All right. Good afternoon, everybody. We'll go ahead and get started. For those of you who do not know me, I'm Patrick O'Shaughnessy, Capital Markets Technology Analyst here at Raymond James. Up next, we have Broadridge, and on their behalf, we have CEO Tim Gokey. Tim, thanks for joining us.
Patrick, great to be here today. Thank you very much.
Of course. Maybe you can just kick it off. We have a lot of portfolio managers and journalists in the room. Maybe just give a brief overview of Broadridge and, kind of, what makes Broadridge special.
You're implying portfolio managers no less? So, yeah, let me just take a minute to say a little bit about Broadridge. We are a scale technology provider at the intersection of capital markets, wealth management, serving public companies. And we serve our clients really at the between operations, technology, governance, and communications. We are about a $24 billion market cap company with about $4 billion in revenues. The market we serve is about $60 billion. That's up from $46 billion three years earlier, so it's a growing market, and we think it gives us a really, really good long runway for growth. We have shown consistent growth. If you look over the past 10 years, our recurring revenue growth has been on the order of 10%.
Our adjusted earnings growth has been on the order of 14%. With that, we've delivered really nice top quartile shareholder returns, and we think that consistency of performance is, something we can continue, for the future, and something that should give you all confidence in, in what we can deliver for shareholders. Now, that is, based on, I think, a very interesting, network business model that really connects all the different stakeholders in, in, in our arena. So we serve, nearly every broker-dealer, and through that, we have a service relationship with every mutual fund, every individual investor, every public company, every institutional investor.
You know, when we look at what we do with all of that, last year, we provided communications and took back votes for 800 million different separate equity positions. We delivered 7 billion, mostly digitally, but also for a number, physically, 7 billion regulatory and customer communications, and we cleared and settled $10 trillion in trades every day. So it's a powerful position, sort of behind the scenes at the center of financial services, and really through that, it gives us enormous domain expertise in some really complex and arcane areas that are less differentiated for our clients, and therefore really good candidates for mutualization and for using a third party to invest and do it better than they would be able to do for themselves.
Now, that sort of business model, we think when we look at the future growth, is being driven by five trends: the ongoing democratization of investing, which is really, you know, more products, more investors at lower cost. The continued digitization of communications, clearly, you know, important ongoing trend. The acceleration of trading, you know, from T+1 to T+ who knows, who knows what? When it gets to T-1, let me know. The increasing importance of data and AI, and of course, ever-changing regulatory. And so those trends are things that we see really playing out. We have structured our business and aligned our business over the past...
You know, it's an ongoing process, but over the past 10 years, to align with helping our clients solve the opportunities and challenges that are created by those trends. And we've done that across our three core franchises of governance and communications, capital markets, and wealth and investment management. And let me just take a moment on each of those. So, governance communications is our largest franchise, about $2.5 billion in fee revenue. If you look at the past 5 years, a 5-year growth rate of about 9.9%. And in recent years, that business, you know, we have doubled the number of positions that we are supporting, and we're investing really in digitization and innovation to extend that growth out over the long term.
As we think about going forward, you know, we're gonna continue to invest to support the continued democratization of investing and digitization of communications. We're gonna support continued position growth by really innovating in the governance space, as we have, with voter choice, which is becoming a bigger thing. Many of you may have received emails in the past two weeks asking you to, you know, which voting policy you wanted to, you wanted to align with. So that's becoming bigger. Enhanced digital delivery, omni-channel digital communications, which are, we think, you know, really the wave of the future. So all great, great growth opportunities. Turning to capital markets, that's about a billion-dollar business. Looking at the past five years, that's grown 14% a year, including an acquisition, of course.
You know, we've traditionally played in the back office, which is really almost like the SAP of a brokerage firm, but we recently made this acquisition of BTCS, Broadridge Trading and Connectivity Solutions, as we've renamed it, which has really positioned us strongly in the front office and to be able to serve our clients front to back. And when we look there at the growth opportunities, it's really around continuing to innovate in the front office and help our clients solve a challenge of bringing together all the different asset classes and geographies they have with a global multi-asset class platform.... It's continuing to do that in the back office, where we already have a leading global platform, and it's really driving innovation.
We're a leading player in Digital Ledger Repo, doing a lot on the AI side and a lot of innovation around capital markets. Finally, wealth, which is just under a $600 million business for us. If you look over the past 5 years, that's been growing at about 10% also. And, there, you know, the big thing we've been doing over the past few years is building out a wealth platform, first in partnership with UBS, but now we're bringing that to other people. It's a componentized platform across 29 different modules, really helping drive client experience, advisor productivity, and digitizing operations, and we think there's a nice opportunity for that going forward.
So, underpinning that growth model is a very simple financial model, and it starts with organic growth. Historically, we've always talked—we give three-year guidance every three years, that's logical. And for each of the last three periods, I think we said 5%-7% organic growth. In December, we said 5%-8%. Then with some tuck-in M&A, talk about 7%-9% growth in recurring revenues. With some operating leverage, we think we can deliver adjusted EPS of 8%-12%, and that was also the guidance for the next three years. And then capital allocation, you know, we're committed to a strong dividend. We have about a 45% dividend payout ratio.
We've grown our dividend double digits in eleven of the last ten of the last eleven years, I guess. So when you think about our TSR algorithm, call it at the midpoint, 10% earnings growth, plus call it 1% share buyback, and call it just under a 2% dividend yield. You know, we think we can deliver low teens total shareholder returns over long periods with low volatility and high defensiveness, and that's really, you know, the very simple financial model that we're based on. Just a moment on 2024. As we went into the year, we talked about we've been in a period of heavy investment.
We talked about a return to sort of, the Broadridge that many of you who have been, investing us, you know, have known from the past, with 100% free cash flow conversion. And we had confidence as we went into the year about that, but it's good to really see that play out. So we are seeing the free cash flow conversion come through. We've had a good first half. Just on our earnings call, we reiterated our guidance, for the year, and we're also seeing, really nice pick-up in demand on the demand side. And we confirmed our sales goals of $280 million-$320 million.
Overall, I think we're a, you know, a business with a very, very interesting network business model, long track record of success, a lot of opportunity in front of us, and we think a good ability to deliver long-term TSR, you know, based on a simple financial model.
Terrific. It's a good foundation. Appreciate that. So what do investors that are new to the Broadridge story maybe not appreciate about the company in the way that your most informed, longest-term shareholders appreciate?
Well, the first thing that I always say to anyone that is brand new to Broadridge is, when you look at our financials, you see a big chunk of distribution revenue, which is largely passed through, and you have to really think about all the growth ratios and margin ratios, sort of, you know, adjusting for that. So that's just, you know, point zero. We have, I think, a really nice roster of long-term investors, many of whom are here, and we're proud of that, and if you're thinking of getting involved with us, if you look at the, you know, who our long-term investors are, I think that will give you a good sense of the kind of company that we are.
And if you're new to the story, I think the thing that I would just emphasize, and I think that our long-term investors appreciate, is, you know, that we're a long-term compounder, and that's really based on that market opportunity that I talked about, $60 billion. I can say it again, but, you know, and that's a growing market. That's just the vended part. The unvended part is significantly above that. And then it's the way we run the company. You know, we run the company with a long-term view. We give the three-year guidance. We're consistently reinvesting in the company.
We're building a culture based on Service- Profit Chain, based on, you know, making our associates very engaged, so that they drive great service to our clients, so they drive and buy more things and give good returns to our shareholders. And that flywheel we think is very positive and very sustainable.
What is impossible, or maybe not impossible, but really hard for competitors to try to replicate about what you do? 'Cause what you do doesn't seem super sexy. Maybe to you, it seems super sexy, but, you know, it's a lot of the nuts and bolts and mechanics of the capital market system. How is that hard for somebody to replicate? And maybe you could address both your regulatory communications side as well as your GTO segment.
Yeah, and just to reemphasize the first thing you said, nothing is impossible, and we are very paranoid about competition, and we're very focused on competitive threats and what we need to do to stay ahead of competition and ensure that all of our clients and stakeholders are happy, satisfied, and feel really good about the role that we play. I think when it comes down to why it is difficult for people to replicate what we do, you know, on the ICS side, is really that network that I talked about. It gives us a tremendous position, and I think because of that position, you know, I always like to tell people that, you know, when they're with Broadridge, they are safer and they're smarter.
They're safer because we're continually communicating with the SEC. We're very involved in the regulatory environment. We really know what are all the nuances and how to make sure that we're aligned and are delivering regulatory compliance for them. They're also safer in that same vein, because if there is a topic, it's an industry topic, not a topic that's a Raymond James topic or a Merrill Lynch topic. You know, so they sort of have that protection there. Also safer because of the tremendous investments that we make in resiliency. During the pandemic, one of our main competitors, you know, went shut down. You know, we didn't, we powered through. Also, in cyber. And so all of those things make us a really really ongoing safe choice for our clients.
Now, it's not just good enough to be just safer. You also have to be smarter. And the smarter comes from a couple of different dimensions. First of all, yeah, because of that network and our ability to basically deduplicate unnecessary communications, we can be very cost-effective for our clients relative to alternatives, and we can demonstrate that to them. You know, here's what it looked like with us, here's someone else. Maybe lower fees, but the total cost of ownership is higher. And then also because of innovation. And, you know, we're constantly pushing the envelope on what's the next thing? How do we drive a greater digital experience? How do we do all those things? So that combination of safer, smarter is, you know, I think, you know, based on that network.
It seems like it's sort of a simple thing, but it is, you know, what we do is pretty complex. We're taking positions from the street, we're taking events from public companies, we're taking preferences from consumers, we're housing all that, reconciling it, communicating to people at the right time about an event, taking back the votes, tabulating those, and then providing industry-wide billing for all of that. You know, other than, you know, in the past, it was every brokerage firm separately billing every public company. It was a, you know, nightmare. That's the ICS side. On the GTO side, it's also the embedded position that we have. You know, we're serving 20 of the 24 largest fixed income dealers, 7 of the top 10 equity dealers globally.
And these platforms are. It's like an SAP platform. It's really hard to put in, and it's really hard to take out. And that embedded position, when you then provide good service and have people feel good about what you're doing, really leaves the opportunity to do the next thing, do the next thing for them. And the final thing I'd say, that goes across both businesses is just that culture thing that I talked about. Because, you know, we, we take a long-term view, we put our clients first, we reinvest in the business, we innovate, and we run our business with the idea that we're gonna be doing this for a long time with organic growth, and not to say: How do we harvest it for the cash flow right now?
And there aren't that many people in our industry that are doing that right now.
So we talked about competitive risks. How do you manage through some of the non-competitive risks where, you know, for example, E-Trade got acquired by Morgan Stanley, and Morgan Stanley took some of that business in-house, or position count growth can impact the rate of growth in your regulatory communications business. How do you guys manage that as a... to try to, you know, take some of the volatility out of the model?
Yeah, I think it's really, it's really two things. It's first of all, it's that recurring model. So our revenue is 94% recurring, and things can happen to that, but it's very, very sticky. And, so, so, you know, unless there's some industry change, it really doesn't... You know, it's unlikely to change that much. And then the other side of it is just the breadth of what we do. So, you know, we, we end up talking about a couple of the big things, that we have over 200 different products. There's a lot of offsets in there. When something is going to be going positive in one, you know, that could be offset by, by another one, or negatively here is offset over there.
And so that breadth of what we do and the recurring nature of what we do, I think, you know, gives it quite a bit of sustainability.
So you guys had a slide in your recent Investor Day presentation, where you showed that every year since fiscal 2014, growth-closed sales have contributed 6%-7% revenue growth for Broadridge. What's driving that consistency kind of year in, year out?
Yeah, that is an interesting stat, isn't it? And thank you for calling it out. We're proud of it. It is a key thing that really underpins our organic growth. And I reflected on that, and as I reflect on that, you know, I think it is really, it's about how fast we can build supply, which is a bit counterintuitive, but when you think about every business, it is: What's the market opportunity, and then how fast can you serve the market opportunity? And, you know, I always tell our associates, when you look at the $60 billion, look at all the things our clients need to get done, that demand for what we do relative to our size and our capacity is relative, is, you know, is basically infinite.
So it's really about how do we build the capability to serve that demand? And it is, it's, that's complex to do because these are really arcane products. The onboarding is complex. It's not something that just you're gonna scale up at 20% a year. It really lends itself to that chunking along, you know, 6%-7% a year kind of model. And I think that, you know, at root, is really the basis of that consistency that we see.
And then maybe just building off of that, what is the innovation process at Broadridge? How much of it is internally driven versus clients coming to you and say, "Hey, you know, we'd love for you to build this for you, and we'll probably pay for it"?
You know, interesting question, and I think it, you know, highlights a few things. First of all, just that innovation is part of our strategy, and it is... You know, because we really, we view every client as a 99-year client.... You know, we view ourselves as being in this business for a long time. And so, it can't be a situation of, oh, we're gonna sit on a position and harvest cash flow. It has to be thinking about where is this business gonna be in 5 years, in 10 years, and how do we, how do we make sure that we're ready for that, that our clients are ready for that? And so innovation is sort of part of the mindset of what we do, and that's, that's, that's fundamental.
And then what I'd say is it's a mix of, of quote, "internal and partnering with clients," but nothing is purely internal, 'cause even an idea that we think we rarely say we'll build it and they will come, but, you know, if we did think that, it would be based on a whole bunch of market input and sort of what we're hearing from the market. So we're always very, you know, in with our clients every day, understanding what their pain points are. If we then think about, okay, there are some things where we say... And I'd say our innovation is a mix of, of building something ourselves and, and buying things, which doesn't sound very innovative if it already exists, but if you buy something small and scale it, I'm gonna call that innovation.
And so, you know, we always look at build versus buy. We look at where the upcoming needs, we look at build versus buy. You know, for build, it would be: Do we have a platform that's near it? Do we have the market knowledge? For buy, it's really: Is there a good piece of technology with a good leadership team that has a head start here, that we can acquire and bring in-house and help them accelerate? And so we're always looking at that. There are some things where it's build and it's more complex, and when we get in that situation, we always try to partner with the client, like we did with Bank of America on corporate actions, for example, which I think Raymond James may be now pursuing.
And because if you do it with a client, you know that it's real, and you know—First of all, you know, you have at least one client, but you also really learn the requirements, you know, in detail, and you're not gonna build something that's not good for purpose.
Makes sense. So during your interactions with investors, and particularly some of your biggest, longest, longest-term shareholders, that we kinda touched on a little bit earlier, what are they asking of you guys? What are they asking of Broadridge, and maybe just as important, what are they asking you guys to not do?
Yeah, I would say, first of all, as I said before, I think we have great long-term investors, and I'm really, I'm proud of the kind of investors that, that we have. And I think of our investors, hopefully the same way I think of our clients, which is, you know, 99-year investors, because if we have that long-term compounding, then, then we can have a long-term partnership with our investors as well. If I think about what our clients, our clients... See, I think of investors as clients, how's that?
If I think about what our investors are looking for, first of all, it's what I've already talked about, you know, they're buying us to be a long-term compounder, so make sure that we are running the business to do that, that we're looking ahead, that we're innovating, that we're reinvesting in the business, that we're maintaining a great culture, all those things that support that, that long-term growth. I think what they are not looking for is, you know, for us to make big investments that deviate from that model, that introduce a lot of risk, and, you know, introduce uncertainty into into what they're doing. Now, they want us to grow, they want us to innovate, they want us to do the next thing, but in a manageable, controllable way.
And I think if you talk to people right now, and this, I don't know, maybe I'm projecting because this is what I think, you know, we've made some significant investments in recent years. We need to see those investments pay off, and, and we're hard at work at that. We think they will. We've seen great success with BTCS, getting to some momentum on the wealth side, good momentum on digital communications. We've looked at some of our major investments. So they wanna see those, they wanna see those pay off, and they are, you know, they're looking for us to not step too far outside the box. You know, push the boundaries when the opportunity is there, and, and with that, you know, we have a great, great long-term view.
And then maybe to build off of that, what are some of the key metrics that you think investors should be looking at for, from Broadridge to, denote that success? And kinda what's a reasonable timeframe, and I'm guessing you're gonna say three years.
Yeah, exactly. So yes, we are, you know, we're fortunate to have a fortunate or unfortunate, but we have a very cyclical part of our business in the proxy business, and so it really, it doesn't make sense to look at our company on a quarterly basis. So, you know, really only makes sense to look at the company on an annual basis, and each quarter we do update, you know, what does the results this quarter mean for the year? But the quarters themselves are less meaningful. And then we take a three-year view, and, you know, in our industry, because of how long it takes to change platforms and switch and the low switching and things like that, it really takes some amount of time for things to develop.
So I do think that the most significant thing for investors to look at is how are we doing or how are we saying we're going to do against our three-year objectives around revenue growth and around earnings. And you know, if we do that and we continue to have the underlying revenue growth, particularly the organic side, and we continue to drive the earnings, you know, that's that's you know the market may go up, the market may go down, but at some point, you know, that will be that will be valued.
I think the other thing is really around capital allocation and, you know, what we're doing with the dividend, what we're doing with M&A, what we're doing with share buybacks, and that is all in the balance that we've talked about it, or at least if it's in a different balance, that we signal that well and there's a good rationale for that, that the capital allocation that investors feel that we're doing is one that makes sense for them. I think if you have the revenue growth, the earnings growth, and good capital allocation, you're gonna do well over time.
... And then speaking of capital, so the capital intensity needs of the business did pick up as you guys were investing in the UBS Wealth Management platform, along with some other investments that you were making at the time. How would you characterize the capital intensity needs of the business model over some medium-term time frame?
Yeah, I think that, I don't think there's anything that has really changed about us being broadly a capital-light company. We did make significant investments in UBS, which, you know, it's not really UBS, it's in wealth, and we're using that same technology internally. And so, I am really, when I look at where we are and how it's positioning to have discussions with clients and how it's positioning us as we evolve our own technology, I'm really glad we made that investment. I think our investors will be glad over time.
So, I don't, you know, never say never in terms of is that only a one-time thing, but as we look at our business going forward, you know, we think that about 100% free cash flow conversion is about the right place to be. And, you know, what that will show then is, you know, that will lead to increasing returns on invested capital over time, and we've talked about being, you know, raising that to the mid to high teens, which I think we're on good track to do. So I don't really see any significant change, you know, at least during the time that I would be CEO.
All right. Well, I think we have about five minutes left. I'll, I'll pause here and see if there's any questions in the room. All right, no hands being raised, so I will keep going.
The bonus questions.
Yeah, so in terms of capital allocation, how do you-- what's your framework in terms of sizing the bets that you guys make as a management team? I guess via internal growth initiatives or acquisitions, how do you put guardrails around your investments so that, you know, it's not going to disrupt that long-term EPS growth, growth algorithm that you guys are committed to?
Yeah, I think we can... First of all, in terms of disrupting the long-term EPS algorithm, you know, it's pretty easy to model things out and see where they're going to come and see if you're going to, you know, go outside the bounds. So that's pretty easy. I think the bigger thing is, you know, is this a good investment, and will we get the returns, will we get the returns from it? I think, first of all, that question starts with knowing what the size of the investment is.
And, you know, we've done a lot of work, and where that's gone off in the past, sometimes when we start a client engagement that we think is only one size, and it turns out to be a lot bigger than that, which obviously depresses returns. So we've done a lot of work around our processes for that, to make sure that, you know, the size turns out to be what the size we think it will be. Once you have that piece down, it really comes down to, I think, two factors. One is, what's the attractiveness of the investment? And, you know, does it meet not just our hurdles, but is it, you know, even more attractive than that? So how attractive is it?
It's sort of nice, or it's really nice. And how confident are we in execution? And in particular, how confident are we about the leadership team that's going to execute that particular thing? And, so based on those two factors, you know, you can make a decision. What I would say is that as the size goes up, it gets, you know, the bar gets sort of geometrically higher, in terms of, you know, how comfortable you feel between the attractiveness, and the ability to execute. And, you know, but we have pulled the trigger on some larger things when we had, you know, we thought it was very attractive, and we had a team that we were very confident of, like BTCS.
And we think, you know, so you'll see us on all different range, but the bar goes higher, definitely as you get into bigger sizes.
All right, sure.