable to lower than expected low to no margin distribution revenues and FX headwinds. This updated guidance implies Q4 total revenues of around $1.22 billion. Included in our outlook for total revenues, we continue to anticipate that event driven revenues will be down 10% to 20% off of record fiscal 2018 levels. As Tim noted, while third quarter event driven revenues benefited from mutual fund merger activity, most of these activities have ramped up and we expect fourth quarter event driven revenues to be lower than a year ago.

We are raising our adjusted operating income margin guidance 50 basis points to approximately 17%, representing over 100 basis points of margin expansion over fiscal 2018. This nice uptick in our guidance reflects the reduction in the margin dilutive distribution revenues and our continued focus on delivering operating efficiencies.

We are also reaffirming our adjusted EPS growth guidance of 9% to 13% and we expect that we'll be right in the middle of that range or approximately 10% to 12% for the year. As I mentioned earlier, our adjusted EPS guidance reflects a cut and our outlook for ETB to $20 million from $25 million. Our free cash flow guidance remains at $565 million to $615 million and we expect to be at the low end of this range.

And finally, we are raising our full year closed sales guidance to $200 million to $240 million, up from $185 million to $225 million. $161 million in year-to-date sales is a record for us and we still have a robust pipeline , which speaks to the strong market demand and our growing execution capabilities.

In closing, I'm pleased with our results year-to-date and expect that Broadridge will deliver strong full-year results, including strong recurring revenue growth, double-digit earnings growth and record or near record closed sales. As Tim noted , our progress against key strategic initiatives gives me confidence that we are very well positioned to achieve the three-year growth objectives we laid out at our 2017 Investor Day and to continue to deliver strong multi-year growth for our shareholders.

We'll now open it up for questions. Ann?

Questions and Answers:

Operator

Yes sir. Thank you. (Operator Instructions) And your first question comes from the line of David Togut of Evercore ISI. Please ask your question.

David Togut -- Evercore ISI -- Analyst

Thank you. Good morning.

Tim Gokey -- President and Chief Executive Officer

Good morning.

David Togut -- Evercore ISI -- Analyst

Does the re-acceleration, Jim in GTO organic revenue growth for Q4 to 4% to 6% include the on-boarding of the Tier 1 investment bank in equity and fixed income trade processing?

Tim Gokey -- President and Chief Executive Officer

Hey, David, it is Tim. And I'll just jump in on that. It really includes very little from that on-boarding to achieve that. And, look , we can hear and feel really good about the prospects for GTO, the long-term growth, what we're seeing in backlog, what we're seeing in sales, what we're seeing in client discussions. And this temporary lull due to the trading comps and some items last year and our implementations mix, as you said, is temporary.

And I do wanted to make a comment on the implementations mix, because as we move through these longer and larger projects, it's actually a positive because the notion of that is that the projects when they are implemented are larger and that is what is fueling our long-term growth. So irrespective of that on-boarding, we do expect mid-single digits in Q4 and we also expect a solid '20 and feel good about it.

David Togut -- Evercore ISI -- Analyst

Understood. Just as a quick follow-up, any update on the SEC review of the US proxy system, in terms of how you expect the SEC to conclude?

Tim Gokey -- President and Chief Executive Officer

Absolutely. We feel really good about the progress, specifically on -- in confirmation. This letter that I mentioned in the call, getting The Council of Institutional Investors, the Society of Corporate Secretaries and the broker dealers is represented by SIFMA to all agree is very unusual. And we've done -- been getting really strong positive feedback from regulators who would really like to see an industry solution here.

And so now the technology exists for this, it has already been piloted, and it is and will really enhance what is already a world-leading process. So we feel good about that and we would just see it as a part of a pattern of creating continuing more value for all constituents.

David Togut -- Evercore ISI -- Analyst

Understood. Thank you.

Operator

Thank you. Your next question comes from the line of Patrick O'Shaughnessy of Raymond James. Please ask your question.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning guys. So to follow up on that last question, what are your expectations in terms of the process that the SEC might follow to work on the proxy plumbing. And then I guess along with that, any thoughts that you might have in terms of potential pricing review on fund interims that they put out for request for comment last year and things seem to be pretty quiet on that front.

Tim Gokey -- President and Chief Executive Officer

Sure, Patrick. First of all just on the plumbing, I think that the main focus is on this question of end to end confirmation. And I think there will be further consultations around that. And we do expect that there will be some guidance there that will enable the industry to move forward on that, and that's something that we see as a positive.

On the fees, we don't have a specific update on the fees since estimation in October, and there's no real timeline for what it would be if it did happen, although, as we said before, we think it would likely be lengthy. What we think is most notable here is the work that we're doing with the funds to help them prepare for 30e-3.

Almost 10 years ago when notice and access was implemented for corporate issuers, it really changed our position with public companies as they consulted with us on how to maximize the benefit from notice and access then. And we're seeing the same opportunity here as we are working with -- as we said more than a 100 funds to help them drive savings through 30e-3 but also to continue digitization. And now we're saving the industry as we said before relative to 10 years ago $400 million a year. We see the opportunity for the next $400 million in savings. And again, as part of that theme of continually to drive continue to drive value to all constituents . So I think as all of that takes place, we feel good about how we're positioned in the industry and with our clients.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Got it. Thank you. And then as we look at the ICS segment, obviously, the North American communications business continues to struggle and you spoke about some of those non-customer rollouts. What steps can you guys take to kind of turn that business around and to prevent it from being the growth headwind in fiscal 2020?

Tim Gokey -- President and Chief Executive Officer

Sure. I think the things that we are continuing to execute on there are, first of all continuing to drive new sales and we do have a nice backlog in that business and we're working to on-board that and that will help ameliorate this ongoing roll off of that client. We are continuing to drive pretty strong synergies, I think we've commented that we've achieved nearly $50 million to date and creating that cost position which by the way has really neutralized any earnings impact of the revenues we've been talking about. So continue to drive cost which both neutralize any of the decline, but also gives us a stronger position for driving future growth.

And then last is really continue to drive digitization, because remember that the ultimate goal here is to help all of those clients get to a digital future. And that is that trend in the industry is, has taken longer than we expected, but we think we're really well positioned to help clients in the future as they make that transition and that will put us really on the right path and maybe a smaller business, but a higher margin business at that time.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Okay, great. Thank you.

Operator

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

Oscar Turner -- SunTrust -- Analyst

Hey guys, good morning.

Tim Gokey -- President and Chief Executive Officer

Hi, Oscar.

Oscar Turner -- SunTrust -- Analyst

So first question is on event driven. It looks like that segment or sub-segment will again be a growth headwind in the fourth quarter, as you guys had already forecast. I was wondering if you can provide some color into how the mutual fund calendar is shaping up for next year?

Jim Young -- Corporate Vice President, Chief Financial Officer

Sure. Oscar, this is Jim. Obviously, just as context, event has contributed nicely over the last few years, obviously a record year last year, even down 10% to 20% this year is really strong good contributions for us. Also putting into context, this is -- you're talking about 5%, 6% of our total revenue. So as we think ahead to next year, we're obviously in the midst developing our operating plans. Too early to give you an event driven outlook. That said, we take into account, just as you said the calendars of major institutions, complexes. And many of whom have gone out of the last couple of years, look at activist activity, we look at mutual fund merger activity, activists and contest announcements etc. And obviously in August, we'll give you a full view of where, of our best thinking recognizing. We are very good kind of 90 plus days out, but we have enough underlying trends analytics that we are able to triangulate around our outlook. And then just as a final reminder, we look long term over event driven, it continues to be a really nice grower growing in line with positions, so independent of any one year, this can continue to be a nice contributor to Broadridge.

Oscar Turner -- SunTrust -- Analyst

Okay, thanks. And then a second question on M&A, can you speak to your appetite for larger M&A deals? How much incremental leverage would you be willing to take on and which areas would you be most likely to do such a deal?

Tim Gokey -- President and Chief Executive Officer

Sure. Oscar, this is, Tim. Good morning.

Oscar Turner -- SunTrust -- Analyst

Good morning.

Tim Gokey -- President and Chief Executive Officer

Let me just -- let me just give a little broader context, and then sort of jump into specific questions, because M&A really it does continue to be our core strategy for us. And I said before in other occasions, in FinTech it's sort of evergreen for M&A because there are always new problems cropping up, and we have the opportunity to look across the landscape, and find a really good pieces of the technology and to bring those into our ecosystem for clients.

And we also know that the M&A market is very expensive right now. And so we need to work harder than ever on proprietary, or semi proprietary transactions where we bring any value, and we think that TD and Rockall are both great examples of that. We have a very robust pipeline going forward and that represents a mix of size deals from ones that are traditional tuck-ins to ones that are somewhat larger. And we would and we don't feel that constraint right now. If you think about going back to the Matrix transaction, at that time relative to our market cap, that would be a $1 billion transaction today. So we don't feel constrained on the size. What we really are focused on is what are things that are uniquely additive to our capabilities, where we can create strong value for our shareholders.

And Jim is going to add on here a little bit.

Jim Young -- Corporate Vice President, Chief Financial Officer

And Oscar, just on the capacity question, obviously, we ended the quarter at 1.5 times leverage, well below our -- our 2.0 target leverage. As Tim just said, we don't feel constrained. We obviously have room within that. And as we've said before, if there was such a transaction, certainly, there is opportunity to go a little bit over and come back down in a short period. But again, that is not a driver, but it does give us a lot of flexibility in this market.

Oscar Turner -- SunTrust -- Analyst

Okay, thanks for that color.

Operator

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

Peter Heckmann -- D.A. Davidson -- Analyst

Hey, good morning. Just wanted to follow up, could you put, maybe a little bit finer point on the acquired revenue. I know it's not terribly material to forecast, but looking to me like 4 or 5, 6 deals on combined, should we expect that to add, let's say $20 million at this point, $20 million to $30 million in acquired revenue to next year.

Jim Young -- Corporate Vice President, Chief Financial Officer

Hey, it is, Jim. On the -- really we're just -- at the moment just focused on the two deals we announced the TD assets and Rockall which combined our -- in or around less than 1% of our recurring revenue, which gets you pretty close to, I think the estimates you just made. So not massive but nice contributors.

Peter Heckmann -- D.A. Davidson -- Analyst

Okay, and then that you're really the trailing deals that were pretty small, I believe. Okay and then just any update, I didn't hear I apologize I missed it. Any update to your thoughts on the timeline for the creation and implementation of the wealth management platform for UBS.

Tim Gokey -- President and Chief Executive Officer

Hey, Peter it's Tim Gokey . That is something that we think will happen in mid calendar '21. So it is a ways out But remember, we have an existing wealth business with a lot of existing wealth solutions and we continue to sell those into -- to grow that business. So we think that this platform will intersect with that existing business and create something that's -- that's even stronger at the beginning (ph). We are certainly having some very good client conversations around as -- our future wealth ecosystem. And obviously, as we get closer to coming live, we'd be able to time good where those could come to fruition.

Peter Heckmann -- D.A. Davidson -- Analyst

Okay. And then just in terms of taking out the expenses related to it. I don't think you really called out any -- any material uptick in expenses over the next six quarters that we should be just thinking about as we start to model 2020?

Tim Gokey -- President and Chief Executive Officer

That's right. Pete, remember, as we develop in this (inaudible), the Wealth Solutions for UBS, those costs are all capitalized and then we'll begin recognition when the revenue goes live. So they are very much in our cash flows, recognizing that with any of our client deals we're also taking in cash during that period because it all goes to the balance sheet. So from a P&L standpoint, over the next year or so, really nothing of note.

Peter Heckmann -- D.A. Davidson -- Analyst

Got it. Thank you.

Operator

Thank you and your next question comes from the line of Puneet Jain of JPMorgan. Please ask your question.

Connor Dieckman -- J.P. Morgan -- Analyst

Hi, this is Connor on for Puneet. I was wondering if you guys could give us some more detail around the incremental distribution softness you're seeing? How much of it was maybe driven by customer communications versus mix or anything else you'd call out?

Jim Young -- Corporate Vice President, Chief Financial Officer

Yes, Connor, this is Jim. It's -- the majority is certainly coming from customer communication. And clearly those types of communication have a high ratio of posted your distribution costs to the Ts (ph) themselves. And then within that you can get various mailings that can be even above that ratio. So it's really customer communications, no specific call out, as Tim said, the distribution revenue can be a bit of a red herring because it will move around, obviously a bit of a pebble in our shoe this year, but nothing that is material at all to our earnings. And as you saw, in fact, we're taking up our operating income margin as that no margin revenue comes out of our -- out of the P&L.

Connor Dieckman -- J.P. Morgan -- Analyst

Great, thanks. And then maybe a related question or kind of around the margin impact, but you guys have been running pretty solidly ahead of the outlook, you gave it the last Analyst Day. And as we head into the final year of that outlook, around the margin specifically, should we be looking for potentially a slowdown, given the strength in the first two years? I know we'll get guidance next quarter, but any early thoughts would be helpful. Thank you.

Jim Young -- Corporate Vice President, Chief Financial Officer

Thanks, Connor. Yeah, we're really pleased with where we are and if you remember, we set out an EPS CAGR 14% to 18%, inclusive of the tax act benefit we picked up and recurring organic growth, about 5% to 7% all in with M&A 7% to 9%. So we feel like we're really tracking well against all of those. A little less on the inorganic piece although too early to rule anything out at this point. The margin specifically to your question, obviously we call it for 50 basis points of margin expansion per year. I think if you take our guidance this year, plus what we delivered last year, north of that 50 basis points, we're essentially there. But no, we're not done, we obviously are ramping up our planning now for next year, as you say, we'll be back in August. But we feel really good with where we are, and what we've done against those targets. And we'll be excited in August to share our guidance for next year.

Connor Dieckman -- J.P. Morgan -- Analyst

Great, thanks.

Operator

Thank you. And your next question comes from the line of Andrew Bauch of Wolfe Research. Please ask your question.

Andrew Bauch -- Wolfe Research -- Analyst

Hey guys, this is Andrew on behalf of Darrin Peller. Hey, how's it going. I Just wanted to touch on the closed sales number. Look, it's another strong number here, particularly given the $100 million we saw last quarter. Could you provide us some color on the mix here, is it primarily across capital markets, wealth or governance? And then my follow-up is, looking at this growing backlog, do you have any need to kind of ramp your implementation teams and then is there a possibility over time you kind of build a playbook in order to convert some of these deals faster than historically?

Tim Gokey -- President and Chief Executive Officer

Hey, Andrew, it is Tim. First of all on the closed sales, it really is a very well balanced mix. There was not any major single deal that was a driver. And so it's a really nice balance that we saw. And as we think about the implementation, it is, we clearly are increasing our capacity to on-board these clients. And as we talked about in the conversation with Peter, as we do that, we are adding resources. That is something that really flows to the balance sheet until those implementations go live and then we see the amortized cost and revenue from those begin to flow at that time. So during the implementation phase, in many cases we are obviously seeing revenue but we're also building it fast that goes on the balance sheet. So we definitely are expanding capacity and looking at how do we we make these as fast and as efficient and effective as possible, and -- because we see a lot of activity down the pike. And so that is a real lever for us.

Andrew Bauch -- Wolfe Research -- Analyst

Got it. Thank you so much, guys.

Operator

Thank you. And your next question comes from the line of Chris Donat of Sandler O'Neill. Please ask your question.

Christopher Donat -- Sandler O'Neill -- Analyst

Hi, good morning. Thanks for taking my questions. Wanted to ask one on the equity proxy record growth which this quarter came in at 3% and last quarter was 15% year-on-year. And I thought that Tim's comment that it's I guess mid single digits for your fourth fiscal quarter? As we think about the different quarters, should we really be focused on the fourth quarter, just because there's much more proxy activity in that quarter? And then kind of is a related question, it has any of the account or the revenue recognition effected the timing of when you recog -- calculate the proxy growth?

Tim Gokey -- President and Chief Executive Officer

Yeah, hi Chris, it's Tim. On that, first of all, just starting with the very last thing from a perspective of the revenue recognition, it does not affect the calculation, it's all sort of on an apples-to-apples basis. I think that, remember, we did have a very strong Q2. But remember, the whole first half is less than 20%. And so it's really, it doesn't create that productive a comparison. When we were here in February, we said at that time we've done testing that we expected mid-single digits and (inaudible) was a little below that sort of just based on the prior-year comp. But I think we feel pretty good about mid-single digits for the entire year and the entire year is really the best place to look at.

Overall, just the other -- I'd say overall, is that both stock record growth and interims over the long term, they're driven by underlying account growth, they're driven by growth in managed accounts, and they're driven by growth in model based investing which includes robos. And so we think that mid-single digit, so it's a little bit up and down from here, but we think that's a really good long-term trend.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay and then just to follow up on the comment on robos. Are you seeing any signs of, I guess there's, on the position side, a notion with some robo advisors that there's more direct ownership of an index. In other words, someone is owning 500 stocks within a portfolio and of course you need a certain dollar amount in a account to do that. Are you seeing signs of that as the driver of robos or is it somewhere else, or do you have a strong sense?

Tim Gokey -- President and Chief Executive Officer

Yeah, we're not, Chris we are not seeing that. We're just seeing that when someone goes into where there is a robo model, what might have been four positions in an account now becomes 13 to 30. And -- but we're not seeing people creating sort of full indexes.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay, thanks very much, Tim.

Tim Gokey -- President and Chief Executive Officer

Okay. I'm looking here, are we taking another question or we're wrapping up.

Jim Young -- Corporate Vice President, Chief Financial Officer

Ann, I think we're concluded here. So --.

Tim Gokey -- President and Chief Executive Officer

Okay. So let me just thank everyone for joining in today and we continue to believe that we have the strong market positions across governance, capital markets and wealth management. And our platform-based business model, really create unique value for both clients and shareholders that we have a significant long-term growth opportunity that is supported by clear long-term trends. And we think that that model and that opportunity, our long-term focus will provide sustained growth and shareholder value for a long time to come. We think this quarter and the outlook for the year that we shared are just further confirmation of that long-term perspective. And so, we look forward to talking to you again in August.

Operator

Thank you, presenters. This concludes today's conference call. Thank you all for joining and you may now disconnect.

Duration: 55 minutes

Call participants:

Edings Thibault -- Head of Corporate FP&A and Investor Relations

Tim Gokey -- President and Chief Executive Officer

Jim Young -- Corporate Vice President, Chief Financial Officer

David Togut -- Evercore ISI -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

Oscar Turner -- SunTrust -- Analyst

Peter Heckmann -- D.A. Davidson -- Analyst

Connor Dieckman -- J.P. Morgan -- Analyst

Andrew Bauch -- Wolfe Research -- Analyst

Christopher Donat -- Sandler O'Neill -- Analyst

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