All right. we'll go ahead and get started. good afternoon. Thank you, everybody, for joining us. 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, welcome.
Patrick, thank you. Great to be here.
For those in the room who are maybe a little bit less familiar with Broadridge, could you maybe just spend a minute or two providing an overview of the company, please?
Yeah. I just have about 45 minutes of, you know, prepared remarks here. We are a technology company with a, I think, a really unique growth franchise that isn't typical. Our whole reason for being is to provide mutualization of critical functions that need to be right but that are less differentiated in financial services, largely for capital markets firms, wealth managers, to a lesser extent, asset managers. We power a lot of the critical infrastructure beneath investing and trading, corporate governance, and customer communications. We're about $17 billion in market cap, $4 billion in fee revenue, about $60 billion in directly addressable market with the products we have. We think we have a lot of growth runway.
We translate that through really three growth strategies that play out through two financial segments. Our biggest financial segment and strategy is around corporate governance. You'll see that in our financial statements as our ICS business. That's about a two and a half billion dollar business. It has sort of nice upper single-digit organic growth rates. It's a really unique business. You know, through that business, we connect every broker-dealer to every public company, to every fund complex, and every institutional and retail investor, and we end up with nearly every position of every investor in the U.S. in our database. That's our clients' data, but it gives us a unique relationship with our clients to help them do the next thing.
Through that, we've very successfully expanded that over time. Very unique business for us. Second, the other financial segment is our Global Technology and Operations segment. That's about a $1.5 billion segment that has been growing at about 13%-14% the last five years. Within that, we have capital markets. About $1 billion of that is capital markets. We have a really leading position in the core infrastructure on capital markets. About two-thirds of fixed income in North America is on our technology platform. You'll hear us talk about we clear and settle $9 trillion a day, pretty core part of the infrastructure in Wall Street.
We've been able to complement that in the past couple of years with the acquisition of Itiviti, now renamed Broadridge Trading and Connectivity Solutions, BTCS, which we think is a nice growth addition and really complements our capital markets franchise. The other part of the GTO business is our wealth management business. It's about a $500 million business, and I'm sure we'll talk about the investments we're making there and why we think that is a nice growth runway for us. The other piece I'd like to just make sure that everyone is aware of is really the long-term view that we take of our business. We are a pretty seasonal company, so we really don't manage through the quarter.
We'll give you our quarterly results that will tell you really about how it affects the year, which is what you should care about. Then within that, we really give three-year objectives, and every three years, we give new objectives. Those objectives are really around a long-term model for creating shareholder value, which is, and has been for a while, 5%-7% organic growth, with tuck-in M&A, of a couple of points, 7%-9% recurring revenue growth, with operating leverage, 8%-12% adjusted earnings growth with nice dividend, which has typically been about 2%, and a little bit of share buyback, delivering low teens total returns to shareholders over long periods, through the market cycle.
Obviously, market will go up and down, but through the market cycle, with low volatility and high defensiveness. That's the model that we like to, like to promote. I think we've been pretty consistent with it. At our last call, we did say that our current three-year period ends in June, and we expect to come in at the high end of that range. When we do that will be, depending on how you measure, either the fourth or the third consecutive three-year period, that we've done that. As you think about us, as an investment, you should really think about that long-term, long-term compounding.
The last piece I'll mention is just we are, we've been in a bit of an investment cycle the past couple of years. I'm sure we'll talk about that. We're just completing that, we expect to see. You know, we've always been a high, high free cash flow conversion company with a high ROIC. I think as we complete this investment cycle, which we're just in the midst of doing, you're going to see us begin to return to those more historic numbers and higher ROIC over time.
Sure. Very helpful introduction. Thank you. Building off of that, and, you know, certainly you guys are a very unique company, but what would you say is your competitive advantage? What makes you better than anybody else who's trying to compete against you?
Yeah. I think there are two things. First of all, our biggest competitor is internal. You know, if you look at the stat, $60 billion, the biggest part of it is unbundled. That's our biggest competitor. Our competitive advantage relative to that is our ability to neutralize non-differentiating activities and to take something that our clients have to do. Doesn't make sense for them to invest enough to really do it well. We can take that one thing, and we can invest more than it makes sense for any of our clients to invest to do it better with a higher level of functionality at lower cost to them and still have money left over for our shareholders to provide a nice return.
That's our core competitive advantage. Then I couple that with a real culture of client service and innovation, based on what we call the service-profit chain or but as you've heard of, you know, we do great by our associates, they do great by our clients, and shareholders benefit from that. Because of the really good service that we provide, it gives our clients the confidence to give us the next thing. You know, we have a relationship with literally almost every broker-dealer today. When we have new sales, it's really about selling the next thing to the same client, and we have a good track record of that over time.
That's probably a good segue to. You have your core competencies, you have your competitive advantages. I think we probably have a sense of how that applies to your existing businesses, but maybe how does that apply to wealth management and your decision to really kind of go deep in the wealth management technology space?
Yeah. Yeah, first, we've always been in the wealth management space. We serve nearly every wealth management firm through our governance business. We have the leading back-office application in wealth management. About 30% of U.S. advisors use some solution from us. We do have a position. As we looked at this, you know, a few years ago, what we really thought was this is a big total addressable market that is undergoing significant technology change that is underserved and where we already have good relationships. You know, that was really the rationale. I can talk about Appatura. It's a $16 billion, you know, $16 billion market. There's no real scale technology player serving that market today.
You either have to build it yourself or collect a bunch of assets and try to stitch them together, which is expensive. You know, then as we had a partner in UBS who was the number four player, but saying, "I'm a number four, but I'm only half the size of number three. You know, I don't think me as number four is ever going to get the scale that I need. Let's work together to create something that could serve the rest of the industry." I think that was a very compelling proposition. Now, it's evolved since then. I'm sure we're gonna talk about that next.
Sure. Well, next, maybe just describe the wealth tech solution for the folks in the room here. You know, there's a comprehensive solution, but underlying that is a number of components. Could you maybe kind of walk through what that looks like?
Yeah. It is, it's always been designed as a set of components because there are a lot of different business models in wealth management. There's no one platform that can satisfy all wealth managers, as you all know from Raymond James. This is a different model than LPL. It's a different model than Morgan Stanley. This is always designed as, you know, a really robust core facing off to the depository's back office, which is best in class, multi-currency, multi-entity, et cetera. Over the top of that, a really modern data integration layer connected with APIs to a suite of components that might be some built by us, some built by our client, some built by third party. They'd all work together through this integration. Those components really fall into two buckets.
There's a bucket around making advisors more productive. You know, that includes there's a next-generation workstation. There is a, you know, there's a really good billing application that has great economics for the home office. There's a whole suite of things that, you know, what's the next investment recommendations, those kinds of things. There's a suite of components around enhancing the experience for the end investor. That can be everything from digital communications to really clear daily average billing, which also has great economics for the firm. There's this applications around sort of digitizing operations, making the whole thing more efficient, connecting essentially branches and advisors straight to back office.
That collection of components, of which there are something like 30 altogether, makes up the suite. I think what we're seeing now as we have talked to clients, and it's great to be out there, you know, showing them live software. As we do that, I think what we're, you know, what we've seen is a lot of appetite, not for transformative kinds of things, but a lot of appetite for, "Well, this is my problem right now. Let's put that in. I can get a good ROI on that. That can help me pay for the next thing, then I can transform over time.
Got it. The build-out, it's no secret, it's, you know, a little bit delayed. It's a little bit over budget relative to what the initial expectations were. You know, the mindset at this point is probably that's a sunk cost. Moving forward, how do you maximize the value of that franchise? You know, how comfortable are you of UBS as being, you know, a good partner for you to work with going forward?
Yeah. You know, let's first of all start with the fact that the large part of the investment is done. The platform, the development is complete. The testing is largely complete. The investment, we're really in a wind down of the investment phase, just to sort of, you know, underline that piece. When you think about the longer term impact, you can really divide it into sort of immediate near term and then longer term.
In terms of immediate near term, we are, you know, we will be beginning to recognize revenue in the first part of our next fiscal year, so beginning in July. We, you know, we had put out a number as to what we thought that would be in the fall, because there were two plus one falls and sort of rejigging the order of things with UBS, we've retracted that. What I can say is we will be recognizing revenue. We'll be capital positive next year, depending, you know, across the different scenarios, which really relates to what they roll out in what order. We think the economics to us across those scenarios are pretty much the same.
They are pretty much the same as they were last fall, even with the $100 million number. We expect to incorporate that within our normal margin structure. That's the near-term impact. The longer-term impact is really around how do we grow our wealth management business. It's about a $500 million business. You know, I think we should expect to see that being, you know, a nice organic growth business, you know, above larger organic growth rate. Can't say exactly what that is, but we expect that to be a. It's not gonna be waiting on big transformative deals, but a sequence of smaller things that just result in a nice, you know, organic growth rate on top of that $500 million.
A nice organic growth rate at attractive incremental margins under the build once, sell multiple times philosophy.
Yeah. I mean, really, with this, it is, you know, what we built for UBS is fully reusable for others. We should see good margins on those.
Got it. You touched on the business earlier, Itiviti now rebranded Broadridge Trading and Connectivity Solutions. That's probably been the best growth story within your GTO segment over the last year or so. What's driving the growth there, and how sustainable do you think that will prove to be?
Yes. Thank you for asking about it. We're really excited about Itiviti now, BTCS, as you say. Thanks for pointing that out. As we think about our capital markets franchise, you know, strong franchise, we've wanted to be in the front office. With Itiviti, we had that opportunity, and that really, we've been looking at it for a while, and we didn't expect it was gonna happen, but it fell into a range because some other things that are going on in the market, you know, that were net our hurdle rates, and we're able to transact with, you know, a lot of discipline. That we underwrote that with sort of high single-digit growth rates for that over the long term.
When we look at the market in the front office, this is order management. This is what traders use to input orders, and execution management, which is how they route those to market to get best execution. Order and execution management, that's about a $6 billion market. It's about half vended. Fidessa, now part of ION, is the market leader with 40%+ share. FIS is number two with high teen share. Itiviti is number three with about 15% share. We had three goals in buying this. First of all, was to do what Itiviti, which is already doing, which is continue to take share from FIS and Fidessa ION. Those are companies, neither of which are really investing in their platforms.
Fidessa had been acquired by ION, and there were a lot of clients that were looking for an alternative to that. you know, job one is just continue the momentum that the firm already had. Job two is to bring activity more to North America and more to Broadridge clients. It's been largely a outside the U.S. company with some U.S., but really ramp up what we're doing in the U.S. as well as bring Broadridge to some of his clients to get the cross-selling going. That's a little more medium-term. Longer-term is create a real front to back proposition that would, you know, improve both the front and the back by doing that. you know, that really has been really validated.
All three of those have been validated by experience so far. We've had, you know, good, strong sales. We just had a really nice sale to a significant Broadridge client that they've been trying to get for a long time, and I think really validates the cross-sell piece of things. The conversations on front to back are also really positive. There's been nothing, you know, everything that's happened so far in the market in our conversation with clients has really validated that.
Pivoting to your ICS segment, I think there's a narrative that because the last couple of years were so strong in terms of proxy position count growth, that as retail participation in the equity markets maybe slows because of the bear market or whatever reason, that we're going to see your fund position count or your equity position count growth really decelerate from even where it was last couple of quarters. What are your views on that business? You know, kind of my views, but why do you think maybe people underestimate the quality of that franchise for you?
Yeah. Look, it's a very deeply embedded franchise. From a quality standpoint, you know, I think it has a lot of attractive features. I think specifically in terms of the position growth. The core driver of our revenue in that business, we get paid per position. If you have one share of Amazon or 10 shares, it's a position. Or one share of a fund or not, it's a position. Those have grown historically in mid to high single digits based on account growth and then based on positions per account. The last couple of years, we've grown much way more than that. A lot of people attributed that to COVID, which definitely was a big factor.
There's another secular change that took place at the same time, which is the advent of free trading. It's started by Robinhood, but soon followed by Charles Schwab and Fidelity and others. You know, that's been a big secular shift. We have good visibility out six months. I have a lot of confidence in that and in this year. I'm not sure I have a full crystal ball after that, but I do think that, you know, what we're modeling is that this is a, is a sort of a new base from which we then all the other growth factors that we historically see will continue to propel us. Those other growth factors are, you know, continued account growth, but really it's around the growth of managed accounts.
If you look even this past quarter, the overall growth rate was 9% in positions. For managed accounts, it was 14. That is people converting to managed accounts. It's a big trend in wealth management, as you know. That's one that has a lot of legs. Behind that, there are the next generation of innovations like pass-through voting and like indexing, direct indexing, that we think. We're not saying those are gonna be additive and transform the growth rate higher, but we think that will sustain those mid-to-high single-digit growth rates.
Staying in the ICS segment. In 2016, Broadridge acquired a customer communications business. It's been something of a drag on segment revenue growth up until 2022. What's changed in that business, and is there a lesson to be learned about being too early for a perceived opportunity, just need to be patient?
I think, first of all, BRCC was a drag on our top line. We did at the time that we acquired it, there were some clients that were in the process of deconverting. They had already made that decision before we bought it. We fully underwrote that inside the deal. That did depress the top line. It has never been a drag on the bottom line, and it has grown earnings 14% compounded since we bought it. It's been, you know, a real success from that standpoint. We had three objectives when we bought that. You may notice the model of three objectives when we do an acquisition in here someplace. We had three objectives when we bought that.
The first was to achieve cost synergies between the existing operation that we had and that business. We targeted $20 million. We've achieved well over 50, which has certainly contributed to that 14% compounded growth. The second objective was to really be the print consolidation hub as in-house. You know, print is only half ended also. As in-house facilities became less economic, I think, you know, we've had sales of over $40 million a year since we bought it. That's been, you know, check that box. The last was to really then convert that print to digital.
With some of the new products we're seeing and new clients around with the Wealth InFocus platform, which we may not have time to get into right now, but it's really good. We really do need to see that digital piece kick off. I think my lesson from it is that, you know, taking a long-term view is really the right way to create a lot of value for shareholders.
Got it. You mentioned earlier that you guys give a three-year view every three years. Just to summarize, 5%-7% organic recurring revenue growth, couple points of growth from acquisitions, around 50 basis points of margin expansion per year. I don't think that you're in a position to totally front run your next December event at this point, but do you see anything change in the model, either positive or negative, that would maybe, you know, people should think you're gonna deviate from that typical Broadridge type outlook?
First of all, thank you for repeating the, you know, the TSR formula there, because I think that is really, you know, we really always come back to that and emphasizing how important that is, I think, for a long-term investor. We are right now in the midst of a over the course of this year, a pretty comprehensive sort of, you know, look into the whole next 10 years and, you know, AI and DLT and sort of, you know, how will the market evolve. I think what I can tell you from that is we see a lot of opportunity. I can't really front run next December. I don't see anything, you know. I certainly don't see anything in crisis, and I see a lot of opportunity.
Maybe I'll pause to see if we have any questions in the room. Okay. I'll keep going here. About five minutes left. Are there any areas across your business where you can lean into pricing a little bit more during an inflationary environment?
Let's start just with inflation so that folks have a good picture. First of all, not inflation, but interest rates, which are related to inflation. We're just for those that aren't following us closely, we're very neutral on interest rates because we have some significant cash balances we get in a couple of our businesses. Neutral on neutral on interest rates. When we think about the impact of inflation on Broadridge, we have, you know, a big chunk of pass-through revenues that are direct pass-throughs. If you take our non-regulatory business, which is the majority of our revenues, the vast majority of those are based on contracts that have CPI built into them.
That leaves the regulatory business where the pricing is regulated, but we have a lot of operating leverage in that business. We feel, you know, not 100% insulated from inflation, but pretty good from inflation. When we think about where do we have pricing power, you know, it is. As I said, we have CPI on a lot of the business. You know, our whole strategy is around landing, expanding, taking more share with those different clients. We've always had a very client-friendly view within the margin constraints that we have, and that has, I think, consistently allowed us to take share and grow revenue.
That, you know, that's really our business philosophy is to keep growing the top line and growing the bottom line at the same time.
Got it. Speaking of margins, for an investor who's looking at Broadridge for the first time, they're looking at a company that's differentiated, it's scalable. It seems like, you know, top line is growing well, and adjusted operating margins are still slightly below 20%. How do you kind of square some really positive characteristics relative to a margin profile that, you know, might be a little bit lower than what somebody might otherwise expect?
Yeah. really, really good question for those that aren't as familiar with our company. I encourage you to keep a side model that strips out the pass-throughs. you know, we're obligated to report the pass-throughs as part of our revenue. For us not to do that, we'd have to have our clients directly contract for all those things which they wouldn't have the buying power and be very, you know, not nearly as good for them. We take the pass-throughs into our revenue. If you strip out the pass-throughs, you know, then you have a company that's growing total revenue at 79% in a normal year, with margins that are more like 30%.
Which is still lower than some pure tech companies, though we do have a services component, and we do have that land and expand and grow revenue philosophy.
Terrific. Well, on that note, I think we're out of time. Thank you everybody for joining us.