Yeah. Morning. My name is Puneet from J.P. Morgan Payment Processing and IT Services team. Glad to have here with us, Broadridge. We have Tim Gokey, CEO of the company; you all know him. We have Edings and Sean from the Investor Relations team. The format of this presentation is going to be fireside chat. I'll start with a few questions, then we'll open the floor for questions from the audience. For folks who are listening to it virtually, feel free to use this portal app to send questions our way. Tim, welcome. Thanks for joining us. Maybe for the benefit of investors who might be new to the story, can you give us a brief overview of the company?
Yeah. First of all, Puneet, thank you very much for having us here today. Thanks, everyone, for joining. If you are familiar with our story, my apologies for the next two minutes. We are a $28 billion fintech focused on the intersection of capital markets, asset management, wealth management, really creating industry-level solutions for things that everyone has to do but that are less differentiating for them. The market for that, for just the things that we do, is about $60 billion. Our fee revenue is about $4.5 billion. We think there is a long revenue for growth. There is a whole bunch of unvended stuff that is on top of that. There is a switch in the market from in-house to more vended. There is a nice growth path ahead. Over the past 10 years, we have grown our recurring revenue 10% a year. We have grown our earnings 13% a year.
We have grown our dividend every year since we've been a public company, grown to double digits, 12 of the last 13 years. That's an important part of our story. At our last investor day in 2023, we put out three-year goals. We do that every three years: 7%-9% recurring revenue growth, 8%-12% adjusted earnings growth. We're over halfway through that period, in fact, almost two-thirds of the way through that period. What we said on our last earnings call is we expect to meet those goals again in this three-year period, which ends not this June, but next June. When we do that, that will be the fifth three-year period in a row that we have that would have met our investor objectives.
We do that because we have a pretty unique position, as I said, serving all the largest financial institutions and at the intersection of capital markets, wealth management, and asset management. At the core of our business, we have a network that connects every brokerage firm to every asset manager to every individual investor and really is a utility for corporate governance. From that, we've built a series of other businesses around that. We have a lot of scale in doing that. We clear and settle $10 trillion every day. We manage 800 million positions in terms of governance activities. We sent 7 billion communications last year. We have a real reason to talk to every firm about some of their core activities. Based on the trust and the delivery on those activities, it allows us to talk to them about the next thing.
That has provided a really nice growth path over time. It also gives us tremendous domain expertise. Again, people likely to come and talk to us if they have something new, we might be one of the people they call to talk about that. Our growth strategy, pretty simple. Many of you will have heard this before, but it's democratizing and digitizing in governance. It's simplifying and innovating in capital markets, modernizing wealth management. In each of those, there are some nice growth vectors. The number of equity positions continues to grow. There's some nice innovation around the governance activities. We're moving people from print to digital and in omnichannel communications. That's a double-digit growing business. We're really evolving how funds communicate with their clients. Nice evolution in all of those areas in terms of better connecting investors with both governance and communication activities.
In capital markets, we're helping people really simplify what they do in their front office area, what they do in their back office area with global multi-asset class platforms. We're driving innovation with bringing AI, bringing digital ledger repo, and other innovative things there. Lastly, in wealth, we're helping people, we call it transform on your own terms, but it's a modular solution that is an API-driven approach to allow wealth managers to interconnect the various things that they do. Most recently, we have grown with an acquisition in Canada, building out a nice market position we have there. We just announced in this last quarter a nice sale of that wealth platform to one of the leading wealth management firms in the US and showing good momentum there. I'll leave it with that.
We had a nice quarter we just announced, and I'm sure you have questions about that.
Yes, of course. No, thanks for that. It was very comprehensive. This last quarter, you talked about something we have not heard before as much, like the non-revenue-generating equity positions. Talk to us, what were those, how big they are, and what is the impact we should expect over the coming quarters from those?
Yeah, it's an interesting one. Our basic model is on the governance side around corporate elections, one of the main activities we do. We get paid per position. Positions have been growing in sort of on the equity side in sort of upper single digits over long, well, mid-single digits over long periods. What we said going into this year was upper single digits. The growth of that has been driven by a little bit lower growth in individual accounts and then pretty rapid growth in managed accounts that create additional positions. That's sort of where we were. We went into this year expecting sort of upper single digits. After the election, we saw an increase in that.
When we were on our first call in February, we were talking about, well, I think we see sort of low double-digit positions based on the testing we had. When things came in for the quarter, what we actually saw was 15%, much higher than we expected. What we saw was the sort of typical positions that we normally see grew low double digits. On top of that, there was a very rapid growth in fractional shares and in managed accounts with less than five positions per account. The way we get compensated for the activities we do is a regulated pricing, it is per position. About 10 years ago, the industry got together, and there was a broker that was creating a product that created lots of small accounts. It was very costly for public companies.
They said, "Hey, that doesn't make sense." There is an agreement around that public companies are not charged for fractional shares, and they are not charged if it is a managed account that has less than five shares. We have been talking for a while about the growth of that and saying that we saw it as something in the future with direct indexing and model-based investing. What we have seen now is it is really coming to beginning to scale. A number of the wealth managers are promoting slices products, promoting tax-efficient investing. The number of those things grew a lot and more than we expected. It did not hit our revenue. If you look at the total number of positions that are in these fractional and less than five, it is almost 15% of total positions.
It's actually getting to be substantial, and it went up almost 40%. Real growth in that. That's what created that dichotomy. We haven't gotten far enough along to sort of see what's the conversion of those things as people continue to put more. A lot of this is a new investing style where you put in a certain dollars per month or per quarter. How that will compound and how those will turn into revenue-producing shares, we don't know yet. Our crack team is working on those analytics, so we might be able to talk about it in the future. I've always talked about this as something that will not necessarily change our growth trajectory, but that will provide a sort of a one to two-point tailwind in that core sort of core growth.
I'm not here saying I think it's going to be a new growth era, but I do think it supports the long-term thesis of mid to high single-digit growth for that business.
It basically captures some of those accounts which are below that threshold now, and the growth will come from as they add more positions in those accounts, like people buy more stocks instead of.
Yeah, let's say I pick something that's worth $5,000 in it, and I keep contributing. At some point, the number of shares then trips over and would become revenue.
That becomes like a source of 1%-2% growth.
Potentially.
Potentially.
Yeah. I've been referring to it as our position backlog, but we'll see if that comes out to be true.
That's great. Let's talk about closed sales, like tied to backlog. You lowered your guidance for closed sales last quarter. Can you talk about the delay? You blamed it on delays that you are seeing because of all that macro uncertainty. Talk to us, what drove those delays and what is the state of union now?
Yeah. Just as a reminder, when we talk about closed sales, what we're talking about is the annual contract value of bookings that we make in that quarter. It typically takes anywhere from 12-24 months for those to be onboarded because typically there's a process of connecting all the technology and converting the data and things to bring things into revenue from sales. When you look at our growth drivers, the biggest driver we have is revenue from sales, which is all the sales we did in the past that are now being onboarded onto our platform and creating revenue. When you look at how our sales fall through the year, our fiscal year ends on June 30. Our clients know that. Our sales teams know that. There's always an extra push near the end of the year.
Not so much that we're offering deals or things like that, but we have good relations with our clients. There's always a backlog of stuff in procurement and in legal, and people sort of move our stuff to the top of the pile. We get a lot of sales closed in the last six weeks of the year. In this circumstance, if our year ended in December, we would not have changed our sales guidance. Given that it ends in June and we do a lot of sales in June, if you have a three-week delay, it's hard to recover that. I think we felt really good about our sales through the first nine months, your 9% of last year, excluding a sort of a one-off product called Tailored Shareholder Reports that was sort of an event last year.
That would have put us right in the middle of our range. What we just saw in April was a lot of people sort of with the pen hovering sort of one inch over the paper, just sort of waiting to see how the world evolved. We'll see how that seems a little calmer at 11:30 today. We'll see how that evolves over the next few hours.
Let's hope it holds by the end of this conversation. The important thing is it is just a timing thing. It's not cancellations, or it's just delays by a few weeks.
Vinney, thank you for bringing that out. No one has told us they're not doing anything. We have a very robust pipeline. If this delays, whether something closes in June or closes in July, it really doesn't affect our revenue. When you look at the quantum of midpoint of our previous guidance to the midpoint of this year's new guidance, even if you said those things never came, which I'm not saying, but even if you said they never came and you looked at the percent of what would that be onboarded next year, it'd make like a 10 basis point difference in our overall growth rate. It is really not material in terms of our near-term growth, and I think not in our long-term growth either because of the fact that these are all deals that will happen at some point.
By long-term, like in a very bad case scenario, you will know that this is coming. You can take actions next year and whenever to offset the impact, potentially.
Yeah.
Got it. Let's talk about margins. We have gotten so many questions on margins, like the underlying margins. What's the right way to look at it? Talk to us, the levers in the model. In the past, Customer Communications, for example, drove margins higher. As we think next three years, on an underlying basis, excluding distribution and all that stuff, what will drive margins higher for next three years?
Yeah. Our model is when we talk about 7%-9% revenue growth, but 8%-12% earnings growth. Obviously, earnings is higher than revenue. That is really because of the scale of being a technology company. We have fixed costs, and as we add new volume through that, that gives us a natural lift in margins. In the past, we have always talked about a 50 basis point sort of average increase in margins per year. That is a little bit of a math in terms of what is the revenue growth, what is the earnings growth, and it was 50 basis points. Over the last couple of years, that has been complicated because there have been big postal increases, which are just pure pass-throughs. Interest rates are volatile, which are also largely balanced on that. Now you have heard us talking about, quote, core margins, which is when you abstract from that.
We have been talking about over time, we still continue to expect 50 basis points. What I would say, Vinney, is the important thing is the earnings growth, the 8%-12% earnings growth, and sort of 10% at the midpoint. We have a stack of really good investments that we think are great for our shareholders around some of the innovation and governance in other areas. When we start to see earnings going over that, we sort of crank up some of those projects. It is always a trade-off in terms of making sure we are delivering good near-term earnings growth for our shareholders, but also investing in things that we think are really nice long-term returns.
Got it. In your overview, you talked about the trends like democratization as well as modernization in wealth management. Can you talk, if we think, again, thinking about, say, next three years or five years, whatever, what trends, over next three years, what trends will drive growth? Underlying trends will drive growth, like how much opportunity there is, let's say, in regulatory business through democratization or in wealth management, which is a relatively still an investment phase, I believe. Which businesses should grow faster? How should we think about growth next three to five years?
Yep. I think I would probably say capital markets will grow fastest. The governance business will continue to have sort of the biggest quantum of growth. I think with governance, you'll see mid to high single digits. There's a lot of opportunity out there. We have the underlying position growth. We also have a lot of sort of new product areas that we're growing there. I think the headline numbers are a little bit muted from the customer communications business, where for those that follow us, you'll know there's a substitution going on from print to digital. The digital business is growing double digits. The print business is growing, but the addition of those things is probably, I call it a 3% growth business sort of as we look forward. The economics of digital is a higher margin business.
From an earnings perspective, that business is growing earnings very nicely, but it mutes the overall governance. I think you have core regulatory growing nicely in mid to high single digits. You have other add-on products that are growing faster. You have customer communications growing slower for the governance side. Capital markets growing upper single, lower double digits based on all the innovation in both front office and back office, and then things like digital ledger repo. Wealth management, that should be a high single, low double digit growing business. It's not right now. There's a lot of noise this year because of the merger of Morgan Stanley and E*TRADE and also the acquisition of SIS in Canada. You sort of wash all that out. It's sort of mid single digit organic this year.
I think that will grow to high single, low double digit organic a few years from now. Even when we make the sales, like this sale we announced, it takes some time for that to onboard. That is more of a still an emerging story, but a nice growth story in the meantime.
Let me follow up on that wealth management, specifically about your Canadian business. How big is the overall business in Canada? How is SIS performing? How is that acquisition coming versus your plan?
Yeah. Our Canadian business is about a $500 million business. When you look at that, we have a very strong position in the sort of back office platforms. We serve six of the six top Canadian banks. There is a tier of firms below, but it is much more concentrated in Canada than it is here in terms of what those banks do relative to others. We serve all six. There is a tier of firms below that, and we serve many of them as well. We have a very unique position being sort of the back office for Canada. The SIS acquisition, we serve six of six now. Previously, we served four of six. SIS, which was formerly part of IBM and then part of KKR, was sort of separate. We have talked to IBM for the last two decades about acquiring that.
When it was part of IBM, they never wanted to do it. When IBM and KKR split, KKR just did not see it as a good strategic fit for them. Great strategic fit for us. We are bringing a lot of the wealth platform components that I talked about to Canada. We are leveraging those components across the SIS platform plus the platforms we already had. Acquisition is going very well. I think it is going to allow us to really bring some nice solutions to the Canadian market. We are excited about it.
Is there an opportunity, say, for wealth management to replicate what you're doing in Canada, like what you have with UBS, other clients, and other regions?
I think what we are, first of all, let's take the other regions. I think our wealth business is largely, it's a North American business. Our capital markets technology business is a global business because capital markets is a global business. The things that one has to do in terms of local regulation is much, much simpler in capital markets than it is in wealth management. Wealth management technology tends to be more of a country-by-country basis for technology. It's hard to make money unless you're working in sort of large countries. It's going to be a North American offer.
I think in terms of what we're doing in Canada with bringing really the technology that we created for UBS to those platforms, opening them up to be API-driven, common data ontology, common user interface, it allows us to innovate much more rapidly and I think more deeply penetrate that set of clients with other things that we don't currently do for them today, but we'd like to.
Got it. At this point, are there any questions from people in the room? I can keep going then. Let's talk about AI. It's a TMC conference. It's mandatory. I have to ask a question on AI because I lose my bonus. AI, it is disrupting a lot of industries. A lot of processes, platforms are being infused with AI. Talk to us the relevance of AI for what you offer to your customers. You talked about in the past Bond GPT, Ops.
GPT.
Ops GPT. I imagine AI would have high applications in your data services, data products that you offer. Talk to us your AI strategy and how you are infusing AI in your services offerings.
Yeah. We offer a broad set of products to our clients and largely pretty complex technology products that are highly networked. When we think about our AI strategy, it has multiple components. Job one is infusing AI into all of those platforms. It makes a lot more sense for us to do that than for each of our clients to sort of reinvent how AI would apply to clearance and settlement of fixed income. We are going to do that. We are bringing AI to all of those platforms to increase their value. It is just part of being relevant and modern for our clients. Separately, and I think that is going to be a bit commoditized, actually. I think that pretty much in the future, all technology is going to have a certain level of AI that just comes with it. That is our assumption.
Where we have unique data, that's where we think we can introduce new products that people will pay us for on top of what we're getting already. We do have a lot of unique data around especially who holds what and who's buying what and how all those flows. That's our data and analytics business that is already really a leading provider to asset managers if they're trying to do product planning, figure how to pay their sales for us, figure where their wholesalers should go. Adding AI to that is a big opportunity. There's something called the global demand model that takes all of that institutional retail, by product, by channel, by asset class, and gives people visibility on what's selling, but is now becoming predictive into saying, given macroeconomic circumstances, what will sell. Thirteen asset managers have signed up for that so far.
We're excited about that one. That's probably the one commercially that's furthest along. Bond GPT allows people to use natural language queries to better understand the bond market. Ops GPT, again, uses natural language queries to clear complex fails. It's part of the everyone is looking at in their back office operation, how do they take heads out in the future? We do have about 50 clients, 40 clients that are where we have a we're doing the people as well as the technology for that. We have an internal goal of how do we take half of the cost of that over the next three to five years. We're applying AI to do that, which brings really to the third leg. Leg one is bringing AI to all our products. Leg two is what are the products we're going to sell?
Leg three is how do we use it to reduce our own internal costs, which everyone is doing. We're doing it certainly in development with Copilot, certainly in our operations area. The way we're doing that is with a common AI platform that we've built that goes across our enterprise that connects to all the large language models, that builds a compliance layer. It's a regulated industry. First conversation a client always has is, where's this data going? How do we know it's compliant? How does all that work? Building a common compliance layer so that as we add to that across all of our businesses, it adds into one compliance layer. Our product teams connect into that.
Speaking of a regulated industry, let's talk about how this current administration's policies, not just policies, priorities impact Broadridge. Is that deregulations and the things that we hear, are they good for Broadridge or can that be a headwind?
Yeah. So I think when you look at the big things the administration is focused on, trade, tariffs, cultural issues, they do not really affect us. They do create volatility, which can be a tailwind on the trading side. Now, if you take it down a level into sort of the SEC and the areas that are more sort of specifically relevant to our business, there, I think the SEC is an area where Paul Atkins is someone that has been an SEC commissioner before, highly knowledgeable, is a real expert. That is a little bit unlike some of the other areas. I think we feel really good about that. Some of the key priorities there that touch on us where we think we can be helpful.
Obviously, there's a lot of talk about crypto and there will be a crypto bill and there will be a lot of movement on crypto. One of the big debates on that is what level of disclosure should there be? Within the industry themselves, they're sort of, let's keep it cheap and no disclosure to, well, other asset classes when they've had good disclosure, it's really helped them grow. If you think about the rapid rise of ETFs, they were able to leverage the disclosure regime of funds and it really enabled the growth of the asset class. There's a little bit of a debate inside there. It won't surprise you that we have what we think is a great product that would help people with disclosure, should it go that way. We certainly believe that good disclosure would help the asset class grow.
That's sort of the crypto side of things, which leads to tokenization a little bit. Let me circle back to that. Another big area is investor engagement. There's a lot of concern on the Republican side around how much influence the large passive asset managers have and around the influence that Glass Lewis and ISS have. Again, we think there are market and there will be probably movement on those topics. We think we can bring market and technology solutions to help with that. We're working with all the large passive asset managers on pass-through voting to allow them to give those voting rights to underlying shareholders. Easier on the institutional side than on the retail side, but there's a fair bit of this on the institutional side.
Then also creating an institutional voting platform to allow people to use data and again, we're not going to be a proxy advisor, but to use a data-driven sort of rules-based approach to supplement ISS and Glass Lewis. We think that's a positive in terms of how we can help. The last area is around continued digitization of investor communications. It's about almost 90% today is digital in terms of the regulatory communications. With statements, it's more like 50%. There's discussion about how do we, should we, today, the default is you get it by paper unless you choose to get it digitally. You could change the default, make it you get it digitally, but you can choose paper. We're supporting that. The real thing there is ensuring that the digital communications are really engaging.
It's easy for something to sound good, but then you get into it and it's like 10 clicks in before you actually get to see anything. We have some innovation that we'll be bringing out that we think will really make those communications more engaging and be really good for markets. Those are all things that we think are ways that we can help and that we're positioning ourselves to be aligned with the direction the SEC is going.
Let me quickly ask one question on crypto and then we'll give another chance from two people in the room. For crypto, I understand it's not revenue-generating right now, but with potentially disclosure requirements and all that, who will be your client in that ecosystem? Will it be the same as what it's for equity? Because you service broker-dealers, but you also have network with corporates and everybody. In crypto world, will it be different actors that you'll have to engage with?
Yeah. This is one of the things that people are trying to figure out. Right now, for that disclosure product that we have, it's the exchanges. We have a couple of exchanges that have signed up for it and are piloting it. I think it could ultimately also be a broker if people are buying things through a broker. My advice to wealth management firms, a lot of wealth management firms, as you know, are saying, "This stuff is not a good asset class. It's going to blow up. We're not going to do it." I think the problem with that is it sort of forces people outside of their financial advisor, and then they start doing stuff on their own without advice. My advice to wealth managers is, "Look, you should offer this.
You should train your financial advisors on it and train them to say, "Yeah, whatever money you want to lose, put it in here, but make sure it's not 1% of your portfolio and have it be balanced inside of your portfolio." If people pursue that, then they're certainly going to want to disclose it in a big way. The brokers will have a good desire to have disclosure as well. It is tricky to know who will be the person paying. While we're on crypto, I just want to mention because it sort of flows into, they get a little confused with each other, but there's crypto as an asset class and there's tokenized securities, which is a separate thing. Instead of a token using DLT technology as a different way to settle and clear and settle real securities with real underlying assets.
Those are different things. We are doing a lot of, so two-thirds of fixed income is on our technology platform. As I mentioned, we clear and settle $10 trillion a day. A lot of that is in repos because they roll over every night. We are doing a lot of that now on Digital Ledger repo. We are doing over $100 billion a day today. When you look at the size of the crypto market and you exclude Tether, we are doing more repos every day than the whole crypto market put together. That is something that there is a lot of potential for that to scale over time. I think the growth of tokenized securities is something that we should expect to see. It will be a 10-year thing. It is not going to be overnight, but that is something that we should expect to see.
Two minutes left. Any last questions from folks in?
Thank you. Maybe could you just remind us why the growth rate for your wealth management business is as high as it is, why it should be a sort of high single, low doubles, just what the sort of drivers are?
Yeah. I think it's really revenue from sales. So it's a $500 million business. When we look at what our new sales will be this year and translate that into what the revenues will be a couple of years from now, it would be a, there's a little bit of sort of position growth inside there as well, but it's largely revenue from new sales.
I'm Sale. Regarding your closed sales delays, I'm curious if the clients have given you guys a timeline on when those delays are set, I guess, when those sales are supposed to go through or if it's kind of more indefinite.
First of all, they never said there was a delay. No one has come to us and said, "Oh, we're slowing things down." It is just you are turning red light. 80% of these things are in advanced negotiations. It is just, does it come back tomorrow or does it come back next week? It is pretty amorphous. They have not told us it is slowing down. They have not told us it is speeding up. We are continuing to push. Every hour of calmness that goes on is a good thing. The other thing inside that I did get, and I see our time is up, just last week, I was at the SIFMA, that is the Securities Industry and Financial Markets Association Operations Conference. It is the biggest conference we go to because we sell a lot to the heads of operations.
One of the things that they were all talking about is just they're complimenting themselves on how smoothly markets have performed. The volumes in April were like the meme stock period. It was like off the charts. People at our clients were extremely busy just keeping the lights on and keeping things flowing well. They did, and they're feeling really good about that because we just moved from T+2 to T+1. T+1, massive volumes, everything worked, which was great. I don't know if the explanation is volatility in the market or the explanation is just that people were really busy. I think we'll see you over the next few weeks.
Appreciate it. Thank you so much.
Great. Thank you.