We will go ahead and get going. Thank you, everybody, for joining us. I'm Patrick O'Shaughnessy, the Capital Markets Analyst here at Raymond James. And up next, we have Broadridge. And on their behalf, we have CEO Tim Gokey. Tim, thanks for joining us again.
Patrick, great to see you.
Good to see you as well.
Am I coming across well? Can everyone hear us?
Yep.
Great. Even more. Okay.
So to kick things off, for the benefit of folks in the room who are a little bit less familiar with Broadridge, can you maybe just spend a few minutes talking about the company as it exists today?
Absolutely. I thought you'd never ask. We are a $28 billion global fintech. We have a scale business at the intersection of capital markets, asset management, serving corporate issuers, really on critical foundational technologies, often regulated, that need to be right, that are less differentiating, and that where there are many people needing to do the same thing, where we can build an industry solution and do that on behalf of the entire industry. We have a pretty simple financial model. When we look at our last index today, we do three-year objectives. We talked about 5% to 8% organic revenue growth with a little bit of tuck-in M&A, 7% to 9% recurring revenue growth, which is the primary revenue metric that we look at. With the operating leverage of being a technology company, 8% to 12%.
We've got the earnings growth, call it 10% in the midpoint. And then when you think about it from a TSR perspective, we add on to that dividend that is typically just a little below 2%, and say a point of share buyback. We look to deliver low teens total returns to shareholders over long periods with low volatility. And that's sort of a very simple financial model. The core of the business is this sort of pretty unique network that connects every asset manager, fund, broker-dealer, public company, individual investor, institutional investor, all around governance and communications matters. And we have a pretty ubiquitous position in that. And around that core, we have been able to provide a lot of other services to those same clients around key non-differentiating activities. That's given us a lot of scale. We regularly process nearly 800 million equity positions each year.
We've cleared a total of $10 trillion in trades every day. We sent 7 billion communications last year between regulatory and customer communications. So we're really a core part of the implementation fabric of our clients. Now, when you think about that growth algorithm, it all starts with that 5% to 8% organic growth. And so where do we get that growth? And it's through sort of three simple strategies around each of our core franchises. It's around digitization and democratization in our governance business. It's around simplification and innovation in our capital markets business. And it's about modernizing wealth management. I'll just take a moment on each of those. If you look at our governance business, it's our biggest business, about $2.5 billion of our $4.5 billion revenue.
I might just add this $4.5 billion revenue has a total market of about $60 billion that's vended and another chunk that's unvended. We'll talk about that, so that core governance business, we're growing partly. The underlying positions that we're serving are growing at right now. The guidance we just gave on our last call was that the equity positions will be growing in low double digits this year. The fund positions in sort of mid-single digits this year. When you look at that over long term, it's the more sort of mid to high single digits for both of those.
There's this underlying growth, and we are serving that growth by continuing to scale our company, but also by innovating to provide true information to investors in ever more digital form that's easy for them to access, and with innovations like pass-through voting and other things that we'll talk about.
We also have a customer communications business inside there where we are converting physical print to digital communications, really growing our digital revenue footprint. And that's a very nice piece of fabric for us as well. On the capital markets side, where we're simplifying and innovating, we're doing that in the front office. Many clients tend to have many different front office platforms built up over time with asset class by region. We're building a global multi-asset class platform that can really help them simplify all of that. Similarly, in the back office, people tend to have two-instance settlement platforms that were built by asset class by regions. They have a complex operating environment. And we're helping them simplify that with a single global multi-asset class platform. And then we're connecting it front to back through even more simplification.
Also, a lot of innovation on the capital markets side, bringing AI in. It's doing a lot with Distributed Ledger Repo in particular. That's a nice growth area for us. We're doing. We talked about this, but I think we're the leader in tokenized securities on the planet. And that's, I think, really shows the innovation for us. And then on the wealth management side, we're really modernizing with a componentized platform that we originally built for our UBS engagement that we're bringing to the market to help people transform on their own terms, where they see a path toward modernization. They don't want to take it all at once. They want to do bite-sized. We're bringing that to market. Also, doing a fair bit of investment in the Canadian market where we just bought SIS, which was a platform owned by IBM.
We're bringing that same modernization through that platform into Canada overall. Briefly, we just had our second quarter call about a month or so ago. Very good first half results. On that call, we reaffirmed our guidance pretty much essentially for the year across the board, basically at the midpoint.
All right. Terrific. Thank you, we've set the table for a bunch of the questions that I had lined up here. What are Broadridge's key priorities for fiscal 2025? Does very strong ETF-driven revenue in the December quarter allow you to more effectively attract those opportunities to investment?
Yeah. So behind that, just, we're an organic growth company, as I just talked about. And so driving that organic growth is a key for us. And so we're looking at what are the things in our roadmap that we think will continue to drive that over time. I'd say if we look at the investments that we're making right now, there are, I think, five areas that we're sort of specifically allocating dollars to. So first of all, digital communications. We just talked about that printed digital strategy within Customer Communications, but also in our broader regulatory business. And there's a digital platform that we have built out and are continuing to make even better. So that digital communications is a big industry need, growth driver for us, and something that we're continuing to invest for.
Second is the capital markets innovation that I talked about and that global multi-asset class front office platform. It's there in many places, but it's not 100% there. And so we continue to build that out. For instance, we are partnering with Bank of America to bring that to the futures market, where we don't currently own the cash series, but now futures securities. And we've had successful partnership with Bank of America and corporate actions in other places. So great to have a core launch client for that, just as an example. Data analytics, there's a big opportunity. There's a lot of data that flows through our platform. Clients are asking us, "How do we add more value to that?" We have a great team that is doing that. And they have a whole long roadmap of things that they see value in.
And then, applying AI to that, so I sort of broadcast AI right with that. And then, the last one is just our platform, which is we have built up over time a lot of different applications that were purpose-built or acquired for a specific purpose at a specific time. And it doesn't necessarily work together. And again, building on the investments we did a few years ago in the wealth space, we've created a common data ontology, a common API framework. And over time, we're bringing that to all of our applications so there will be a lot greater interoperability, a lot more simplicity for our clients, more stickiness, more value that we bring, and at the same time, better ability to scale the company. So those are the areas we're investing.
There's certainly the case study, as you point out, that when we have times with strong event-driven revenue that helps our economics, we tend to look at things that are on our roadmap and accelerate those, and we're certainly looking at that now.
How do client budgets look like right now? With strong equity markets in 2024 and strong capital markets activity and expectation for a rebound in M&A. Does that help client budgets as it pertains to staying on your solutions?
I'm not sure. There was definitely a burst of optimism post-election and around markets, around M&A, around a variety of financial topics. And those things are broadly tailwinds for Broadridge. And we've seen that since we're going to pick up in position growth. So there's definitely some things that are, the market's going well. We see that in our numbers. In terms of our clients' buying behavior to contract with us for new solutions, the buying cycles for those things tend to be pretty long. And so there's not really enough time for the enthusiasm post-election that has sort of seeped into our buying cycle yet. And similarly, there's not enough time for the uncertainty of the past few weeks where the policy situation seems a little unsettled. That hasn't really affected us either.
So we do have, when I look at where we are from a sales perspective, if you take out a sort of a unique solution we did last year around Tailored Shareholder Reports, our first-half sales were up 8%. When we look at our pipeline and our backlogs and all those, very healthy. So we certainly expect to have a good, healthy sales year.
You mentioned the adjusted market in your opening comments. And you guys have measured the entire market, the entire TAM at $225 billion, of which $60 billion is currently vended. What are some of the key components of that unvended $165 billion? And how is Broadridge attacking those opportunities?
It's a great question because I always think of in-house solutions as sort of our number one competitor. When people say, "Well, do you really have a competitor?" Our main competitor is the technology teams. There are client and there are competitor technology teams of our clients. And when you look at our $300 million-ish of newly contracted sales last year, a significant portion of those were things where we were taking out in-house solutions and bringing to them better technology that we provide. That's a big part of our sales every year. And we have really sort of the secret sauce when you think about the organic growth of our company is the theme around utilization and industry solutions. So our clients, they're very good. Maybe right now, the coolest place to work is Google or Facebook or something like that. But I guess I'm dating myself.
Meta, pardon me, but for the three years before that, the coolest place to work, except for investment management, of course. If you're in technology, the coolest place to work is in financial services, so they have really good talent, and at the same time, they have so many different things that they need to do, and as the market changes, some of those really matter, and some of them are less differentiating, and so our clients are being very discerning about where they deploy their talent and their dollars on the things that will make the biggest difference to their business. When there's change, when they need to make an investment, when there's a platform that's end-of-life and it's in a less differentiating area, it just makes sense for them to look to the event market.
And we really are pretty clear that we are the sales player that is investing, reinvesting in our business. And we have a really good culture. We are really focused on client service in the long term. We think of every client as a 99-year client. We have 98% revenue retention. And so I'm going to say it's an easy choice, but we win more than our fair share of those.
In terms of capturing more of the $60 billion TAM that is currently unpenetrated, what would you think is key to Broadridge winning market share?
I think try to have them meet me. Then beyond that, I think it does come back to, in all seriousness, what I just said. When you think about the competitive landscape for financial services technology, there are a few scale players, of which we're one. The other large scale players have not been reinvesting in their business. Some of them had a model of doing M&A and then really cutting the expenses and the profit they acquired and leveraging the cash flow to do the next deal. Others have just been distracted in other businesses and really not reinvesting in the business. Then the other part of the competition are startups, smaller PE-backed firms. They don't have the relationships. They don't have the contracts. They don't have all the cyber protections to really deal with large-scale competitors, large clients.
And then there's Broadridge, a scale player that our clients know. We're serving them well. We already have contractual agreements. They've already done all the cyber audits on us. They already have all these other things. And for them to make the choice to work with us is often a very logical choice. And it's the thing that keeps us so focused on serving them well and making sure that they're satisfied on the solutions that we're providing today because when they're happy with what we're providing them today, then they're very open and happy to transact with us on the next thing. And that's where our organic growth comes from.
How do you see the generational wealth transfer that's expected to happen or probably is already underway? How do you see that impacting your business? And I imagine that it has implications on multiple components of your business.
Yeah. It's definitely happening. It is bringing in younger investors who want to interact in a different way. And it's causing our wealth management clients, in particular, to rethink their technology landscape and ensure this fits their purpose so that they can serve younger investors who are going to more quickly acquire more wealth. So as they think about how they evolve their technology to address that, it really raises the bar for modernization, which comes back to some of those platform components I talked about. I would say that I think there are other trends in wealth management that are even more here and now. Certainly, the continued growth of managed accounts is a driver, especially on our regulatory communications business. The growth of private assets.
There's a real barbell of people moving to, I'm sure everyone in this room loves to hear, but moving to passives for market exposure and the privates for alpha. And we'll see where that balances out. And we're obviously rooting for sort of a better balance with active management really winning that because we serve a lot of the active managers. But that has been a key trend. And it causes wealth management firms to really rethink their business model, rethink how they make money, rethink the technology they need to stack together.
So my team recently published a research note where we highlighted the consistency of your results, certainly over the three-year period, but also across fiscal years. How would you characterize the actions that your management team takes to deliver that consistency?
I think there's two parts to this. First is our business is, and I'd like to think it's just genius that we're able to create consistent results. But a lot of it is we have a very consistent business. So if you look at our recurring revenues, and if you pull out the distribution revenues, which are passive. So if you look at the $4.5 billion of recurring revenues that affect our business, that affect the economics of our business, 94% of those are recurring. And of the part that we call event is actually a part of that that is pretty consistent. So there's a small sliver of stuff that's more volatile. And then when you look at our growth algorithm, the biggest part of that is revenue from new sales. But revenue from new sales does not necessarily mean sales booked in that year.
It's often sales booked in previous years that are being converted. And we're able to, the other part of growth is some position growth. We're generally able to do testing that is several months out. So we have a high degree, a low degree of volatility, and a high degree of predictability in our business model generally. And then beyond that, with that last bit of fluctuation, we have across our many different product areas, each of those product areas has a roadmap of, "Here are the investments that we are in the midst of making that we need to finish. Here are the investments that we want to make next. Here are the investments we want to make after that." So they have a roadmap of things that we'll bring value to their clients. And we are able to moderate the speed at which we implement those things.
And we start off with sort of a business case at the beginning of the year. And as we are going through the year, we can approve or pull back on projects. And so in a year like this, when we're seeing more event-driven activity than we expected and some nice economics from that, it's an opportunity for us to speed up a little bit, pace some of the things that we were planning to do, and deliver good results, but also then better position us for the future.
You mentioned the EPS growth algorithm at Broadridge. A component of that historically has been margin expansion. They saw 20 basis points of margin expansion last year, adding to flatish margins in fiscal 2025. Has something really changed there, or is that just a unique aspect to the last couple of years?
Yeah. So I think an important point, which I know you know, but I'll just say for the group, is when we talk about our overall margins, there's a reported margin, and then there's what we call core margin. It's really a margin when you pull out the distribution revenue, which is low to no margin. And also, we have some float income. So we have offsetting variable debt, so that is also low to no margin. So those things don't really affect our economics. And we report every quarter on what happened to our actual margin, but also what happened to what we call our core margin, which is the thing that's going to truly affect how much we earn. So this year, for instance, our overall margin is going to be basis and flat. Our core margin is going to increase well above 50 basis points.
We saw really good expansion in the first half. It's important to make that distinction between the stuff that really drives economics. More broadly, what we're really focused on is the 8% to 12% adjusted earnings growth, and probably 10% at the midpoint. I would say margin is a little bit more of an outcome than a thing where we're saying, "Well, we're targeting this number." It's really much more we're targeting the earnings. The margin is a natural outcome from that. I will say that as a technology company, as we grow, we do get scale benefits. Margin expansion is inherently a part of the business model.
We've touched on distribution revenues a couple of times, and I've covered you guys for a long time, and it feels like the story's always been, "Well, distribution is going to get deprioritized. Things are going to be sent out electronically," and that's going to be less important going forward, and it seems like every single year, distribution revenues are about 30% of total company revenue. Do you think we'll ever hit that inflection point where distribution becomes less important, or because of capital fee increases and other drivers, it's never going away?
That is an interesting question because I remember when I joined the business nearly 15 years ago and was creating models. I would have definitely said that by now, it would already be a trivial proportion of our revenue. And it hasn't worked out that way. So the good news is that it's not sure it really matters because it doesn't affect our economics. I do think that a couple of things have happened. First of all, we've lost the customer communications business, which was going on eight years ago now, but that definitely increased the distribution revenues component. And in the past few years, there have been significant increases in postal rates, which have definitely increased distribution revenue, but not a lot of impact on revenue, on fee revenues and operating expenses.
So it's a little bit something I'm serious about, but I don't spend a lot of time awake at night about it because it's really focused on the fee revenue and the margins and economics to drive all that.
Gotcha. Switching to current events in macro, one idea that's been pushed by some folks, including the CEO of Robinhood recently in an op-ed , is the tokenization of assets, including equities. Should tokenization occur in a meaningful way, how do you think about the alternative risks that presents to Broadridge?
I won't comment on the editorial. I think it's going to be taking some of the equities market, so there are definitely areas where I think tokenization can really provide a lot of value, and to come back to where we're doing it at some stage, if you take the core equities market, it's pretty efficient. I think it's going to be a long time before we get to that. There are scenarios like today's technology could handle T+1 pretty well if we went to T0. There are different flavors of T0, but on some of those flavors, tokenizing might be the way to go. I do think that's a ways out. What I will say is we're certainly preparing for that. It's something that could happen, and one of the things you'll hear us talk about is a distributed ledger repo.
And so, for tokenization, it really helps to focus at where there's a network. We have two-thirds of the fixed income is on our technology platform, so we have a really strong position in fixed income. We do a lot of repos every night. And we've introduced a distributed ledger platform for repos. We're doing on that today, every day, about the same volume as the entire crypto market outside of Tether, we're doing today. So we have real scale in working with tokenized securities, really more than anyone. And to that, and that solution today is largely based on affiliates trading with each other. Next, we're bringing that to clients for, as the treasury market goes to centralized clearing, there's going to be a lot more sponsored repo. And this will be a great solution for that.
And after that, we're bringing it to intraday repo, which will really free up liquidity in the daylight overdraft market. So there's a lot of very interesting use cases that are going to continue to drive volume there. And I think it's a great example of how we think about innovation because it's not a, "We're going to build something that maybe will happen 10 years from now." It's a, "How do we work very practically with clients today on something that has a real business case now that at the same time is on the road to something that could be very different in the future?
I'm seeing on the current events team, clearly there's an entirely new mindset at SEC right now versus a few months ago. Sometimes when we get different regimes in there, they may give a proposal that impacts Broadridge or reports too. Is there anything on the horizon that you see from this new SEC that has any implications for Broadridge?
Yeah. I think just stepping back, first of all, when we think about the administration, there's obviously been a burst of optimism in the post between November and January 20th. There's a lot of optimism. And I think that has, whether that's positions or M&A or other things, that's generally, I think, positive for Broadridge. When you look at the things that are the main announced priorities of the administration around taxes and tariffs and immigration and social issues, those things are broadly neutral to Broadridge. And then you think about the policy things they've talked about, some financial services that are generally much more second order. But crypto, which we think could be a nice tailwind for us if it comes with the disclosure regime, shareholder engagement, how they engage with proxy firms. And that could be a proxy advisory firm, just to be very clear on that.
And that could be a nice tailwind for us in things like pass-through voting. And then further digitization of communications. So those are much more second order effects. Not clear whether the administration will get to those things, given all the other priorities, but things that we're certainly working on to make them to be opportunities for us. If I think specifically about the SEC, first of all, and I said it on the call, we think Paul Atkins is a very good choice for SEC. He's very knowledgeable. He's been there before. And he brings that. It's a pretty complex area and it's sort of a technocratic approach, and he has that. He will definitely be more on the free market side of things. But we've been very successful in working with SEC on both parties.
It is when there's change, we are here to help our clients address change. And so we're very much looking forward to working with them. Then Mark Uyeda, who's the acting chair, and Hester Peirce, the other Republican commissioner, both used to work for Paul at various times in their past history. So those three work really well together. We actually had Mark Uyeda came and spoke to the head advisory committee of leaders that advise us on our business. And he came and spoke to that last week. And he was great. And there's nothing he said that would cause alarm to anyone in this room.
All right. Terrific. Well, on that point, I think we're out of time here. But thank you very much. And there will be a breakout session downstairs.