Conference Transcript - BR 2026-05-27

Operator

Good afternoon, everyone. Thanks for joining us today for our 46th Annual Strategic Decisions Conference, the Afternoon Sessions. I am delighted to be here to meet today Tim Gopi, Chief Executive Officer of Broadridge.

Tim Gokey, CEO

Great. Thank you very much for having us.

Operator

So, Tim, why don't we start with an overview of Broadridge for those less familiar with your story?

Tim Gokey, CEO

Yeah, and I'm not sure that with this group, maybe people are more familiar, but, you know, It's an exciting time to be talking about it because there is actually so much change going on with a pro-innovation regulatory agenda with all the technology change. And one of the things that we really do is mutualize the cost and effort of change. And so it's a real opportunity for us to drive innovation at scale for our industry. We're a technology company, just under $5 billion recurring revenue last 12 months. If you look at our sort of segment focus, it's all in financial services, capital markets, asset management, wealth management, funds, also serving corporate issuers. And the core thing that we do is taking functions that are difficult, that are critical, often that are regulated, but that lots of people have to do the same thing and help mutualize that to be able to do it better and more cost-effectively. Same thing with change, when there's industry level change, we can really help people address that by doing it once on behalf of many clients. So that's sort of some of the fundamental drivers. We really look at change as something that is good for us. So underneath that, three sort of core businesses are governance or ICS business, that's our largest business, just under three billion recurring revenue. And there we really, you know, the core part of that is providing voting for boards of director's elections for public companies, actually serving the broker-dealer who has to send and take back materials and tabulate the votes for that, and around that, a series of other communications businesses. The second franchise is Capital Markets, which is $1.2 billion. There we have front office platforms, back office platforms, largely in cash securities globally opportunity to help simplify both in the front and the back and then the third business is wealth management which is about a 700 million dollar business focused on North America Canada and US again bringing platforms there and you know with that really sort of deeply embedded technology piece that we are we are deeply embedded with operations with technology with complex functions it gives us a lot of subject matter expertise in complex areas which which helps us identify the next thing and sort of help our clients. The way we grow is by doing the next thing for satisfied clients. That has led to a pretty predictable revenue and earnings model. What we target is 5% to 7% organic growth. With, I'm talking M&A, call it 7% to 9%. With the advantage of being a technology company, call it 8% to 12% earnings. Buy back a point of shares, pay a 2% dividend, provides sort of low teens total returns of shareholders over long periods if you look at our last 10 years you know we've we've exceeded those numbers over the past 10 years uh we give three-year guidance and uh we've met that guidance in each of the last each last five three-year periods if you include this one which we've announced we will be uh we'll have a current three-year period will end in june and so uh you know we really like the like the business model we like the client base we like this moment when there's a lot of change even though it's creating a bit of uncertainty in the environment is providing a really rich environment for us.

Operator

That's a great overview. Tim, what do you see as the three biggest areas of opportunity for the company over the coming years? And why is Broadridge positioned to win in those areas?

Tim Gokey, CEO

Yeah, I think there are opportunities in each of our franchises in governance, in capital markets, and in wealth. And you have really good visibility on those near-term. and then longer term they're really supported by the investments that we're making in ai and tokenization which is you know that's that moment of change because we're seeing a lot of people grappling with how that's going to affect uh their business model and we're helping them with that so let me just run through those uh a little bit um you know in governance the mega trend that has been driving our business for a long time is is you know we call it the broad category of democratization which is sort of more products for more investors at lower cost and that has played out from you know from you know there had been mutual funds to etfs to managed accounts to free trading to direct indexing and that has tended to create you know more positions we get paid per position and so the more positions there are the more work we have to do and and that has been a multi-decade uh multi-decade trend and we see tokenization as just sort of you know the next the next wave of that um so uh in that governance you know the opportunities there it is that position growth driven as i just said by that innovation uh there's an opportunity inside there relative to shareholder engagement which i think we might talk more about which is which is uh uh how to how do companies engage with their shareholders and asset managers with their shareholders and and then longer term we think tokenization is a real you know hard to quantify but nice nice tailwind for us in the governance business in capital markets the opportunities around simplifying in the front office where people tend to have lots of platforms that they've built up by asset class by region and so they end up with 20 different OMSs and how do we simplify that into a global multi asset class piece of technology same thing in the back end and connecting front to back and then on the and also we're doing a lot of innovation in the in the capital market space with digital ledger technology and I'm sure we'll talk about that ad nauseum but we're doing you know 365 billion dollars a day of token of tokenization which is bigger than the entire crypto market and we're by far the leader in that space and then and we moved to uh to wealth management there we have a really good uh you know we're the market leader in canada we're sort of more of a challenger in north and uh in the in the us but a good position and you know the challenge for clients there is there's so much change going on they're trying to incorporate all of that so that creates real opportunities for us to help them adapt to that change and our platform is uh really sort of has the advantage of being very modular but all linking together so it gives them a lot of flexibility in terms of how they implement change and and that's a nice a nice driver for us so multiple opportunities in our franchises supported by and I'm sure we'll talk more about tokenization AI but we made a number of announcements just in the past few weeks about about how we can serve tokenized equities and governance across all the different models that there are against how we will use agentic AI to help our clients be more effective, and also about platforms for tokenized equities and other securities. So a number of those announcements sort of nod to the future in

Operator

terms of where the growth will come in the future. So let's talk about tokenization and AI, and we'll start with AI as an opportunity for you. So you recently announced your agentic AI platform. You highlighted up to 30% operational cost reduction for clients. How is AI turning

Tim Gokey, CEO

into an opportunity for you? Yeah. So this is an announcement we made a couple of weeks ago at the SIFMA conference. That's the Securities Industry Association. It's the biggest operations and Technology Conference, and we have been investing for a few years to take all the applications that we have and turn them into sort of a coherent platform. So we defined a common data model across our applications, a common data layer, a set of APIs, and that, as it turns out, is the perfect basis for agentic AI because it gives you, you know, when you get into AI, one of the real challenges is I do it here, and And now I build all that up, but now the data is different over here, and they're not reconciled with each other, and it creates a lot of, you know, so having a reconciled set of data where the same thing means the same thing irrespective of what you're doing, super powerful. We have a, for about 65 clients, we do the technology, but we also do the operations on top of that. We have a team of about 1,000 people doing that. And we've been, over the past couple of years, been deploying agentic AI to those 1,000 professionals. models, we've seen about 25% productivity improvement so far, and we have clear line of sight to the next 25%. So that announcement was really around AI partnership, which is, give us your operations, we will give you 25%, 30% upfront savings, and then additional savings as we continue to do more AI in the future. And it's really a play of everyone is looking at where they're going to apply agentic, and, you know, operations, very logical place to do it, but for each person to reinvent that for themselves when we can invest more than any of them, you know, it makes more sense for us to do it. So we offered two ways. Either, you know, we'll do the work and we'll guarantee the savings or we'll give you the technology which you can, you know, do on a SaaS basis and you can create the savings yourself. So that's what that announcement was about. That, I think, is a really nice revenue opportunity and it really shows off the power of the platform that we've created. But as we're on revenue, I want to just mention, in addition, we're launching new products. So I talked about shareholder engagement. We've created a custom policy engine that allows asset managers to, instead of using a proxy advisor, to leverage technology to use their own policies. That's totally built on AI, introduced this year. It's going to serve about $800 billion in assets this year. And similarly, our global demand model, also in asset management, that's gone from zero to a couple dozen clients in about 18 months, both built on AI. So there's a lot of opportunity for us to, you know, we already serve almost everyone, but to do the next thing for them. And to think of our market as that $220 billion market that clients spend doing stuff that we do. 64 of that is vended. So doing the next thing in the non-vended space is a nice growth opportunity as well.

Operator

So let's now talk about the flip side of AI, the broader Sassacalypse narrative. And kind of this view that AI also lowers the barriers to entry. How does that impact Broadridge?

Tim Gokey, CEO

Yeah. You know, I was having dinner a couple weeks ago with the CTO of one of our largest clients. And he was really talking about how he just sees us in a different category than his sort of, quote, SaaS vendors. He sees us as market infrastructure, as, you know, moving billions of dollars, incorporating a strong regulatory component that he has to certify to his regulators. So he just views us in a very different light. Now, when he thinks about applying AI, he thinks about it much more about, I love that platform, I love the APIs, I want to apply my AI on top of that, but the idea of replacing that is something that, you know, he's, the reason I was having dinner with him is because he's about to do more, and how can he, how can he, we, how can we partner together for us to do the things that are sort of the core market connectivity, the network, the bringing in all the different you know it's not just a piece of software on their own data it's connecting them to to everyone else and you think across our businesses you know that was the technology business I just talked about think about the governance business where we're connecting every public company to every fund every asset manager every individual investor a thousand broker dealers you know that network piece is something that is pretty hard for people to replicate. So I think the, you know, we are not really seeing or hearing from our clients the SaaS-pocalypse. You know, again, we're not a seat-based model either. We're sort of an outcomes-based model. So we never had that threat of, oh, they're going to have fewer people, therefore they need less of our services.

Operator

So let's also talk about productivity a little bit more. How are you thinking about AI as a productivity driver, is this something that could meaningfully impact your margin profile over time?

Tim Gokey, CEO

Yeah, I mean, I think every U.S. business at this point is looking across all of their functions and saying, how can it make a big difference with AI? And, you know, any company that's not doing that is, you know, probably going to be really challenged in the future. When I look at us, we are, we certainly have high AI adoption amongst our associates, 90%, 90% plus. We have seen real productivity in areas like that managed services offering that I just said, where we've gotten 25% so far, and we can see where the next 25% is going to come from. We are definitely seeing it in software development. Take an example of testing. We are significantly improving our testing in terms of coverage and automation, amount of regression, which is improving quality, but with many fewer people. and it's going into the other parts of software as well and we you know that's obviously a big part of what we do is development so we'll be systematically going through all of our all of our functions I think it is too early to say for us or for anyone else how does that end up getting reallocated between investment between clients and investors and sort of what are the margin implications of that i know right now it gives us as we just look directly at we're at the end of our fiscal year so we're doing a planning for next year you know right now uh when we look directly at next year we have a lot of investments around this change that we think is you know really good investment on behalf of our shareholders but we feel very comfortable being able to maintain the same sort of rate of increase of margin that we have historically still be able to fund these investments because, you know, we feel we have a lot of gas in the tank with AI.

Operator

So position growth has been one of the key drivers for Broadridge for a long time. What gives you confidence that these underlying drivers remain durable?

Tim Gokey, CEO

Yeah, I think the main thing is the sort of track record of innovation in financial services is a thing that has driven position growth sort of for multiple decades. And I talked about it before, but we've gone from, you know, all the way from fixed commissions to non-fixed commissions to decimalization to, and you just think about the arc of the past 50 years, and now as we look forward, you know, right now we're in the middle of a huge amount of growth driven by direct indexing, and, you know, the next phase will be tokenization. So I think there's that continued arc. We have seen, you know, so right now we've been having position growth in the teens, which is, you know, typically it's been sort of high single digits, would be sort of a more, quote, normalized amount. The revenue position growth, because this is a little bit about direct indexing, very small positions don't count, but the direct has been, like, still double digit. So that's probably a little bit above what the historic trend has been, But the historic trend has been very stable. And even in periods of severe downturn, like during the global financial crisis, position growth, it went to zero for a while, but it never went negative. It's never gone backwards. So I think all those things, you know, and you look just the underlying dynamics of how many investor accounts are there, how many positions per account are there. You know, and you just do that multiplication to get to position growth.

Operator

I want to talk about tokenization and shareholder engagement. But before we get there, there's one more question that came in on AI that I want to ask. So can you and your customers remain LLM agnostic after running with a given LLM for a couple of years? Can someone really be able to switch? How do you port the learning, the memory?

Tim Gokey, CEO

Yeah. So we have built our, as have many companies, built a platform that is sort of between the layer of our product teams and the LLM providers. And so that connects into all of the LLMs and it has a compliance layer in it and it keeps track of the agents and does a lot of the stuff so that you can switch from one to another. I think it is, and that's worked very well so far. As we get into agentic, there's a matter of where you put the context layer is really important. So where do you keep the context layer? How private do you keep that to you versus in the LLM? I think one of the things that people are seeing is when you get into using AI for operations, there are some design principles around keeping the agents really small and simple, having lots of very simple agents versus fewer bigger more complex agents the bigger the bigger agents burn up tokens at a you know geometrically higher rate and they're much less replaceable if you have simple agents you use the dumbest models model possible you know that will do the task it dramatically decreases the token cost but also the flexibility that we talked about so will there be some lock-in i can't say there won't be but i think there are measures that we and others are taking to try to make it as cost effective, but also as portable as possible.

Operator

Just one final question on AI before we move to other topics. How do you think about cyber resilience, right? This has been a big topic over the last couple of years.

Tim Gokey, CEO

Yeah. I mean, man, it's one that we're all spending time on. Certainly all of our clients are spending real time on this. I think, you know, I hate to say it, I think it's sort of an advantage for for scale players that are able to really take the steps that their that their clients expect and you know we get 50 plus on-site audits per year from our clients and that gives us sort of the opportunity to level up across all the things that our different clients different clients see and so I think they see us as as at least we seek to have them see us as you know at least as good and in many cases better than themselves there's such a focus on third-party risk right now amongst all of our clients we are we're part of Glasswing and you know spending a lot of time right now on especially on how do we use the AI to accelerate the rate of remediation you know the identification side which is everything you read about in the papers it's important, but we and many others already have lots of known vulnerabilities, and the rate of those coming in is going to be a lot higher. So getting the automation around remediation is a big focus. And you can never feel fully protected on this topic, and you never should say that you are, but I do think in the end it will be an advantage.

Operator

I'm reflecting on some of the comments you made earlier. You talked about shareholder engagement as kind of a growing opportunity. Why is this becoming more important for you?

Tim Gokey, CEO

You know, if you think about some topics that people have been wrestling with for a while and the solutions for those. So one topic that people are investing with is think about the rapid growth of passive asset managers and the amount of voting power that they are accumulating. They obviously want to continue growing, but they don't want to be in the crossfires for having too much voting power. So they're very interested as one of the solutions for that, to devolve the voting power back to the shareholders. And so that has engendered a whole set of technology around pass-through voting, which is enabling the end shareholder to indicate their preference. You know, we started that with, I guess it's four years ago, eight funds, and then we did 100 funds. Last year, we did 400 funds. This year, we're doing 900 funds with $8 trillion AUM involved in the passive voting. So that continues to grow. Another issue that people are concerned about is the power of the proxy advisors and sort of the question of firms wanting to really show that they are independent. And so we worked with a set of asset managers this year to create a technology solution that would basically enable people to detach themselves from proxy advisors, leverage technology with their own set of policies to come up with their own recommendations. And really, instead of getting recommendations sort of a week before the meeting, get all of the data and the ability to apply their own policies six weeks before the meeting so they can run through and see, you know, if there's something controversial, now they have time to actually research it, whereas before they didn't have time to research it. So that solution will be serving asset managers this year that we're in right now with about 800 million, 800 billion, excuse me, under management, and it has a nice pipeline behind it. And then the last solution is around standing instructions. This is really to help public companies with, you know, who would like to access their retail shareholders more. And, you know, as much as we try to do to make it convenient, retail shareholders vote at a lower rate. And this is, but we've all grown used to defaults in other parts of our life, So this is an opportunity for shareholders to sign up to say, you know, I want to get all the materials, but unless I tell you differently, I want to vote with management. And that has been, our lead client with that has been Exxon. They've had really good results. They just had their meeting. They had really good results in it. And that's causing a whole lineup of other clients that want to explore that. So collectively, each of those is solving a little bit different pain point. And collectively, we think that could be a multi-hundred million dollar business for us over time. And we said on earnings call that we think it will add sort of a point to our growth of our governance business over the next few years.

Operator

And speaking of earnings call, you lowered close sales guidance this year. Walk us through what happened and why you remain confident in the broader pipeline and over what time.

Tim Gokey, CEO

Yeah. Well, our sales in Q3 were definitely a disappointment to us. And at the same time, we don't think that it is there any indicator of some sort of secular change. As you sort of unpack that, you know, each year we have a sort of a different mix of larger and smaller deals. You know, our ticket size ranges from $10,000 to $50 million. So it's a pretty wide range. And this year, we had a few larger deals in there that the timing of which could really make a difference. And I think we just misjudged how quickly those were coming to fruition. None of them have gone away, but it's just happening more slowly. And that caused us to be more cautious about the full year. I think if we step back, sort of the second part of it is, well, what does that say about the future? You know, we feel really good about the demand situation. Our origination is up 25% compared to last year. Our pipeline is up over 20% compared to last year. And that pipeline in origination is in areas where we are investing in digital communications and shareholder engagement and wealth platform. And all the areas where we think there's need and where we're creating product, we're seeing pipelines. So I think, you know, we'll see how things develop, but we're not seeing anything that we think changes our ultimate growth algorithm.

Operator

Earlier in our conversation, you talked about two big topics, AI and tokenization. So let's talk about the second topic, tokenization. How will growth in digital assets and tokenization impact the broader financial services industry? And how does it impact your role within the industry?

Tim Gokey, CEO

Yeah, I think, you know, we think tokenization is a real thing. We think it will affect market structure over time. We think it will take time and that there will therefore be a long period of hybrid infrastructure with digital distributed ledger products and sort of traditional products, you know, side by side. And that's sort of the base case that we're planning for. If you think about how that plays out across our different businesses, in our governance business, that is mostly about tokenized equities. The rate at which that happens, you know, there's some uncertainty about that. We tend to think it's going to be a bit of a slow burn, and I'm sure we'll talk more about that. But we see that as upside as it happens. We're very well positioned across each of the models by which it could happen, and we think we'll create additional positions as it does, but slowly. We think the biggest opportunity is, or at least the most near-term opportunity, is around capital markets. They're a very tangible business case around moving, especially collateral movement, collateral mobility, to tokenized solutions. And we're doing that today. We've been investing for the past eight years. That's how we built our $365 billion a day position in distributed ledger repo. and as we move that to real-time the benefits become even more tangible there's a white paper out there that says cap firms can save you know up to 15% in capital buffer you know with real time which when you think about the attack and do an ROE and therefore trading volume you know that's that's real upside and then in wealth management you know I think the first use cases will actually be around things like money market funds alternatives and And over time tokenized equities and and we're providing you know platforms there. We announced About four weeks ago in Canada, you know an end-to-end platform for our wealth management clients there We're the market leader to be able to do crypto and other tokenized assets and feed it directly into their existing infrastructure So they don't have to have two parallel two parallel infrastructures We made a similar announcement two weeks ago a SIFMA for institutional securities in the U.S., again, people are very concerned about, you know, they don't know how quickly this will develop, they don't want to have two sort of separate infrastructures and have to bear the cost of that. And so the proposition of, you know, if you do it with us, you'll feed directly into the existing infrastructure you already have with us is very attractive. So all in all, I think we see this as real change. We see it as something that's going it take a while to develop there will be a long period of hybrid but in the end

Operator

we see it as as a nice upside let's talk more about equities how do you see the infrastructure evolving over time what does that mean for proxy shareholder

Tim Gokey, CEO

communications at Broadridge yeah so I think a topic that people are you know trying to figure out is as and if tokenized equities develop how will that impact us specifically and here i think there are a few things that are important to uh to keep in mind first of all the sec has been very clear that a tokenized equity is still security and still needs to come with sort of all the rights you know the ownership rights of it being an equity so that's That's an important sort of backdrop factor. I think another backdrop factor that I'll return to in a minute is, you know, where this gets held. Like, you know, who owns it and where they keep it is going to be a really important factor in this. Now, if you look at tokenized equities and how they could develop, there are multiple models. models, and the SEC has said, you know, I'm not going to prejudge which model is right. I'm going to let the market decide. So there's a model where the issuer tokenizes the security, and, you know, that's an interesting one. There's been a lot of publicity about that, and NASDAQ is talking about it, and there's stuff in the press about it. This is one, we like this model, because we serve 80% of issuers today, and if you think about how shares happen today, there's sort of two models. There's registered shares that are directly on the books and records of the company, and then there are beneficial shares that are held in street name. About 95% of shares are in street name, 5% are registered. And this issuer thing is sort of envisioning, you know, growing that registered side a bit. We serve 80% of Fortune 500 companies for the registered shares, and we do it at economics that are better than what we do on the beneficial side so i think some people that aren't as familiar with sort of how our business works sort of cog if there is some you know registered model that would be a negative for broadridge actually would be a positive positive for broadridge and we have you know there's been one company that's done it so far and did it with us galaxy and there's a video on the internet you can see people voting their galaxy shares on chain you right now and and it works great and you know so we'll see we'll see how that develops I think the interesting thing about that model though is even if the issuer tokenizes it there is still the question of well where is it going to be held we think the most likely place is going to be held is at Morgan Stanley your Bank of America or Charles Schwab and if it's held there then it looks very much like the second model I'm about to talk about so that was model Model 1, Model 2, is where it's tokenized by sort of a third-party intermediary. And in that case, it looks very much like today's beneficial model. And even if it's tokenized by the issuer, if it's held at Morgan Stanley, Morgan Stanley is not going to give the issuer a direct connectivity to the client. They're going to, Morgan Stanley wants to control the communications. Or any other broker. I don't want to specifically just call them out. And they are already our clients. We're already providing this activity for them. So we see that as just growth for us. And then there's the third model, which is synthetic, which is, again, it's done by a third party. This is largely for non-U.S. investors, where you have a bunch of the securities, you immobilize them, and you issue sort of a derivative that is whose value is based on the performance of those underlying securities. The market leader in that is Ondo. They have a very high share of that. We've announced they're doing proxy with us. And so really across each of the three models, we're already leading. We'll see which one plays out over time. And as I say, it's a little bit of an edge case. you think about well what's the where's the demand going to come from uh to buy these there's a clear reason why robin hood and coinbase and others you know want to have them become popular uh where the investors will come from and therefore why the public companies will issue them uh you know is a bit interesting i think the areas of demand we see would be existing coin holders who want to diversify into equities which would make sense for a coinbase or or someone you know they haven't those investors if you look at how much a um that is you know compared to the total of equities is our vanishingly small small number uh the other one that could be interesting is global investors and could it make it easier for global investors to uh to bring in that could be a source of demand that would cause someone going public to say i'm into a sleeve of natively issued tokenized securities um and we'll just have to see see how that develops but we don't serve global investors today so if that does happen then that's just you know another sort of tailwind for us so long story short but i wanted to get into the details of it because it is sort of you know people feel uncertainty about it is uh we think it's somewhat slow developing uh irrespective of the model we are investing to cover it and we said told the sec and our clients you know we will cover whichever model uh there is and as it develops it's just going to be a source of new positions which will be additional incremental tailwind to that sort of high single-digit position growth that we've been seeing for the past couple

Operator

decades. You mentioned the SEC. I want to ask about the regulatory environment and initiatives more broadly. Is there anything on the horizon that meaningfully impacts the business on the regulatory side? Yeah I think if you

Tim Gokey, CEO

think about what Chair Atkins' main priorities are. And if you listen to him, he's very consistent with it. Improving access to or creating a legitimate framework for digital assets is helping public companies, making IPOs great again, and it is improving access for investors to private assets. So those are the three big themes that he keeps talking about so the digital asset side of things i think we just we just talked about um there's been a little bit of noise back and forth the past uh sort of week about an innovation exemption that is is is going to come uh and uh it is and it's largely covered by what i just said um but it's been on again off again but it will come at some point and it will be for a period of time it will be little bit limited nature it'll cover all three models and i think it will make clear some of the protections that the sec wants to see investors investors have in bucket two around making ipos great again one of the things in there is this concern about proxy advisors and i think the work that we're doing around shareholder engagement that i mentioned you know feeds right into that, and that concern about proxy advisors is one of the things that's causing asset managers to have a lot of interest in our custom policy engine. So that's a good alignment. The other topic that's not exactly one of those three but is a real topic that the SEC is working on is digital communications. And as you know, today, the default communication is paper, and then you can elect to receive things digitally. And we've been working for a long time to increase the digital proportion. Today, the proportion of communications that are digital and regulatory communications, it's over 90%. In customer communications, it's closer to 50%. But we're really working on, can we switch the default to be digital, and you can request paper. And we've been working with SIFMA and with ICI and other industry groups to work with the SEC to make that happen. I think we're getting close. We are expecting, we would expect something from the SEC, you know, in the next few months. And then it will go out for comment. There will be comments. Then there will be rulemaking. Then there will be an implementation period. You know, when you cycle through all of that, we're thinking this is probably our fiscal year 29 or after. And that will be something that we think is, again, a mild positive for us with some moving parts in between. It would, you know, we have a, if you look at our top line revenue, which is why we're always talking about recurring revenue, if you look at our top line revenue, there's a big chunk of pass-through revenue in there that's postage and paper and things like that that are zero to very low margin for us. So a lot of that will shrink as this transition happens. At the same time, there will be some substitution within our existing products. There's some amount of recurring revenue that would go away. And then there is other recurring revenue we think we'll gain with very closely related products that will increase. And we think the net result of all of that is roughly a wash. But at the end of that, we'll have higher margins because of less distribution revenue. We'll be a little bit faster growing because the digital part of our business has been a faster-growing business. It's been growing at double digits the past three to five years. So we really like this change, and we'll think we'll see something in the next couple of months on it.

Operator

I want to follow up on some of your recent acquisitions. So you recently announced the acquisition of CQG, a provider of futures and options trade execution app management. How does this fit in within your broader capital market strategy?

Tim Gokey, CEO

Yeah, CQG is a really nice private business based out in Denver. It's a global company. Call it revenues in the sort of 50 to 60 million dollars. And it's in the front office space focused on futures and focused on execution management. Our front office business has been historically more focused. First of all, it's order management. So execution order management, very complimentary to each other. And ours has been largely focused on cash securities, but we're in the midst of building a futures capability to compete with Fedessa. And we're partnering with a large global tier one institution to build that futures capability. So what CQG brings is extremely complimentary because they already have a strong position in futures. They have an EMS capability that will go with our OMS capability. And, you know, so it's a really chocolate and peanut butter sort of situation. Very global company. A bunch of clients that, some of which we already serve, some of which we don't serve. It's a nice cross-sell opportunity as well. And so we're really, really pleased and it's a great management team. So we're happy to have them on board. And it's part of the theme that we've seen across our M&A portfolio, you know, over a long time, which is looking for really unique opportunities where we are really the best partner to help someone sort of, you know, achieve their ambitions of growing their business. And we expect great things to come out of it.

Operator

Can you also, switching gears a little bit, can you also help us understand the recurring revenue model? there has been some confusion about how to think about Broadridge's growth algorithm versus a software company. Yeah it's that's a great question because

Tim Gokey, CEO

you know coming back to coming back to that total revenue question sort of the buckets of revenue that that we have because we that can be a little bit confusing for people so when you look at our revenue we have let's say this of of the seven billion of revenue we have using really round numbers, and there's like two billion of it that is this sort of pass-through distribution revenue, which is low to no margin. And then there's about five billion of it that is fee revenue, 95% of which is recurring. So when you hear me say 95% of our revenue is recurring, that's what I'm referring to. And then there's about 5% that is quote event, which is not under multi-year contract, it comes and goes, often due to mutual fund elections. So we really focus on driving the growth in that recurring revenue, which is that sort of 95% of the fee revenue. That's really where the economics of our firm are based and it's very consistent. We have 98% revenue retention within that group. And this is where we talk about that 5% to 7% organic and then one or two points of Tuck and M&A, where it's just sort of the first-year revenues that we acquired in subsequent years is the growth of those that count. If I think about that relative to a software company, you know, the vast majority of our revenue is software as a service. So there is, every once in a while, there's some licensed stuff in there that creates, unfortunately, some quarterly noise, but mostly it's software as a service. It's subscription-based. It's generally not based on seats. It's generally based on activity. How many trades do you do? How many accounts do you have? And, you know, it's a great business model. It's very high free cash flow, 100% plus. And, you know, we see that sort of long-term compounding, which isn't exactly as we were talking about before, you know, in flavor right at this moment, but we see that long-term compounding as, you know, really attractive proposition. because that 7% to 9% recurring revenue growth turns into 8% to 12% earnings growth, buyback a point of shares, pay 2% dividends. You have low teens, total returns to shareholders for a long time without stretching the model in any way.

Operator

And speaking of shareholder returns, how are you thinking about the trade-off between buybacks and M&A?

Tim Gokey, CEO

Yeah, so our capital allocation It's been very consistent over time. We call it balanced capital allocation. We want to be an investment-grade company. We're going to make all the investments that make sense for our core business. We do pay a dividend, about a 40% payout ratio, so that goes up each year. It's risen double digits in 19 of the past 20 years, if anyone is asking. 18 of the last 19 years, pardon me, because we will be 20 next year. and but then after that that leaves you know sort of a bucket of money and we do this very bottom up we look for attractive creative M&A like CQG and if we find those opportunities with a hurdle rate of 20% IRR sometimes high teens you know depending on the property then you know we'll go for that and that's been a really nice source of growth for us really nice source of strategically BECOMING MORE IMPORTANT TO OUR CLIENTS. WE TRACK EVERY TRANSACTION. WE'VE DONE 40 SOME TRANSACTIONS IN THE 15 YEARS THAT I'VE BEEN HERE. THOSE ARE RUNNING UNLEVERED AT ABOUT 18-19% IRR. SO REALLY GOOD RETURNS OF SHAREHOLDERS ON THAT. BUT IF WE DON'T FIND SOMETHING, THEN WE DO SHARE BUYBACKS. AND NOT BECAUSE OF A TOP-DOWN ALLOCATION, BUT PURELY BOTTOM UP. IF YOU LOOK BACK OVER HISTORY, IT'S BEEN ABOUT 50-50 THAT WE'VE DONE BETWEEN SHARE BUYBACKS AND M&A. And that does alter a little bit, bending on sort of what are market prices of these assets. You know, when they're higher, we're more, you know, less likely to be able to find those returns and more likely to do share buyback and vice versa. It's an interesting one when I look right now because many of those asset prices, you know, are depressed. And so there are some, you know, really good buying opportunities. And then at the same time, you know, I haven't in the past, but right now, I do have a sheet that has sort of here are the things that we're looking at You know, here's our revenue. Here's the earnings. Here's the revenue growth. Here's the earnings growth What multiple are they trading at and then right next to it? What Broadridge looks like and right now we look pretty attractive so so it's You know, we just have to keep keep that in mind when we think about that balance

Operator

So Tim we talked about a lot of the business fundamentals but the stock has lagged this year. What do you think investors are missing? Which of those concerns are overblown in your view?

Tim Gokey, CEO

Yeah, I think that we, like many other names, have suffered, as we talked about, just in a reallocation of putting money to the hyperscalers and the big AI companies, and where is that going to come from? So we've been caught up in that. I think there is a, you know, there's concern about, well, you know, how will AI play into things? And some companies will be advantaged and some will be disadvantaged. And how do I know which? So until I know which, I'm a bit uncertain. And then I think a unique factor relic to us has been tokenization. And is there some bear case out there by which our very recurring model would be destabilized? And so I think that's sort of the drivers of where we are right now. I think, frankly, both AI and tokenization, as I said, I think are tailwinds, not headwinds. And I think that creates an opportunity for everyone in this room that believes that, as we do. And time will tell. Now, I think the things that, you know, that we plan to do are, you know, we have a great core business that's performing very well today. We're going to keep that going, especially around making sure that we deliver on sales and deliver on revenue and continue to deliver on margin, all those sort of core basic things. I think then it's really making sure that we are making the investments in those future areas that will provide, you know, when we're talking about our investor day, not in December, but three years from December, that the outlook looks just as good. And that's making the investments in tokenization, in digital communications, in AI, in shareholder engagement, in our platform, all the things that we've talked about. I think that's really laying the groundwork for that future growth and so when you have performance today and we have investment for tomorrow I think we have a really nice package for for investors obviously our whole management team are big holders of our stock and are really

Operator

thinking you know about the long-term future we have one minute left so my last question for you as you head into your next three-year cycle what should What should investors expect for the next three year targets?

Tim Gokey, CEO

Look, I think it's very similar to what I just talked about. We don't see a lot that is changing that core growth algorithm. And so I would expect our next three years in terms of where the metrics come out from the core growth algorithm to be very similar to the last three years. Inside there, there's a lot of change in terms of introducing new technology and helping our clients make that transformation. When you then boil it out, though, into the numbers, the numbers will look very similar. What's going on underneath, there will be a lot of innovation in there, and I think it's going to be a really exciting time for our industry.

Operator

Tim, thank you so much for your time today. I learned a lot.