Q3 2026 Earnings Call Transcript

Good day, and welcome to the Broadridge Fiscal Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Edings Thibault, Head of Investor Relations. Please go ahead.

Thank you, Chuck, and good morning, everybody, and welcome to Broadridge's Third Quarter Fiscal Year 2026 Earnings Conference Call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our Chief Executive Officer; and our Chief Financial Officer, Ashima Ghei. Before I turn the call over to Tim, I want to make a few standard reminders.

One, we will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K. Two, we'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings release and presentation.

Let me now turn the call over to our CEO. Tim?

Thank you, Edings, and good morning. Broadridge delivered strong third quarter financial results. And we're on track to deliver a strong fiscal 2026. The market backdrop remains positive. Equity markets have been resilient in the face of geopolitical uncertainty.

And capital markets remain active, driving strong position growth, higher trading volumes and elevated event-driven activity, all of which are benefiting Broadridge. At the same time, we've always been focused on driving steady and sustainable growth by aligning our business with the long-term trends that are shaping the financial services industry. And so I'm pleased to report they're also squarely on track to deliver on our 3-year financial targets for the fifth consecutive cycle. Looking ahead, we're already investing in the next wave of industry innovation.

Broadridge is transforming shareholder engagement, leading in tokenization, driving digitization and scaling our AI capabilities. And we're using our strong free cash flow to return capital to shareholders even as we make tuck-in acquisitions that strengthen and extend our value proposition. The bottom line is that Broadridge is well positioned to drive steady and sustainable growth for a long time to come. As we close out fiscal 2026, we're delivering strong results today, including double-digit earnings growth, and we're putting in place the building blocks for long-term growth tomorrow and beyond.

To see how all this plays out, let's go to the headlines on Slide 3. First, Broadridge delivered strong third quarter results, including 6% recurring revenue growth constant currency and 11% adjusted EPS growth. Second, our growth is being driven by the execution of our strategy to democratize and digitize governance, simplify and innovate capital markets and modernize wealth management. Third, as I just said, we are taking active steps to address future growth opportunities by leading in tokenization, driving the digitization of communications and scaling AI. Fourth, we are leveraging our strong free cash flow to make growth accretive acquisitions like Acolin and CQG while returning capital to shareholders with share buybacks at attractive levels, as Ashima will touch on.

Fifth and last, based on our strong performance, we are raising our fiscal '26 guidance for recurring revenue and adjusted EPS growth to at or above 7% for recurring revenue growth constant currency and 10% to 12% for adjusted EPS. These results demonstrate the power of our strategy and proven ability to execute. So let's turn to Slide 4 to look at the key drivers of that execution, starting with our governance business. Governance recurring revenues rose 8% constant currency, driven by new sales and continued growth in investor participation.

Investor participation trends remained very strong with total equity position growth at 15% and equity revenue position growth of 11%. We continue to benefit from strong growth in managed accounts and steady mid-single-digit growth in self-directed accounts. Mutual fund and ETF position growth was also healthy at 6%, driven by demand for passive funds. Beyond position growth, our innovations to power shareholder engagement are building momentum.

Our pass-through voting solution is now enabling voting choice for shareholders of 900 funds with assets under management of more than $8 trillion. Our new standing voting instruction solution, which enables retail shareholders to set their default voting instructions, is also off to a strong start. Our pilot clients are benefiting from exceptional response rates nearly 10% of Exxon's retail shareholder base enrolled in just 1 year, and 30% of responders had not voted at the prior meeting, highlighting the power of this program to engage new voters. We're also now live and supporting proxy voting for institutional asset managers looking to enhance their voting processes and reduce their reliance on proxy advisers.

Beyond voting, our data-driven fund solutions business reported strong growth, driven in part by Acolin acquisition. We're seeing a lot of early interest from our U.S. fund clients on how they can use the Acolin capabilities to accelerate their growth in Europe. In our Capital Markets business, healthy 6% underlying growth was offset by lower license revenues compared to the prior year. We are seeing good growth in our post-trade solutions, where our global platform capability is enabling clients to simplify their back-office technology stack across multiple geographies and asset classes.

We also continue to see robust demand for our front-office solutions. Earlier this morning, we closed the acquisition of CQG, a leading provider of futures and options trading, execution management and market connectivity. This acquisition accelerates our expansion into futures and options, where we are well advanced in building a next-generation order management solution with a Tier 1 global bank. CQG will add highly complementary execution management, algorithmic trading and analytics capabilities.

Our goal is to create an institutional-grade, end-to-end trading suite for global futures and options, and CQG is a nice accelerator of that strategy. Turning to wealth management, recurring revenue rose 8% constant currency, powered by strong growth in Canada. We acquired SIS last year to deepen our relationships with key clients and accelerate the rollout of our platform. Now that strategy is paying off with attractive organic growth.

We strengthened our core technology platforms, build connectivity to our wealth components, and I'm proud to announce just gone live with the first phase of our wealth platform solution for a leading Canadian wealth manager. And as the market continues to evolve, we're leading that change. Two weeks ago, we announced the launch of our next-generation digital asset platform, building on a unified suite of solutions. The platform will enable Canadian wealth managers to accelerate their offering of digital assets, including crypto and tokenized equities, funds and alternatives.

I'll close my review of our results with sales. Year-to-date closed sales were $147 million, 16% below last year, even as deal origination and pipeline were substantially up. While we like the demand and pipeline we're seeing, based on our progress toward closing, we are updating our sales guidance for the year to $240 million to $290 million. We are seeing robust demand that's taking longer to close than we expected due in part to a mix of bigger, larger, more complex deals this year.

Some examples include wealth platform sales in GTO and on the ICS side, larger digital transformation sales and customer communications. Those $5 million-plus deals are powering a very strong pipeline and also take longer to close. While we're lowering our outlook for fiscal '26, we feel good about the future. The pipeline I just mentioned is higher than it ever has been, well north of $1 billion.

And we're seeing our product focus driving new demand. We're enhancing our trading solutions and driving the suite of shareholder engagement solutions I highlighted earlier. We're also building a track record of successful wealth platform and digital communication transformations, while linking more of our solutions to our data platform layer, all of which are driving active client discussions. Now let's turn from the execution behind today's results to what we're doing to drive long-term growth on Slide 5. The financial services market is evolving rapidly, driven by the accelerating pace of technology and an innovation-friendly regulatory environment.

Change has always been good for Broadridge as we help our clients adapt with a mutualized approach. We see the current set of changes as a significant opportunity, and we're leaning into them. First, we're leading in tokenization. Broadridge is building on our industry-leading role in tokenizing more than $350 billion per day on our Distributed Ledger Repo platform.

In governance, we're now powering on-chain voting and disclosure. In wealth management, we're creating an end-to-end solution for crypto and tokenized equities, funds and alternatives. And in the capital markets, we're scaling our market-leading digital asset capabilities in multiple directions. In a few weeks, we will be the first to power on-chain proxy voting for natively issued tokenized securities for a U.S. public company.

As part of that process, we're consolidating and recording voting for beneficial shares, registered shares and tokenized shares to create a unified view for issuers to see all of their votes in one place, take the friction out of managing multiple ownership [ basis ]. In addition, we announced an agreement earlier this week with a leading global marketplace for tokenized real assets, including U.S. equities to provide proxy voting and other governance activities for their clients. And we're just getting started where the shares are tokenized by an issuer or a third party, Broadridge is stepping up to power the governance capabilities for issuers and investors and make tokenized equities real.

And investors will be able to express their voting preferences across their holdings, including tokenized holdings, through Broadridge's institutional-grade proxy vote platform. We're also working with our wealth management clients to accelerate the launch of crypto and other tokenized assets to their clients. Our Canadian asset -- Canadian digital asset suite will support the governance and trading of digital assets in a seamless and integrated environment that includes our own capabilities as well as a growing ecosystem of digital asset partners. And on the capital market side, we're extending the capabilities of our market-leading DLR platform to new trade types, geographies and asset classes.

And our worldwide trade routing network is transmitting crypto order flow for a growing number of clients. Second, we're driving the digitization of communications. The time is coming to shift the default delivery method for investor communications, and we're helping to drive the change. The SEC has indicated is taking a fresh look at moving to a digital default option for investors who do not request paper delivery.

We've been working with the industry and our clients to move this forward. And while the timing is uncertain, we anticipate a proposal in this area over the coming months. We believe this evolution will be positive for Broadridge and our clients. We've already digitized nearly 90% of proxy and mutual fund communications, savings funds and public companies hundreds and millions of dollars per year.

Now as we look forward to increasing electronic delivery for other communications, including statements and prospectuses, we're helping our clients prepare as they think about how to take advantage of such a change while also maintaining and improving experience for clients. We expect the implementation process of any action would occur over a few years and primarily affect our low to no margin distribution revenue. We expect the impact on recurring revenue and earnings will be broadly neutral. On one hand, migration to digital default could have an impact on our recurring revenue of a few percent, mostly in our customer communications business.

On the other hand, we believe this evolution will create demand for new services, such as their wealth and focused solution, which is already enabling omnichannel communications to millions of investors. Like tailored shareholder reports, we expect these new opportunities to more than offset lost recurring revenue. The end result will be a more valuable Broadridge, which is growing faster with higher margins. Finally, we're scaling AI by building on top of our common data ontology, shared API architecture and the operating workflows we already run at scale.

Our AI capabilities are powering new products, accelerating our software development cycle and driving productivity gains. Let me give you three examples. Our new custom policy engine, which is fully AI native, is able to read and analyze source materials and apply clients voting policies across thousands of companies. Today, that capability is already enabling asset managers with more than $800 billion AUM to implement their own voting policies without a proxy adviser.

Now we're building on that progress to modernize the entire front-to-back workflow supporting institutional voting by leveraging agentic AI to enhance our core institutional voting platform. One of our fastest-growing products is our AI-powered global demand model, which tracks $120 trillion in global assets and is assisting products and marketing decisions for nearly 2 dozen and growing leading asset managers. And on the productivity side, our managed services business has already seen a 25% increase in productivity with line of sight to 50%. Going forward, we're extending our Broadridge platform to a growing number of core applications.

This platform with its common data and APIs positions Broadridge to create agentic layer our clients can use directly or can leverage to create their own solutions using our embedded services. In sum, AI is enabling Broadridge to deliver new services, become more embedded in our clients' agentic workflows and drive our own productivity. Stepping back, we believe that each of tokenization, digitization and AI are growth drivers for Broadridge as we help our clients in our industry take advantage of the next wave of transformation in financial services. And we're building that tomorrow while continuing to deliver today with another year of strong and steady growth in fiscal '26. Before I turn the call over to Ashima, I want to thank our Broadridge associates.

They're delivering superior service to our clients today while building the products and capabilities that will power the exciting future of governance, capital markets and wealth for a long time to come. And on that note, let me turn it over to Ashima. Ashima?

Thanks, Tim. Good morning. I'm pleased to be here today. Broadridge reported strong third quarter results with 6% recurring revenue growth constant currency and 11% adjusted EPS growth, and we remain well positioned to deliver another year of strong growth in fiscal '26. Before I dive into my discussion of those results and our guidance, I want to make four callouts.

First, we now have records for 93% of full year proxy positions, which, combined with our recurring revenue backlog, gives us high visibility into our recurring revenue and adjusted EPS forecast. Second, our strong year-to-date results are enabling us to increase our investments in long-term growth initiatives while positioning us to deliver double-digit adjusted EPS growth. Since the beginning of calendar year '26, we have stepped up our level of investment in tokenization, AI and shareholder engagement initiatives. Third, we are using our strong free cash flow to drive shareholder returns.

With the close of our acquisition of CQG today, we have completed 4 tuck-in acquisitions in fiscal '26 for $294 million and returned $681 million to shareholders in the form of dividends and buybacks. And given our outlook for free cash flow conversion of greater than 100%, we expect the same balanced approach in the fourth quarter. Fourth and last, we are raising our guidance for recurring revenue growth to at or above 7% and adjusted EPS growth to 10% to 12%. Now let's go to the numbers on Slide 6. In the quarter, recurring revenues grew 6% on a constant currency basis driven by 5% organic growth.

Adjusted operating income margin was 21.5% as we continue to invest in our growth initiatives. Adjusted EPS grew 11% to $2.72, and closed sales were $58 million for the quarter. Let's move to Slide 7 to discuss our segment recurring revenues, starting with ICS or our governance segment. ICS recurring revenues rose 8% to $800 million.

Organic growth was 6%. Regulatory revenues grew 9%, driven by 11% growth in equity revenue positions and fund position growth of 6%. That strong position growth more than offset the 2-point timing headwind from Q2 I had called out last quarter. Now looking forward to the fourth quarter, we expect another quarter of high single-digit regulatory revenue growth.

This will be driven by a combination of low double-digit equity revenue positions and continued mid- to high single-digit fund position growth. Data-driven fund solutions revenue increased 8%, driven by a combination of organic growth and the acquisition of iJoin and Acolin. Lower interest income represented a 3-point headwind to growth. Issuer revenues rose 8%, driven by growth in disclosure and shareholder engagement solutions, which more than offset a point of headwind from lower interest income.

Customer communications revenue growth was 5%, driven by another quarter of double-digit growth in digital revenues. The acquisition of Signal contributed 2 points to customer communications growth. For the full year, we continue to expect ICS recurring revenue growth to be slightly ahead of our overall recurring revenue growth guidance. Turning to GTO, recurring revenue grew 3% to $488 million.

Capital markets revenues were $295 million. Excluding a 7-point impact from lower license revenue, capital markets growth was 6%. Digital asset revenues from our role as Canton Network super validator were $3.5 million in the quarter. Wealth and investment management grew 8%, driven by a combination of strong growth in Canada and higher trading volumes in the U.S.

For the year, we continue to expect GTO recurring revenue growth of 5% to 7%. In the fourth quarter, that includes a 3-point contribution in our capital markets business from the acquisition of CQG, offset by a 5-point license revenue headwind in our wealth management business. Turning to volume drivers on Slide 8, Broadridge continues to benefit from strong growth in investor participation across both equities and funds. Third quarter equity position growth was 15%, including revenue position growth of 11%.

As Tim noted, we continue to benefit from growth in managed account strategies. We are now in the peak period for annual meetings and as of last week, have received records for 93% of proxies expected for the fiscal year. This visibility gives us a high degree of confidence in our outlook for continued low double-digit equity revenue position growth in Q4. Mutual fund and ETF position growth was 6% in the third quarter. We expect mid- to high single-digit growth in the fourth quarter.

And in GTO, trade volumes rose 16% on a blended basis, driven by double-digit growth in both equity and fixed income. I'll wrap up my discussion of recurring revenues on Slide 9. Revenue from closed sales remains the biggest driver of our recurring revenue growth at 4 points. That growth was partially offset by 2 points of losses, resulting in a revenue retention rate of 98%. Internal growth contributed 3 points, primarily driven by equity and fund position growth and higher trading volumes.

As a result, organic revenue growth was 5%. Acquisitions contributed 1 point. And finally, changes in FX contributed 1 point to reported recurring revenue growth. Given the recent strengthening of the dollar, we expect only a modest tailwind from FX in the fourth quarter and an overall benefit of approximately 50 basis points for the full year.

Let's close our discussion of revenue on Slide 10. Total revenues increased 8% to approximately $2 billion, driven by a 4-point contribution to growth from recurring revenue. Event-driven revenues increased $20 million to $73 million, contributing 1 point to total revenue growth. While there were no singular tentpole events in the quarter, we did benefit from elevated levels of activity across both funds and equities. Low to no margin distribution revenues grew 7% contributing 2 points to growth.

Turning to margins on Slide 11. Adjusted operating income margin was 21.5%. The 90 basis points decrease versus fiscal '25 was driven almost entirely by 80 basis points net impact from higher distribution revenues and lower interest rates. Looking ahead, we expect a similar margin dynamic to play out in the fourth quarter. Turning to EPS on Slide 12. Q4 adjusted EPS grew 11% to $2.72. The tax rate was 19% in the third quarter versus 22% in Q2 '25, driven by the timing of discrete tax items.

Looking ahead, we expect our full year tax rate will be approximately 22%. Let's turn now to sales on Slide 13. Broadridge recorded Q3 closed sales of $58 million versus $71 million in Q3 '25. Year-to-date sales were $147 million. Given our lower sales results through the first 3 quarters of the year, we're updating our closed sales guidance to $240 million to $290 million. Turning to our cash flows on Slide 14, Broadridge generated free cash flow of $591 million in the first 3 quarters of fiscal '26, up from $393 million in fiscal '25. Our strong cash performance continues to benefit from higher earnings and working capital management, and we remain on track to deliver free cash flow conversion of over 100% in fiscal '26. Turning next to capital allocation on Slide 15. We are delivering against our balanced capital allocation policy.

Year-to-date, we have deployed $77 million in capital spending and software with an additional $33 million to onboard clients onto our solutions. We have invested $294 million in M&A in strategic tuck-in acquisitions, including the $173 million acquisition of CQG, which closed earlier this morning. We have also returned $681 million in capital to shareholders via our dividend and our share repurchase -- via our dividend and share repurchases through the first 3 quarters of the year. Looking ahead, our strong balance sheet and free cash flow conversion leaves Broadridge well positioned to fund additional tuck-in M&A and repurchase additional shares.

Let's conclude by reviewing our full-year guidance on Slide 16, followed by closing key messages. With 2 months left and high visibility into fiscal '26 position growth and with the acquisition of CQG, we are raising our fiscal '26 outlook for recurring revenue growth constant currency to at or above 7% from the higher end of 5% to 7%. We're also raising our guidance for adjusted EPS growth to 10% to 12% from 9% to 12%. And we also continue to expect fiscal '26 AOI margin of approximately 20% to 21%.

As I noted earlier, we are updating our closed sales guidance to the $240 million to $290 million range. I anticipate this will have only a modest impact to recurring revenue growth over the next 12 to 18 months. The most significant drivers of growth continue to be our existing recurring revenue backlog, which began this year at $430 million, as well as the impact of continued position growth, higher trading volumes and M&A. I'll wrap by summarizing my key points.

First, Broadridge reported strong third quarter results. Second, we remain very much on track to deliver strong fiscal year results with recurring revenue growth at or above 7% and another year of double-digit adjusted EPS growth. Third, we are delivering these strong results while investing for the future growth. And last, our strong cash flow and capital position are enabling us to fund share repurchases and our strong dividend as well as make M&A investments.

With that, let's open up the line. Chuck?

[Operator Instructions] And today's first question will come from Scott Wurtzel with Wolfe Research.

Just on the closed sales guide, wondering if you can talk a little bit more about how long some of these sales cycles are lengthening by and maybe as 3Q and the first month of 4Q developed when you started to notice this change.

Yes, Scott. Thank you very much and I do want to emphasize that we feel very good about the demand that we're seeing. And we're trying to correlate just what you said, which is the timing of when all that will close. And just a couple of stats that I didn't mention, but our deal origination this year is up 25% in dollar terms.

And at over $1 billion, our pipeline is 20% higher right now than it was last year at the same time. And we're seeing strong renewals, on track to renew over $1 billion this year. So we do like the demand we're seeing. The pipeline that was happening, it's in the areas we're investing.

It's in wealth, it's in digital, it's in shareholder engagement. Platform sales now make up 20% of that. But then as you said, we're taking on some larger engagements. They take longer to close, and they are harder to predict.

So while we're tampering a near-term view, we do like the outlook going forward. It is -- I think it's very hard to say, Q4 versus Q1, that's going to be a bubble. And it's just -- it is hard to predict, but we like what we're seeing out there.

Got it. That's helpful. And then just would love to hear more on the -- just the opportunity with the custom policy voting engine and just sort of the broader opportunity there? And how long could this potential tailwind from selling this into the market last for and impact closed sales over the medium to long term here?

Yes. We are -- we see the custom policy voting engine as one of our most exciting areas. I think there is a lot of concern out there about the role of proxy advisers. It has generated a lot of discussion over the years.

And when we think about the value proposition, under the current approach, people get to -- get very detailed research, but they get it very late, just sometimes a week before the meeting. And so if there's any error, if it's a controversial vote, there's very little time to react. And I think the value proposition that we're offering, which is a clean set of data much earlier 4 to 6 weeks before the meeting, allows people to run their policies through, see the votes, understand if there are any votes that might be controversial and then do their own research on that. So we really like the way that it turns the process on its head.

We are seeing strong demand from asset managers. As I mentioned, the asset manager we did this year is $800 billion under management, and we have a nice pipeline for next year. So we would expect to have -- to be significantly ahead next year of where we are this year. Typically, with these things, it takes a few years for it to build.

So I'm not sure that I'd be saying it's going to be dramatically affect our top line next year. But I think over the next 3 years or so, you'll see some nice growth there.

Our next question will come from Dan Perlin with RBC Capital Markets.

Tim, I was just hoping you could just kind of elaborate a bit more on kind of your views around tokenization. I know you talked about it in the prepared remarks. Obviously, there's a narrative that makes it sound like you guys are in more of a loser camp as opposed to a winner camp. Clearly, hearing what you're talking about today, it sounds like it's a tailwind for you.

So I was just hoping maybe you would go a little bit deeper into why you think you guys are in a really good position to win here, and it's not going to be problematic going forward, in particular, again, around proxy where obviously, you just announced you're doing something with someone now.

Yes. Look, Dan, thank you very much. I'm glad you asked because there's been a lot of discussion around this topic, and I think it's important to understand. And there are multiple models out there.

But a lot of people are talking about an issuer-sponsored model for tokenization. You hear NASDAQ and [ ICS ] both talking about this as they seek to serve their issuer clients. And we don't know if that will be the winning model, but we like it for a couple of reasons. First, we are already the leading provider of voting solutions for issuers.

Even beyond the beneficial shares that we serve on behalf of brokers, 80% of large cap companies use us today to solve the complexity of bringing together the beneficial and registered shares, and they do that really at economics that are more attractive than what we see on the regulated side. In the future, with tokenized shares is going to be even more complex because people have their beneficial shares, their registered shares and now their tokenized shares. And we solve all that with a single pane of glass. So we are really pleased to announce that we're going to be providing the first unchanged proxy voting in May for Galaxy, who is a leading digital asset infrastructure provider.

And second, even if shares are tokenized by issuers, they're still very likely to be held at broker-dealers, who are already our clients. And we believe those brokers will set this up in a way that protects the privacy of their clients. So in this issuer-based model, we have two ways to win, and we really like it. But that's not the only model.

The SEC has talked about three different models, and we're putting in place governance capabilities for each. So there's issue responsored one that I just talked about. There's also an intermediary-led model, where third parties such as brokers and digital exchanges tokenized shares away from the issuer. Again, these intermediaries are they're already our clients, and this is going to work very much like today's model.

We're working with multiple parties on this, and we'll be making announcements in the near future. And then the last model is a so-called synthetic model, often led by digital exchanges for global investors. And we are pleased to announce just earlier this week that we're enabling this capability for Ondo, who is the leading provider in this space. So really regardless of where the tokenization is taking place, what's clear is that people are coming to us to talk about how to solve their governance requirements.

And as and when tokenized equities begin to get traction, it's going to be because it's drawing in new investors, client holders, global investors. And that's going to grow investor positions. So that increases the market opportunity for us, and we're leaning into that. So that's the governance side.

I'd be remiss if I just didn't point out the other opportunities here because really, frankly, we think the biggest opportunity is in capital markets. That's where we've been doing quite a bit of investing. When you think about the capital savings from better collateral from faster settlement, it's going to create higher trading at higher ROEs. We're the leader there today, tokenizing more than $350 billion a day on a DLR platform.

That's larger than the entire crypto market. We'll be introducing additional enhancements this year, including real-time repo. We just made an investment in HQLAX to extend our relationships in Europe. So a good head of steam there.

And then in wealth management. And our wealth clients are increasingly seeing money market funds, [ privates ] and alternatives and tokenized form as something that could be very interesting for their clients. And I think the key here is how do you prevent people having to put on a lot of cost with the dual infrastructure? How do you enable those tokenized and crypto assets alongside the traditional assets without blowing up the cost?

And as you know, we just launched an end-to-end solution in Canada. We'll be bringing that to the U.S. And I think that's going to really help wealth managers solve that. So whether it's wealth management, capital markets or importantly, governance; we think that there's just a lot of opportunity for us here.

And as you know, change is good for Broadridge. What we do is we mutualize the cost of change. We help our clients adapt faster, and this is just another example of that.

That is a very comprehensive answer. Thank you, Tim. I really appreciate it. Just a quick one on margins, which I think will probably be a lot shorter.

Just thinking through the dynamics, as you say, similar dynamics going into the next quarter. But as Tim just pointed out, there's a lot of good things happening there for the investment cycle. Is it accelerating in terms of investment dollars that are going to be required to capture all these opportunities? And how might that play into our views of kind of how the margin profile of the company might go, let's say, over the next several quarters?

Absolutely. So I'll start with this year, right, by reiterating that we remain very much on track to deliver on our full year AOI margin guidance, which is between 20% to 21%. From a margin basis, you've heard me say this before, right? We think about margins more as a means to an end.

Our goal has been to take advantage of periods of elevated event activity and strong results to accelerate our investments in growth initiatives while we continue to deliver double-digit EPS growth. This year is a great example of that. Our strong results enabled us to accelerate some of these investments in the areas you heard Tim talk about, shareholder engagement, tokenization and AI, especially in the second half of the year, all while working within our 10% to 12% adjusted EPS growth. Now remember, with regards to the fourth quarter, you should expect us to do more of that in Q4 as well.

And if you look at our updated EPS guidance, that would imply low to mid-single-digit adjusted EPS growth in Q4, which would lead us to a strong 10% to 12% for the full year. That reflects the impact of our expected investments in the quarter.

And I'll just add on that, you'll hear us this morning talking about a lot of opportunities and the investments behind those, but those investments are baked into all of the forecast that we're giving. And as we -- particularly as we think about the productivity from AI going forward and other things, it's really a matter of how do we get the right mix between investment and delivering to shareholders. But we don't see anything that's going to prevent us from continuing to drive double-digit earnings growth.

The next question will come from Kyle Peterson with Needham.

I want to start off on some of the work you guys are doing on the repo front with DLR. Obviously, you disclosed the Canton Network stats and some of the revenue coming in from that. And it's growing nicely, but still small. But I just wanted to see like what some of the other products or capabilities you guys are looking at and kind of how we should think about the evolution of your work on repo and potentially in the other asset classes and potential other ways to monetize the Canton Network.

Kyle, thank you very much. So we're really excited about this product and what it means for the broader theme of tokenized securities and really optimizing collateral. And as we said, we did a little over $350 billion a day in March, which is 4x what our volume was last year. We're clearly the leading at-scale platform.

And we have a series of signed clients that are in the process of being onboarded. As I think about our road map, we have a pretty well-defined road map here in terms of moving from intercompany to intercompany. Moving on to Canton mainnet will enable that, and we'll be on other networks as well, bringing in real-time capability. And we think the opportunity there with real-time capability is to enable new trade types that don't exist today.

When you think about today, repos largely funds, sort of it's a treasury function that funds the company, funds the balance sheet. And we think about the possibility of that moving to a debt-level function that could fund individual trades is pretty exciting. So we think that sort of the functional dimension in terms of intercompany and real-time. Then there's the geographic dimension in terms of Europe and Asia.

And we're seeing nice demand in both those geographies as well. And then there's the asset class dimension. And our investment in HQLAX as an example there to move to other types of collateral. So we think this is going to be really an area where we can help our capital markets clients for a long time to come.

It's just gaining traction. But as we said, between this and Canton, it added 2 points of growth to our capital markets business this year. And so we think that's just the beginning.

Awesome. That's great to hear. And then maybe a follow-up on kind of use of cash flow. Historically, you guys have been extremely consistent between whether it's CapEx and shareholder return and M&A.

But with cash, especially kind of free cash flow generation, trending towards the higher end of the ranges this year, I just want to see like are you guys willing to be opportunistic and maybe step up the buyback, given the market does seem to be misunderstanding kind of your role in tokenization and some of these other growth initiatives? Or do you guys think you'll just continue to be stick to the historical plan? Just want to gauge on how opportunistic you'd be willing to be on the buyback.

Yes. So I'll start off with agreeing with exactly what you said. We have strong cash flow, we're in a great capital position. That's a great place to be right now, right?

I will also say we do remain committed to balanced capital allocation. And just as a reminder, what that means for us is maintaining our investment-grade credit rating, making internal investments to drive organic growth, paying a strong dividend growing in line with our earnings, pursuing attractive M&A and then share buybacks in that order. And fiscal '26 has been a great example of that approach and action for us. Since the beginning of the year, we've already invested close to $300 million to make 4 strategic tuck-in acquisitions.

We've returned $681 million to shareholders, which included $350 million in buybacks that we have done already. And we continue to be in a strong capital position, right? We're sitting at a leverage ratio of 1.9x, which is below our target range of 2 to 2.5x right now. Given our forecast for free cash flow, we're on track to deliver more than $1.1 billion for the full year, which essentially leaves us with ample capacity to do both potential M&A and share buyback in Q4, which I agree with you, the share buyback levels are quite compelling right now.

I'll just add, Kyle. I think we have stepped up this year. It's likely to be a record for us in share buybacks. And at the same time, we've seen some very unique opportunities on the M&A side that really add to our franchise and have represented also unique value.

So we're looking at each M&A opportunity pretty keenly relative to our own shares. And we do see our shares as being attractive at current levels. So stay tuned. And again, as Ashima said, you'll probably continue to see a mix, but we're keenly aware of the value of our shares right now.

The next question will come from Puneet Jain with JPMorgan.

So I wanted to ask about delays that you're seeing in closed sales. Is evolution of AI also contributing to those delays in any way as your clients take like build versus buy decisions? Does AI change any of those dynamics, specifically in GTO?

Yes. Puneet, thank you for that question. It's interesting. I had dinner a couple of nights ago with the Head of Technology of one of our largest clients, and he was talking about how -- what a different position he sees us in relative to other SaaS vendors that he works with.

And he's really talking about the network and the way that we connect hundreds of brokers or dealers to thousands of public companies to tens of millions of investors, but also the technology different than the really deeply embedded way that we are relative to the other things that he see. And I was there obviously talking to him about an opportunity. So we're not seeing AI affecting things. It is -- and if anything, we're seeing interest in AI-enabled products that we do.

So if I think about looking forward, we are seeing positive trends for next year. As I mentioned, our pipeline and origination are both substantially up. But beyond that, we're seeing the benefit from organic product development beginning to bear fruit. I think we will see some benefit from the tuck-in M&A that we just talked about.

And we're starting to see benefits from the ongoing investments in our go-to-market capabilities, especially international. So we like the demand going forward. We're not seeing AI or sort of self-builds taking over. And I think people are really liking our platform story, too, which becomes a sort of a build and buy where being able to leverage the agentic layer that we're creating.

So all in all, we sort of like the way it's working out.

And Puneet, I'll just add, I want to be clear, we see minimal impact of this on next year, right? The math would say 10 to 30 bps. But what I do see is positive momentum from the factors I called out, position growth, higher trading volumes, faster conversion from our existing backlog and what Tim mentioned, the growth accretive M&A. So we'll talk more about next year in August, but I'm feeling pretty positive right now.

Got it. Got it. Yes, I understand like many of those deals are long cycle deals. And second, somewhat related to the first question, like as AI generates productivity in software development as well as in managed services expenses, are any of those dynamics driving any pricing pressure for you?

Yes. We haven't seen that yet. We are -- it is -- as we talked about, it is the improvements in SDLC are certainly helping us innovate faster and bring new products forward faster as you did with custom policy engine, the global demand model, the institutional voting platform, all of which are leveraging AI in the way they work, but also in how we develop them. I think the managed services one is interesting because there, it is -- we are -- as we talk to clients about that capability today, we're largely talking about AI partnerships.

We'll do an AI partnership, we'll guarantee you a level of savings, and we'll share the savings above that. And it really changes the conversation because we're going into it together, their AI plus our AI and the APIs I talked about, and we can really create -- we've seen increases in demand as a result of that. And our managed services sales this past year have really -- that formula has been pretty powerful with clients. So it's leading to a lot of good conversations and I would say, really helping to drive demand.

The next question will come from Michael Infante with Morgan Stanley.

Ashima, you alluded to the fact that you feel comfortable about fiscal year '27 recurring revenue even with the lower closed sales outlook, based on backlog composition and conversion of revenue along with some of the position growth factors you cited. But if we just think about the contribution of closed sales to recurring revenue historically being around that 6-point range, how should we be thinking about your conviction in the durability of recurring revenue growth on a go-forward basis if closed sales performance doesn't inflect?

Yes. So Michael, I'll answer in two parts, right? I'll talk about what gives me conviction of -- well, one, I'm not giving you any guidance for fiscal '27 right now, I want to be very clear about that. We'll come and have that call in August.

My aim was to give you a little bit more color on the drivers that we see as allowing us to continue to see strength in recurring revenue growth. And those drivers specifically were we have early indication on volume trends, which continue to look good even for our first half position testing for next year. Our backlog continues to look good. And in addition, I expect the acquisitions that we've made this year to contribute to both reported growth and organic growth over the course of next year.

Specifically on sales, if you look at -- even if you look at the difference in guidance that we had previously versus what we have right now, that implies only -- from a midpoint perspective, that implies only a $40 million to $45 million delta. Given our conversion cycles across our ICS and GTO products, you would expect only a fraction of that to convert over the next year, which was my -- which is why I called out the impact of that would be 10 to 30 basis points at most, right, which is why, given all the other positive drivers that we're seeing with volume trends, backlog, acquisitions and the internal growth in the business; I feel good about where we will be for next year.

That's helpful. And then just on the Galaxy announcement, what's the gating item to seeing more Galaxy-like announcements in terms of your on-chain efforts? How closely are other corporates, including non-crypto-oriented businesses, monitoring that? And are there other parts of their infrastructure stack or other businesses like them in terms of their infrastructure stack that you intend to leverage over time?

Yes. Thank you on that. I think, first of all, just the last part of it, will there be others that we leverage? Absolutely.

We'll be partnering with everyone, we'll be integrating into all the various wallets. So I think this -- when you think about how this will work, there will be, I think, a pretty broad ecosystem of partners. And the great news, as I talked about earlier, is that pretty much everyone we talk to in this area, when we talk to them about how we can help make this real, they're very interested in talking to us, very interested in integrating and partnering. And so we've really been pushing on open doors in terms of that.

So I think the gating factor in more announcements is just really how fast we can talk to people. And we're doing that, and we're expanding our capacity to talk to partners to make sure that we can basically meet all the demand for that. I think in terms of how fast this will go with other companies, it is a little bit less clear. We do know of some companies that are in the pipeline that we're in discussion with.

So far, they do tend to be other companies that are in the sort of digital asset ecosystem. They're more focused on this than others. I think it will really be a matter of companies -- if they're not in the digital asset ecosystem themselves, they do this to raise capital at good rates. And so that is a chicken-and-egg question in terms of is there supply from corporates, is there demand from investors.

And you could imagine as a sleeve if you're able to attract global investors through this, having a sleeve of this and things. I think it will be -- and I don't have any knowledge of this at all, but I think there are some very large IPOs that are coming later this year. I haven't heard any hint that any of those are going to have a tokenized sleeve, but if they did, that would certainly be an impetus to the market.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Tim Gokey for any closing remarks. Please go ahead.

Yes. I just want to thank everyone for joining us this morning. We're really excited about the story that we have right now, the way we're delivering results today, but also how we are really helping our industry at a moment of key change. And as I said a couple of times on the call, we think change is good for Broadridge.

We help our clients mutualize making it happen, help them adapt faster. And so we're really excited about the opportunities that we're seeing and that we talked about this morning. Thank you.

And this will conclude our conference call for today. Thank you for attending today's presentation. You may now disconnect.