All right. Good afternoon, everyone. My name is Scott Wurtzel. I cover info services here at Wolfe and also help on the payments team. I'm joined here by Ashima Ghei, the CFO of Broadridge. Ashima, thanks for joining us today. Maybe we can start off. There could be some that are in the room that are unfamiliar with the company. Maybe we can begin with just a quick overview.
Absolutely. Happy to provide an overview. For those that are not familiar with the Broadridge firm, our business model, we're a $27 billion global market cap fintech that really operates at the intersection of asset managers, corporate issuers, wealth managers, and capital market firms. We provide the core infrastructure that enables things like corporate governance. Think about board of director elections. We provide the critical technology that enables wealth managers and capital markets. At the core of it, we're a $6.5 billion revenue firm, about four of which, a little over four of which, is recurring in nature. Over the last 10 years, we've had a strong track record of strong, consistent top and bottom line growth. We've driven about 10% recurring revenue CAGR, 13% EPS CAGR, all of which has delivered 19% TSR for the firm overall.
As I think about our company, we really operate across three franchises. We report our results in two segments, but we operate across three franchises. We have the ICS franchise or the governance franchise, which is about $2.6 billion in revenues. Here, we essentially operate a unique network that connects the corporate issuers, the asset managers with their end customers, which is the retail and the institutional side. We do that via the bank broker-dealers. Essentially, through that network, we provide corporate governance. That is where we started. Over the last few years, we have evolved from that central position. Now we provide a whole host of value-added services on the issuer side, data-driven solutions on the fund side, as well as customer communications. That is our governance franchise. The second franchise is capital markets, which is about a billion-dollar franchise.
Here we have focused on really optimizing the trading operations for capital market funds across front to back office. We do that across various asset classes, across geographies, et cetera. Finally, our third franchise is the wealth management franchise. It is about $600 million in revenues. Here, we are looking at modernizing our wealth management technology infrastructure for wealth management divisions of large banks, RIAs, private banks, you name it. This is where we most recently acquired the SIS business from Kyndryl in Canada, which helps us solidify our wealth management position more in the North American space as well. We are quite excited about that acquisition. Those are our businesses. Just talking about our business model overall, essentially, we have a very simple, consistent, resilient business model.
It starts with 5%-8% recurring revenue growth, tack on to that 1%-2% points from acquisition. Given that we have a super scale business, we have the operating leverage that's inherent in the business that allows us to do two things. We create investment capacity that we use judiciously to fund high-growth investments, and we drive towards margin expansion, all with an end goal of driving 8%-12% earnings growth. Add on to that balanced capital allocation across M&A, share buyback, dividends. That has what's yielded a good shareholder return for us over the last 10 years. We do something unique that I haven't seen a lot of companies do, wherein we set out three-year objectives for our firm. We're actually in the third cycle of our three-year objectives right now.
At our most recent earnings, we communicated, reaffirmed our guidance for our 2023 to 2026 views, which calls for 5%-8% recurring revenue growth, 1%-2 percentage points from M&A, 8%-12% earnings growth, and 50 basis points plus of margin expansion. That is us. Sorry for the wrong term of the boat, but hopefully, it gives a view.
Yeah, that's a great overview. Before we get into results and strategy and all that, I mean, you were named the permanent CFO a few months ago. Congratulations on that. Including the interim period, you've now been in this seat for, I think, just over nine months. Maybe you can reflect on your time in the role so far, talk about what you've learned, and maybe what you're most excited about going forward.
Yeah, thanks, Scott. I'm excited to be here. Like you said, nine months in the role, but I'm not new to Broadridge. I did, prior to that, for three years, I was the CFO for the ICS segment. I was just talking about the governance piece. That's clearly a big part of our organization, 75% of our revenues overall. That gave me a good bird's eye view into the company just sitting from that seat. Prior to that, I spent about 18 years at American Express, where I did a whole host of strategic finance roles ranging from pricing, investment optimization. This conference was actually quite interesting. It felt like a flash from the past with all the payment companies that are out here today. Coming into Broadridge, it was an interesting opportunity for me. One, we have a long runway for growth.
We're sitting here right now at $4.2 billion in recurring revenue. We've got an addressable market of $60 billion. Lots of opportunities to get there. Two, I was talking about our business model. We clearly have a sustainable business model, a model that's proven to be very resilient over all time frames and has driven consistent growth for us. For me, it was very exciting to see how we continue to drive that consistent growth going forward while capitalizing on the huge market opportunity that's ahead of us. With that lens, as I think about my areas of focus and what I'd want to do, it starts with continuing to build on the focus we have as an organization on expenses, continue to drive up the operating leverage, and create investment capacity.
It is really about how do we prioritize those investments for the most high return areas that can yield more revenue growth for us, that can allow us to capitalize into the opportunity more. Just having a maniacal focus on investment optimization accountability is a huge area of focus for me because I think that's going to help propel the company forward and continue to drive the growth that we like.
Very helpful. I know it's been a while since you guys reported two key results in January. If we go back to that time, you reaffirmed the guidance for the fiscal year 2025. Maybe can you remind us of the trends that had played out during the quarter, maybe what was better or softer than expected and the main assumptions underpinning your guidance for the remainder of the fiscal year?
Sure. Happy to. You're right. Five weeks feels like a lifetime ago at this point. I had to remember what we said. We were quite pleased with our results overall. If I think about the first half of the year, even though we just did Q2, it was 6% recurring revenue growth, 27% earnings growth. Super strong growth, obviously. It was driven off, one, we saw good traction from revenue from sales. We'd ended last year with a good backlog of $450 million. We've been converting that in the course of the year. You saw the impact of some of that come through. You also saw come through the impact of some of the momentum we've seen in the markets since the November elections. We saw more position growth, and all of that impacted our numbers.
Specifically, with an event, we also saw a huge mutual fund proxy that happened in the second quarter, which led to a short-term spike just for the quarter. Remember, we attempt to use some of the extra money that we get out of these kind of event activities to invest, which is what we're planning on doing going forward as well. That gets me to how do I think about the full year. Like you said, we reaffirmed our guide for the full year during the earnings call. The reason we did that was sitting at about the six-month mark, we have fairly good visibility into what to expect over the next six months. If you think about it both from a revenue from sales perspective and internal growth perspective, we kind of know what's coming.
Revenue from sales, most of our conversions take from six months to 24 months. If you're sitting within the six months, you kind of have a view of where you're headed on that front. When I think about internal growth, a lot of it comes from position growth, trade volumes, et cetera. As we get through the year, our testing becomes a really good indicator of what we expect position growth to be. Of course, we're seeing a little bit of volatility in the market right now. If you think about where we are in the life cycle of proxies that have to be distributed for this fiscal year, many of those proxies are being finalized as we speak because a lot of the proxy communication happens in the March-April time period in preparation for meetings that are happening in the May time period.
The impact of that volatility on fiscal 2025 for us is very limited from where we already are. Talking about other things impacting the full year, we are expecting a more normalized level of event activity, not the kind of spike that we saw in Q2 of this year. Add on to that, our latest expectations on FX, we've seen the dollar strengthen a little bit, which causes a little bit of 50 basis points drag on our earnings overall. Looking at the puts and takes across what we're seeing, we felt really good reaffirming our guide for the full year, which was that 6%-8% recurring revenue growth and 8%-12% earnings growth.
Gotcha. Gotcha. I know we're halfway through the fiscal year here. Just wondering if you can talk about maybe the strategic priorities for Broadridge as we sort of look through the last couple of quarters of fiscal 2025.
Happy to. The good thing, I was talking about the Broadridge consistent model. The good thing is we do drive our business, run our business for the long term. Our strategic priorities for the balance of the year are not that dissimilar from our strategic priorities for the long term. I am sure they will not sound surprising to you when I tell you it is about democratization and digitization in the governance space. It is about optimizing trade operations and capital markets and about modernizing wealth management. Those are the three overarching areas.
Within that, if I think about the strategic priorities for us, in the digital communication side, we focus on building a Wealth and Focus platform, which is an omnichannel communications platform, essentially enriches the end investor experience by bringing all their financial statements into one omnichannel platform, allowing clients to interact with their investors in a more digitally native way. Quite excited about that. It's already live. We have a couple of key clients on it already, and the pipeline is strong in that front. In the capital market side, we're continuing to extend our innovation pipeline, looking at different products in that space, as well as helping clients meet their regulatory requirements. That's a key area of focus.
In the wealth side, I spoke about the SIS acquisition that we just made, which helps us take some of the investments that we've been making within the US in wealth management. It gives us access to a new client suite, a client profile that we can tap into. Finally, overarchingly, we're looking at data and AI and expanding our data and AI capabilities to really unlock the value of the unique data that, frankly, we have. We're looking at new products in that space as well, which ties it all back to platform strategy. One area that we're very focused on is how we evolve our multiple different products into one platform using a common data framework, using common APIs, which essentially allows for faster onboarding, more consistency, and value across the client base. Quite excited about that too.
Gotcha. Yeah, those themes are a great lead into sort of the next sort of group of questions here. Maybe we can touch on those key themes starting off on sort of the democratization of investing. Can you talk about just how Broadridge stands to benefit from this trend, how revenue in the regulatory business is influenced by factors such as position growth? I know we touched on it a little bit in the previous questions, but maybe if we can dig a little bit deeper.
Sure. Absolutely. Yeah, democratization of investing, we love it. It's a long-term trend. It's led to more retail investors entering into the marketplace, which is all great. If you take a step back, see what's happened. Investing has become more affordable. You have all the zero commission trading coming through. It's become a lot more accessible through the new technology enhancements. It's become a lot more engaging with things like pass-through voting, managed accounts. All in all, it's just led to new investors entering into the marketplace, new investors investing in different stocks, which creates position growth for us. It's clear to see how that's a tailwind for us. Having said that, that's only one trend, though. You're seeing the democratization. What you're also seeing is the demographic change. We're seeing the generational wealth transfer.
You're seeing an advent of new retail investors, younger population, digitally native population entering into the investor base, which is also proving to be an opportunity for us in multiple areas. You're also seeing the rise of asset-based fees. What does that do? You have asset-based fees, which really allows for fee compare, which allows for, okay, advisor, what did you do for me today? Why should I be paying you this? Gets to product differentiation. Now you've got product differentiation. You've got new investors coming into the marketplace. All comes with its own set of, okay, what are the new regulatory requirements, new disclosure requirements? If I look at all of those together, those are clear opportunities and tailwinds for our business. Obviously, the obvious one is on the ICS front, where position growth, like we spoke about, is a tailwind opportunity.
Also within ICS, on the digital communications front, Wealth and Focus is the area I spoke about earlier. That's a huge opportunity as well because these digitally native investors want that kind of communication tool, not the paper statements, not the scanned paper statements either. That creates opportunity. It also creates opportunities for us on the GTO side when we think about our wealth management product suite, where we are really modernizing the wealth technology. It creates a demand for those kind of products, which essentially creates good tailwinds for us across the two businesses.
Gotcha. Gotcha. You mentioned digitization there. I would love to kind of touch on that topic a little bit more and how you guys are positioning yourselves to capitalize on this trend and theme and movement towards digitization of investing.
Digitization is a key trend. We love digitization. Let me say that. It creates more engaged clients, which in turn creates more revenues for our clients. It is like a win-win. As I think about digitization, the biggest beneficiary of it, on the regulatory side, most of our communications are already digitized. Over 80% of our communications on the proxy and interim side are already digitized. The biggest beneficiary of the digitization trend that I see would be on the customer communication side, where we are already starting to see a meaningful impact to revenues. Back in fiscal 2024, we spoke about how our digital revenues had grown to $100 million. Last year, they grew double digits. This year, they are on track to grow double digits again. Seeing a meaningful impact as more and more wealth managers, more and more banks are getting into the digital communications space.
Excited about that opportunity.
Gotcha. Gotcha. Before we get to capital markets and wealth, just wanted to go back to the event-driven side of the business. You mentioned during the second quarter, you recognize pretty material event-driven revenues off of a mutual fund event. Can you just remind investors how we should be thinking about the event-driven revenues for the remainder of the year, just given the potential for lumpiness from quarter to quarter there?
Lumpiness is right. It's definitely episodic. It's episodic within the quarter, sometimes within the year as well. If I look at the long term, we've seen event revenues of about $240 million-$250 million over the last seven years. It's fair to think that over the long term, event fees kind of move in line with position growth, though it's hard to see that within a quarter or within the month. Last year, we saw event growth, total event fees of $285 million. We expect this year to be a record year surpassing those levels, largely driven by the large event activity that we saw in Q2 that we spoke about. More importantly, as I think about Q3 and Q4, we're not expecting any of those sporadic events or any of that large activity.
I will also remind you, last year in Q3 and Q4 is when we saw the Disney proxy event come through. If you look versus last year, we would be seeing lower levels of event. I would expect event to be in the more normalized $55 million-$60 million a quarter for the balance of the year.
Gotcha. Gotcha. That's very helpful. I guess if we move over to sort of the GTO side of the business, I was wondering if you can maybe just talk about the growth story there and what are the key secular drivers for that business. You look across your solution suite, you have front, middle, back office. Is there sort of the big growth opportunity to increase your share of wallet in customers by turning them really from that front to back customer?
That's definitely one of the opportunities. If you take a step back, I think it's important to talk about what are the pain points for these capital management firms because those are the pain points we're starting to address. You're looking at firms that are trying to drive increased volumes at faster settlement periods with lower spreads. You're in a world that's largely converging to T+1. There have been discussions about moving to T+0. You're dealing with different asset classes. Often, a lot of these asset classes are with their separate technology, separate operations. To make matters even worse, many of these banks have different vendors that they work with for an asset class. They work with many other vendors across different geographies.
It is not hard to imagine how they have this incredibly complex ecosystem dealing with multiple touch points, multiple connections. That is where Broadridge comes in. That is where we aim to simplify the trading operations across our capital market firms. That is, frankly, the big opportunity for us. In the front office, it is really about how do we help them simplify and innovate their trading? How do we optimize onto one standardized platform, which would help them drive their revenues? On the back office side, how do we think about optimizing their costs, providing them access to global assets all in the same platform? In doing all that, we continue to innovate with our products. Two products that I will call out in this regard are distributed ledger repo capabilities, which help them reduce their collateral fees.
I'll talk about our AI AlgoPilot, which helps them deal with their algorithmic growth models. Products that we continue to innovate in. Given the challenges that the clients are facing, given what we're able to offer, it's not surprising to see that we already have a strong presence. We're doing $10 trillion in trades on a daily basis. We're dealing with 20 out of the 24 large fixed income traders. We're dealing with 7 out of the 10 largest equity firms operating in 120 markets overall. Great presence already, but it's also an area that we feel we've got great opportunities as we continue to address the market needs. That's it, yeah.
Yeah. It's very interesting. Earlier, you had mentioned the generational wealth transfer. I think that's one of the reasons why we're excited about the wealth management space and what Broadridge can do there. I was wondering if you can talk about just the solutions that wealth managers are demanding right now and how you're poised to deliver for them. Also, what inning do you think we're in in terms of this generational wealth transfer and continuing to penetrate further into the wealth management space?
Yeah. It's definitely a trend for us. Like I mentioned earlier, you are seeing the you have seen the generational wealth transfer. What that really means is that the population that's coming through is a lot more digitally native. They're not looking for the same kind of experiences that existed with paper or I'm going to wait a day to get responses to certain questions, which is where we're very excited about the investments that we've done in the wealth space over the last few years, where we've built these agile set of modules, so to speak. The best part of what we've built is that we allow clients to transform at their own terms. It's not about, oh, you need to take the entire suite of 27 modules. It's about if you're a large bank, you've got a certain need with tax reporting.
Okay, you can plug and play into the tax reporting module. If you're a mid-level bank and you're like, you know, I do want to transform my entire suite over time, we can help build a roadmap of how we transform each of these over a period of time. That's proving to be highly successful. When we made the acquisition overall, we spoke about how some of these investments will help us yield $20-$30 million in incremental wealth sales. We're seeing good traction. We're seeing a strong pipeline. Pipeline is growing double digits. We're seeing good traction against that $20-$30 million opportunity as well.
Gotcha. Gotcha. Yeah. Just as a follow-up, you talked about the Kyndryl acquisition and how that can help grow your presence in the Canadian wealth market. Just wondering if you can share a little bit just about the rationale of the deal and how the asset is performing in the early days of your ownership.
Yeah. It's very early days right now, but we feel good about the acquisition. You know, in some ways, the Canadian market is not that different from the US market. There's a similar need for digitization. There is a similar need for modern technology. We were already a big player in the Canadian market. We were servicing many of the large banks. Now with the SIS acquisition, it's given us access to an even larger base of clients. All of the wealth investments that I was talking about, the modules that we've built, it essentially allows us to take the technology that's already built, take the technology that's working well, plug and play into a different and increased set of clients that are in the Canadian market. Quite excited about the opportunity.
The BAU integration is going well, but also excited about this incremental opportunity that it's going to provide.
Gotcha. Gotcha. If we move on to capital allocation, I mean, Broadridge generates a pretty strong amount of free cash flow. Wondering if you can talk about how you think about allocating those dollars between M&A, buybacks, and dividend as well.
Yeah. You're right. We do generate a good amount of free cash flow. We're essentially a capital light model. Once we have the cash flow available, we think about it in context of our investment grade credit rating, which kind of provides us the leverage of how much we want to invest in or not. It really boils down to a matter of where do we want to focus our organic investments, which gets back to what I was talking about, our focus on investment optimization, making sure we're driving towards the right investment opportunities to drive growth. We look at funding a growing dividend. With the left cash, we've focused on M&A. Our M&A strategy is one of tuck-in strategic M&A.
We want to make sure we're identifying the right opportunities that meet our internal hurdles that can augment our existing product suite, fill some holes where we have them, fill some talent holes if we have them to really help drive our business forward. We do have stringent hurdles that we look for in that regard. If the valuations are high, which is what they seem to be right now, we're happy to pass. If we do pass, then we're very happy to give the cash back in terms of share buyback. It is really more in context of it's not a we have to do a certain amount of M&A or not. It is more in context of what's the right M&A opportunity and how do the synergies that it provides with Broadridge help meet the internal hurdles for that opportunity.
If I think about this year, just putting numbers to everything that I said, we're sitting on 95%-105% free cash flow, call it about $1 billion. After the SIS acquisition, after the dividends we have funded, that takes away about $600 million. So you've got about $400 million that we're looking for either M&A opportunities or buybacks as we go through the year.
Got it. Got it. You touched on the medium-term targets earlier and sort of these three-year cycles. Maybe you can just help us sort of understand the building blocks of that guidance a little bit more and your confidence in hitting those targets over this next three-year period that ends in fiscal 2026.
Yeah. Our medium-term guides, just to repeat, we look at 5%-8% organic revenue growth, add on one to two points from the strategic tuck-in M&A I was just talking about. If I think about the 5%-8% core revenue growth, a large part of it, and it's amazing how incredibly consistent it's been, a large part of it comes from revenue from sales. Given that we have a huge addressable market opportunity, we're continuing to drive towards getting revenue out of sales. About six points of our growth comes from revenue from sales. If you're doing the math, it's like, okay, you have five to eight total. Six is already coming from revenue from sales. What's the rest? We do have our client retention rates are great at about 98%, but that does mean two percentage points of losses, which gets you down to four.
You tag on to that two to three percentage points of internal growth. That is where things like position growth, trade volumes, float income, any pricing changes that we would do would come into that space. All in all, that creates the 5%-8% revenue growth. We use that revenue growth and use some of the scale that we have to create investment capacity and create the operating margin and create the margin expansion. We have had, over the last 10 years, on average, delivered about 70 basis points plus of margin expansion annually. We feel good about our ability to deliver that. We also think about it more as a means to an end. What we really strive towards and what we have done a good job doing so far is maintaining that 8%-12% consistent earnings growth over the medium term.
Like I said, we're at the midpoint of this medium-term cycle going from 2023 to 2026. We reaffirmed our guidance given some of these trends that we're seeing here.
Gotcha. Gotcha. Looks like we have a little bit of time. Maybe before we go to the audience, just to ask one more question. I mean, if we're here again 12 months from now in March of 2026 and we're looking back on the past year, what would you kind of say and point to that would constitute a good year for Broadridge?
Exactly what we just said we would deliver on. Delivering on our guidance of recurring revenue growth, delivering on our consistent earnings growth. That has been our mantra all along. We have a huge opportunity for growth. You could always talk about driving more margin, doing more pricing increases, trying to get more short-term returns. What we as a firm are very focused on is long-term growth, long-term sustainable growth. That is what I would like to see. That is what I would say would be success for us.
Gotcha. I guess we can take a question or two from the audience.
Hello. You talked earlier about your unique data set that you have and using AI to kind of develop new products in relation to that. Could you just expand on what sort of products you're thinking of?
Yeah. As we think about as we're thinking about AI capabilities more generally, just like many firms, we're thinking about it from a revenue lens and an expense lens. When it comes to revenue, we're looking at building on the extensive data we have. We're looking at building various LLM models on top of our data with two ends. One, providing more easy access to existing products that we have. Use simple language models to be able to pull through, okay, give me a fixed income ladder. What are the latest available fixed income rates here? That would be one example of trying to do that. We're also trying to build new products, more standalone products.
Like in our data and analytics business, we have something called a Global Demand Model, which leverages old-style AI to leverage some of the demand flows that we see coming into the industry and what trends fund managers need to know about, asset managers need to know about as they're looking at their areas of focus. Frankly, we're also looking at AI from a productivity lens, just our own internal efficiency, our own expenses, just like most firms are. The pilots that we're seeing across the board are working quite well. That is what they are right now. They're pilots. They're more in the smaller scheme of things. While I'm excited about the opportunities, the investments are not large enough. The revenues or the expenses are not saves are not large enough to make a meaningful impact to any numbers right now. The signals are promising.
Yeah. Maybe just on the competitive landscape around post-trade processing and given the recent volatility in the market, any opportunity in that segment moving forward?
Yeah. You know, when we think about post-trade processing for that matter, if I think about the GTO business overall, for the most part, the competition that we're dealing with is in-house. Sure, there are a couple of competitors in different spaces that we're dealing with right now. It is really the in-house players. Because remember, we have relationships with most of the large banks on the governance side or across many of the products. It is really about how do we fill in the white spaces, working with them to bring some of the functions that they have in-house into our more modern suite. That is part one. And then on the volatility that you're seeing, you know, honestly, this kind of volatility is great for our trade volumes. About a third of our GTO revenues are trade volumes.
When you see this volatility, not all of it translates one-on-one. About half of it is more spread-based in nature. Half of that is more pay-per- trade kind of revenues, which, while volatility is always a question mark, it does bear well for us in that space.
All right. I think we'll call it there. We'll ask them to thank you for.