BR - NYSE

Good day, and welcome to the Broadridge Fiscal Fourth Quarter and Full Year 2025 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, sir.

Thank you, Chuck. And good morning, everybody, and welcome to Broadridge's Fourth Quarter and Fiscal Year 2025 Earnings 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 CEO; and our CFO, Ashima Ghei. Before I turn the call over to Tim, 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 will 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 Tim Gokey.

Thank you, Edings, and good morning. Before I begin my review of our strong results and outlook, I want to share some thoughts on the macro environment. After a volatile April, market conditions normalized in May and June. And we saw the beginnings of a bounce back in capital markets activity, including new IPOs, M&A and continued confidence from Main Street investors. This positive environment contributed to a strong close to our sales for the year and gives us incremental confidence in our outlook for fiscal '26. With that, let me turn to our results and our outlook going forward. I'll start with the headlines. First, Broadridge delivered another strong year in fiscal '25. Recurring revenue rose 7% in constant currency and adjusted EPS grew 11%, both right in line with our long-term objectives. Second, we're executing on our growth strategy. We're driving democratization and digitization of governance, simplifying and innovating capital markets and modernizing wealth management. Third, and as a result, we are positioned to deliver another year of strong financial performance in fiscal '26 including 5% to 7% recurring revenue growth, 8% to 12% adjusted EPS growth and closed sales of $290 million to $330 million. Those results keep us on track to deliver again on the 3-year top and bottom line objectives we shared at our last Investor Day. And finally, we're translating the execution and financial performance into shareholder value. Last night, our Board approved an 11% increase in our dividend to $3.90 per share. We have now raised our dividend every year since becoming a public company. That's 19 years now with double-digit increases in 13 of the past 14 years. Let's move to Slide 4 to start a review of those results. In governance, we're driving the democratization and digitization of investing. Governance recurring revenues rose 6% to $2.7 billion in fiscal '25, driven by strong growth in investor positions. The long-term trend of the democratization of investing, enabling more investors to participate in capital markets while giving them access to a widening array of financial products remains a driving force. The number of equity shareholder positions rose 16% in fiscal '25 with revenue positions growing 12%. Managed accounts were a key driver of this growth and self-directed position growth was also healthy as investors took advantage of market volatility to increase their participation. Mutual fund and ETF position growth was also strong, growing 7%, driven by demand for passive funds. Growth was driven by demand for both equity and fixed income funds, while the number of money market fund positions, which have surged in recent years declined slightly. Driving the digitization of these communications has long been a focus for us. Digitization rates in fiscal '25 for equity proxy communications rose above 90% and they are more than 77% for funds. Those rates have increased by more than 25 points over the last decade translating into hundreds of millions in annual savings for public companies and funds. Beyond position growth, Broadridge is making it easier than ever for investors to have a voice in the governance of the companies they own through funds. Nearly 400 funds managing a total of $1.8 trillion now offer a Broadridge voting choice solution to their shareholders. That's up from 100 funds at the end of fiscal '24 and only 8 funds 2 years ago. Looking ahead, we'll be making it even easier for fund investors to opt in by integrating our voting choice options with standard annual and semiannual reports. We're also working with funds in Europe to lower their registration, distribution and disclosure expenses. The acquisition of Acolin, which we announced last month, will further accelerate these efforts. Acolin will deepen our role as an intermediary between distributors and funds and enhance the quality and scope of our fund data. And data quality is a key reason our AI-enabled global demand model is gaining traction in the marketplace and becoming an industry standard for helping fund companies predict future demand. Finally, our print to digital strategy is driving digitization and customer communications with a third consecutive year of double-digit growth in digital revenue. We've rolled out our Wealth InFocus solution to more than 6 million wealth management accounts, only adding 1 million more in coming quarters. Now let's move to our capital markets franchise on Slide 5. We continue to make strong progress against our goal of simplifying and innovating across the trade life cycle. Capital Markets fiscal '25 revenues grew 6% to $1.1 billion, driven by a combination of new sales and higher trade volumes. We are seeing strong demand for our trade processing solutions, driven by our clients' need for scalability and global interoperability. We notched several notable back-office wins during the year, including a sale to a leading Japanese bank, a long-time U.S. client. The bank is now turning to Broadridge to help modernize and upgrade its operations across other markets. In front office, our NYFIX trade routing solution is seamlessly delivering multi-asset class connectivity to almost 2,000 buy and sell- side clients around the world and powering tens of millions of trades every day. And our order management solution is helping our clients automate complex high- and low-touch trading processes for a growing number of clients. We're also driving innovation in capital markets. Our OpsGPT solution, which marries Agentic AI with our expertise in operations is drawing strong interest from clients looking to optimize their back-office processes in a world of faster settlement and extended trading hours. Tokenization is clearly a hot topic in markets today. There's real momentum around speeding settlement times and reducing liquidity requirements across multiple asset classes by tokenizing securities and other assets. That's driving strong demand for our distributed ledger repo solution, which is the largest platform for tokenized assets in the world. Daily average trading volumes rose above $200 billion in June, up from $100 billion just a few months ago and nearly 5x the size of any other platform. It's a great example of how Broadridge can bring to bear deep domain knowledge and modern technology to drive innovation at scale for our clients. Let's turn now to wealth and investment management on Slide 6. Our Wealth and Investment Management franchise had a strong fiscal '25. Recurring revenues rose 12%, driven by the acquisition of SIS. Excluding the impact of the E*TRADE deconversion, organic growth was 5%. Importantly, our wealth platform continues to gain momentum in the market. After closing a sale with a leading U.S. wealth manager to modernize a set of in-house solutions in the third quarter, we closed another significant U.S. sale in the fourth quarter, this time displacing a long-time competitor. In Canada, the acquisition of SIS strengthened our relationship with key clients and allowed us to accelerate our efforts to bring new capabilities to market. Those efforts were rewarded in the fourth quarter as we closed our first Canadian wealth platform sale with a leading Canadian wealth manager who will use our adviser workspace solution to modernize and enhance key elements of their front office. We're also seeing strong demand for Sentry, our market-leading private credit solution, including a sale to one of the leading alternative managers in the fourth quarter. Sentry sales rose 8% in fiscal '25. And with more asset managers seeking to expand their private credit offerings, we have a strong sales pipeline going into '26. Our execution across governance, capital markets and wealth and investment management is driving our sales. As I noted earlier, overall client sentiment improved during the quarter, paving the way for us to deliver strong closed sales at the higher end of our revised guidance. I'm especially pleased to see growing sales from our new products. We're benefiting from our efforts to increase investor engagement with new voting choice solutions for funds, our investment in digital omnichannel solutions and our AI-enabled data solutions. And we're seeing growing sales of our wealth platform, distributed ledger repo network and our global post-trade solutions. Looking ahead, we have a robust pipeline, which positions us to deliver another strong sales year in fiscal '26. Strong demand for our innovative solutions makes it clear that our clients increasingly see Broadridge as a trusted and transformative partner. Before I close my review, I want to provide a brief update on the regulatory environment. Going into the fall, we see new momentum on digital assets, shareholder engagement, private assets and the digitization of communications. The good news is that we are well positioned to help drive many of these changes, which we see as opportunities for Broadridge. With the recent stablecoin legislation and other changes, there's clear bipartisan support to make it easier for more Americans to invest in digital assets. We see this as a natural extension of the democratization of investing with implications for disclosure, wealth management and capital markets. With ClearFi, we've already introduced an innovative disclosure solution for digital assets and we're actively talking to clients about how we can help them grow their digital asset offerings. Second area is shareholder engagement. Both the SEC and Congress are focused on ensuring that institutional investors vote in the interest of their shareholders, and that should drive continued growth of our voting choice solution for funds. We're also seeing opportunities to help funds and asset owners develop and execute their own custom voting policies using a data-driven approach. Third, we are working with our clients and industry partners to accelerate the digitization of financial communications. We're proud of the work we've already done to drive a nearly 90% digitization rate for regulatory communications. Now we see an opportunity to further increase digitization by making digital the default for most financial communications. This will take some time, but we see it as an opportunity to create next-generation digital experiences to save the industry money, enable more effective disclosure and increase investor engagement. Finally, another area we're seeing change is private assets. While growth of private assets has been a strong trend for some time, there's increasing movement to open these products to a broader set of investors and retirement accounts. This will drive growth in our Sentry private credit platform and longer term could have implications for disclosure. So there's a lot going on. That's exciting and keep in mind that most of the changes I just described will take time, perhaps years for some. But we are confident that as they do take shape, our scale, domain expertise and commitment to innovation will enable Broadridge to implement change faster and at a lower cost for our clients. I'll close my remarks with some summary thoughts on Slide 7. First, Broadridge is executing on our strategy with 7% recurring revenue growth and adjusted EPS growth of 11% in fiscal '25. We're democratizing and digitizing governance by driving shareholder engagement with our digital solutions and by making it easier than ever for investors to participate in the governance of companies they own directly or indirectly. We're accelerating and innovating trading by reducing the cost and complexity of capital markets worldwide and by helping clients take advantage of tokenized trading. And we're modernizing wealth management one client at a time and on their own terms in both the U.S. and Canada. Second, we're continuing to transform Broadridge. We're leveraging the investments we made in our wealth platform to become a platform company. We're extending a common application layer to more products, adding open API architecture to more solutions and adding more applications onto our common BRx data layer. These changes will allow us to scale faster, deliver more value to clients more rapidly and unlock additional value through data and AI. Third, and as a result, we're delivering steady and consistent growth. We expect another strong year in fiscal '26 with 5% to 7% recurring revenue growth and 8% to 12% adjusted EPS growth. That outlook has Broadridge deliver -- positioned to deliver -- to deliver on the 3-year top and bottom line financial objectives we shared with you at our last Investor Day. Fourth, we're using your capital efficiently and effectively with 100% plus free cash flow conversion, ROIC in the mid- to high teens, attractive tuck-in acquisitions and an 11% dividend increase. And finally, Broadridge remains positioned for long-term growth. Potential regulatory changes are only adding to the long-term trends driving our growth, including the democratization of investing, the acceleration of trading, the modernization of wealth management, data and AI and regulatory change. Our position as our clients' trusted and transformative partner positions us well to help them adapt to change with modern technology and innovative new products that will help drive their growth. I've never been more optimistic about the opportunities in front of our company and about how well we are positioned to help our clients in this evolving environment. Before I turn the call over to Ashima, I want to thank our 15,000 associates around the world. Their work and commitment to serving our clients is driving our transformation of our company and our industry. Ashima?

Thanks, Tim. Good morning. It's great to be here today to share our strong fiscal '25 results and our fiscal '26 guidance. Before I begin my review, I wanted to make 5 key callouts. First, the fourth quarter. Broadridge closed the year with a strong quarter, including 6% organic recurring revenue growth and $114 million in closed sales. Second, event-driven revenue. Event-driven revenues were $79 million in the fourth quarter, ending a record $319 million year on a strong note and contributing to our 11% adjusted EPS growth. Looking ahead, we expect that event-driven revenues will decline in fiscal '26, but will remain above the historical average. Third, free cash flow. Broadridge generated $1.1 billion in free cash flow in fiscal '25, equal to 104% of our adjusted net income. As a result, we enter fiscal '26 in a strong position to make internal investments, fund a strong dividend, pursue strategic M&A and return capital to shareholders. Fourth, backlog. Thanks to a strong finish on sales, our recurring revenue backlog stands at $430 million. At 10% of recurring revenue, it gives us great visibility into the biggest driver of our growth in fiscal '26 and '27, which leads me to my fifth and last call out. Our guidance calls for another strong year in fiscal '26 and keeps us on track to deliver on our 3-year top and bottom line growth objectives. With that, let's go to the numbers on Slide 8. Fiscal '25 recurring revenues grew 7% on a constant currency basis, including organic growth of 5.5%. Adjusted operating income margin expanded by 50 basis points to 20.5%. Adjusted EPS grew 11% to $8.55, and closed sales were $288 million. For the fourth quarter, recurring revenue constant currency grew 7% to $1.4 billion, including 6% organic growth. Adjusted EPS rose 1% as we increased our growth investments, and we delivered $114 million in sales. Let's move to Slide 9 to discuss our segment recurring revenues. ICS recurring revenues rose 5% to $959 million in the fourth quarter, led by strong growth in regulatory revenues. For the full year, ICS recurring revenues rose 6%. Regulatory revenues rose 8% in Q4 and 7% for the full year, driven largely by strong position growth across both equities and funds. Equity revenue position growth, which excludes small or fractional positions for which we do not bill issuers, was 14% for the quarter and 12% for the full year. Fund position growth was 7%. The impact of higher position growth was partially offset by slower growth in other regulatory communications and international revenues. Data-driven fund solutions revenues were flat in Q4 and rose 5% for the full year. During the quarter, strong growth in our data and analytics revenues were offset by a modest decline in our retirement and workplace solutions, which was impacted by lower float income. For the full year, we saw strong growth in our data and analytics solutions and retirement and workplace solutions. Issuer revenue grew 3% in the quarter and 5% for the full year, driven by balanced growth across our shareholder engagement and disclosure solutions, partially offset by lower float income. Customer communications revenues rose 3% in the fourth quarter and 5% for the full year as we continue to execute our print to digital strategy. Strong growth in our digital solutions, including the third consecutive year of double-digit growth, was offset by lower growth in print revenues. Looking ahead to fiscal '26, we expect another year of steady and consistent growth in the ICS business, in line with our overall recurring revenue guidance and led by continued strong growth in regulatory revenues. Turning to GTO on Slide 10. GTO revenues grew 12% in Q4 and full year revenues rose 8% to $1.8 billion. Capital markets revenues grew 4% for the quarter, driven by new sales and growth in trade volumes, partially offset by losses related to an exit of a business. Full year revenues rose 6% driven by growth across both our front office BTCS and back-office post-trade solutions. Wealth and investment management revenues grew 26% in the fourth quarter, driven by 11% organic growth and the impact of the SIS acquisition. Organic growth benefited from the timing of license revenues, which contributed 5 points of growth. Full year wealth and investment management revenues rose 12%, driven by the acquisition of SIS. Adjusting for the impact of the E*TRADE deconversion, full year organic growth of 1% would have been 5%. Looking ahead to fiscal '26, we expect GTO to grow within our 5% to 7% historical range with higher growth in wealth management and lower growth in capital markets. Now let's move to Slide 11 to review our key volume indicators. Broadridge continues to benefit from strong growth in investor participation across both equities and funds. Fourth quarter equity position growth was 18%, including 14% growth in revenue- generating positions. Fund position growth was 7%. For the full year, the combination of 12% equity revenue position growth and 7% mutual fund and ETF growth was at the high end of the long-term trend of mid- to high single-digit blended average position growth. Looking ahead to the first half of fiscal '26, our position testing is showing low double-digit equity position growth, which we expect will translate into high single-digit revenue position growth. We expect fund position growth to remain in the mid-single digits. In GTO, trade volumes rose 14% for the quarter as we saw double-digit growth in both equity and fixed income trade volumes. For the year, trade volumes were up 13%. I'll wrap up my discussion of recurring revenue growth on Slide 12. For the quarter, recurring revenue growth constant currency was 7%, primarily driven by 6 points of organic growth. Revenue from closed sales remain the biggest driver of our organic growth at 5 points as we onboarded revenues from our fiscal '24 year-end backlog. Our retention rate was 98% for the quarter. Our 97% full year retention rate included a 1-point impact from the E*TRADE deconversion. Internal growth contributed 2 points, primarily driven by position growth and higher trade volumes. Acquisitions, primarily SIS, contributed 2 points to growth. Finally, changes in FX reduced reported growth by 10 basis points. Let's close our discussion of revenues on Slide 13. Total revenue in Q4 increased 6% to $2.1 billion, driven by 5 points of growth from recurring revenue. Event-driven revenue of $79 million benefited from higher levels of mutual fund proxy activity and contributed less than 1 point to growth. Low to no margin distribution revenues grew 4%, contributing 1 point to total revenue growth. Turning now to margins on Slide 14. Fourth quarter adjusted operating income margin was 27%, a decline of 180 basis points from fourth quarter '24 as operating leverage from our scale business was offset by the timing of growth investments. On a full year basis, adjusted operating income margin was 20.5%, up 50 basis points. As the combination of strong recurring revenue, record event revenue and strong operating leverage enabled Broadridge to increase investments in key growth initiatives while offsetting the impact of the E*TRADE deconversion. The impact of float and distribution revenues was a 10 basis point headwind to our fiscal '25 AOI margin. Let's move on to sales. Broadridge reported full year closed sales of $288 million. Backing out the benefit of sales of our tailored shareholder report regulatory solution, closed sales were essentially flat year-over-year. Turning to our cash flows on Slide 16. Broadridge generated free cash flow of $1.1 billion in fiscal '25, up 12% from fiscal '24, driven largely by higher earnings. Free cash flow conversion was 104%. Turning next to capital allocation on Slide 17. We continue to take a balanced approach to capital allocation. In fiscal '24, we deployed $115 million in capital spending and software with an additional $12 million to onboard clients onto our platforms. We returned $402 million to shareholders through our dividend. After internal investment and dividends, targeted M&A is a core part of our capital strategy. We deployed $193 million to strengthen our wealth franchise in Canada with the acquisition of SIS and made 2 other small tuck-in acquisitions in our ICS business. More recently, in July, we announced the acquisition of Acolin, which will extend the suite of services we offer to our fund clients in Europe. This approximately $70 million acquisition is expected to close in the first half of fiscal year '26. We also returned $100 million to shareholders through a fourth quarter buyback and repaid $104 million of our debt. At June 30, our leverage ratio was 2x, below our target of 2.5x, giving us ample capacity to pursue additional strategic M&A and/or repurchase shares. Last night, our Board approved an 11% increase in our annual dividend to $3.90 per share. This marks the 13th double-digit increase in the last 14 years, which underscores our sustained earnings growth over the period, our capital-light model and our long-term commitment to a strong and growing dividend as a component of balanced capital allocation. I will close my prepared remarks this morning on Slide 18 with some detail on our guidance. As we enter fiscal '26, we expect another year of strong recurring revenue and adjusted EPS growth, accompanied by underlying margin expansion and higher sales. Let me walk through each of these points, starting first with revenue. We expect recurring revenue growth constant currency of 5% to 7%, with balanced growth across both ICS and GTO. We expect organic growth to be driven by new sales as we onboard our $430 million backlog and the acquisition of SIS, adding approximately 60 basis points to growth. The acquisition of Acolin is not expected to have a significant impact on our fiscal '26 recurring revenue growth. After setting a record in fiscal '25, we anticipate a lower but still healthy year for event-driven revenues. We anticipate event-driven revenues will be at the high end of their historical $230 million to $280 million range, driven by a first quarter proxy campaign at a major mutual fund complex. Distribution revenues are forecast to grow at mid-single-digit range, powered in part by higher postage rates. We expect these low to no margin revenues to have a dilutive impact to our reported margins. Now let's move to margin. We expect adjusted operating income margin will be 20% to 21%, approximately flat to fiscal '25. The combination of operating leverage and disciplined expense management should enable us to fund ongoing investments and deliver over 50 basis points of core margin expansion, excluding the impact of float and distribution income. Third, EPS. We expect adjusted EPS growth of 8% to 12%. Embedded in this outlook is an expected tax rate of 22% Additionally, for the first quarter of fiscal '26, we expect our adjusted EPS to account for 12% to 15% of our full year earnings, roughly in line with our historical average. Finally, we expect closed sales of $290 million to $330 million. So let's wrap up with a quick summary of the key takeaways from our strong fiscal '25 results. First, Broadridge delivered another year of strong and sustainable recurring revenue growth and double-digit adjusted EPS growth. Second, our guidance for fiscal '26 calls for another strong year and keeps us on track to deliver on our 3-year top and bottom line objectives. Third and last, our strong free cash flow has the company well positioned to make internal investments, fund another double-digit dividend increase, pursue strategic and value-enhancing M&A and repurchase shares. Net-net, Broadridge is entering fiscal '26 well positioned to continue to deliver strong and sustainable growth. With that, let's move to Q&A.

[Operator Instructions] And our first question will come from James Faucette with Morgan Stanley.

It's Michael Infante on for James. I wanted to ask on the contemplated closed sales acceleration. We've been hearing from others that sell into a similar customer cohort that there is some level of sort of sales cycle elongation or at least has been over the last several months. Your GTO segment obviously tends to be more discretionary in nature with lumpier deals. So I'm just curious whether or not you're seeing any of that elongation and/or if you're just bullish on the growth and the composition of that pipeline that you can absorb some incremental elongation throughout the year?

Yes. Thank you. Well, I'll just start with that we were very pleased with the way we closed out the year near the high end of our revised guidance. And you certainly saw -- sales cycles have been longer, I'd say, really, this whole past year compared to the previous. I'm not sure we're seeing anything specific right now that's different than that. I think what we really like is that -- where we are seeing sales are the areas where we're investing, voting choice, wealth and focus, global demand model, our wealth platform, global post trade, distributed ledger repo and these all meet real client needs where they're making a real difference in their business. And yes, it takes a while. But when there's a real business case behind it, our clients eventually move. And so as we look forward now, it's a new year. We do feel like we have a very strong pipeline. And there is macro uncertainty, which is potentially contributing to the elongated sales. But what I can tell you is that we're seeing really strong underlying demand. Demand for simplification and modernization in both capital markets and wealth, demand for the digitization of communications, demand for better stewardship solutions. And across all of those, AI is a real driver. It's a theme in all of these. And then I think the last thing I'd leave you with is just we are having more strategic conversations than we've ever had before and a key theme is the platform conversation that I mentioned at the end of my remarks. Our vision for where we're taking our technology over the next several years is really resonating with clients and it's really reinforcing our position as a trusted and transformative partner for the long term, which we think is making a real difference in some of these conversations.

Very helpful, Tim. Maybe just on DLR, I appreciate the commentary just given all the news flow in the market. But is there any sort of qualitative color you can provide just in terms of how big of a closed sale driver DLR is at this point? And maybe how you think about some of the regulatory, technical or counterparty hurdles that have to be cleared before banks start to lean more aggressively into monetizing some of their balance sheet exposure through tokenized rails?

Yes. Great questions. And we're excited about our distributed ledger repo product, both in itself and also for what it means, as you just mentioned, for that broader theme of tokenized securities. I mentioned that through most of last year, we were processing about $100 billion, and that really rose near the end of the year. And just for scale, that is larger than the entire crypto market, excluding Tether. So this capability, it's tokenized and securities, it's smart contracts. And there has been, as you sort of alluded to, a lot of underlying work in terms of detailed knowledge in fixed income and the legal background to make this work. The core uses that we've been seeing so far have been intercompany transfers, which is a surprisingly large part of the repo market. But the real driver this past year has been sponsored repo. As people are looking forward to treasury clearing, they're seeing a real need for this. And so it's interesting how one regulatory change creates pressure to accelerate in another area. And so I think what people are seeing is that the market leaders have been doing this for a few years now. It's worked really well. They're getting their legal teams comfortable. Now they have a new reason to come on board, and so they're coming on board. I think the next piece that we're really excited about is moving this to intraday repo. And that can really accelerate things. It is -- you asked about how material a factor is this in our sales. It's sort of not like moving the needle from a -- when you look at the whole $288 million, but it's very material for this product. In FY '28, we signed 8 new clients, including some Tier 1s. And so we expect that $200 billion to continue to rise. So really nice things going on here. And we're excited about what it means longer term for other classes of tokenized securities. Those use cases are just emerging. So it's really too early to say which will gain traction first. But we really feel like we're the market leader here. And our position as a scaled leader in this space, we think, puts us in a great position to help our clients and our industry move forward with this.

The next question will come from Scott Wurtzel with Wolfe Research.

Just wanted to kind of follow up on that question on tokenization. And Tim, maybe if you can talk about the opportunities on the ICS side of the business with tokenization would be great.

Yes. It's -- I think when you think about this whole world, it's tokenized securities and it's digital assets. And it's easy to sort of mix and match those, but they're both very relevant. And then I'll just add sort of stablecoin somewhat in the middle because it's not exactly a tokenized treasury, but it is backed by treasuries and it will be a great vehicle for real-time settlement. So I think -- when I think about ICS, I think a little more on the digital asset side. Our wealth management clients have been reluctant to offer these in the past, but they're really now getting on board. And I think our opportunity is to help them offer digital assets to their clients, but then especially connect them to all the traditional capabilities like statements, tax, margin, risk and other needs. Some of those are provided by GTO business, but a lot of them are provided by the ICS business. And it's just another leg in the democratization of investing. And then I think longer term, there are real questions about whether a stronger disclosure regime could help growth in this category. And I'd say the industry itself is a little divided on this. There are some folks in the industry that really think this would help fuel growth. Others that think they're not assure. So without really taking a view on that debate, it won't surprise you to know that we've developed a product that we think can address that need. We have signed clients over the past 12 months. And so we'll see where that goes, but we will be ready to provide good disclosure if that's the way the world evolves.

Great. That's helpful. I just wanted to follow up just on the guidance side and with the outlook for capital markets revenue maybe being a little lower than the total GTO segment revenue. Wondering if you can talk about the drivers there. I know you mentioned the exit of the business, but just wondering if there's anything else that we should be contemplating for fiscal '26?

Thanks, Scott. Yes. So we were pleased with the full year growth in capital markets that we saw, which continues to deliver in line with our 5% to 7% growth range. I'll -- just double-click on Q4, capital markets grew 4% as we saw the benefits from higher sales, higher trading volumes. It was partially offset by slightly lower professional services and the impact of the business exit that you called out. That exit was about a 1-point drag to our capital markets business. And essentially, as we've transitioned a single client to an alternate provider, we do expect this to continue to have a modest 1-point impact on our capital markets growth in fiscal '26, which is why the guide towards the lower end of the 5% to 7% recurring revenue outlook.

The next question will come from Puneet Jain with JPMorgan.

I wanted to quickly ask about backlog, like it's $430 million outstanding. But the increase in digital solutions, like those solutions growing double digits, are you seeing any change in duration of the backlog or maybe duration of closed sales?

Puneet, I missed a part of your question. I think you're asking about backlog and the duration. Was there something about a separate...

That's essentially like the question, like is there any change in duration because of higher sale of digital solutions or higher mix of digital solutions in there?

Got it. Got it. Yes. So our backlog overall is, like I said, $430 million, about 10% of our recurring revenues. It is a combination of backlog that we haven't converted both on the ICS and GTO side, call it, 60-40 ICS GTO. We do typically see a difference in conversion times across ICS products and GTO products. Some of the wealth sales that we saw this quarter will take longer to convert. We should expect them to start having more of an impact around the '27 time period, while some of the ICS sales will be faster to convert. So it's not an overall rule. It's just a mix of how we're seeing across those products.

Got it. Got it. And then on margins, like did I hear it correct that you said like the underlying margins will be up 50 basis points implying that the distribution and interest rates will have like a 50 basis points year-on-year headwind?

What I did guide to is that we are expecting overall margins to be 20% to 21% for the year, essentially flat to this year. And what you said is right, in these reported margins is the impact of distribution and interest. When I think about distribution, there is a posted rate change that's already effective in July, which is essentially passed through. So that will be a drag to our reported margins. And on interest income, we're aligning our current forecast with the latest Fed dot plot, which is forecasting 3 more rate cuts in fiscal '26. So we would expect float income to come down as a result, though you know that it will be offset on the debt side with interest expense on our variable rate debt. So yes, excluding the impact of those 2 variables, we expect the underlying margin expansion will be over 50 basis points, which will allow us to fund our investments and deliver at the 8% to 12% earnings growth.

And just as a reminder, the interest, it is neutralized at the company level. So we think it's appropriate to give you those numbers as it excludes that because it turns up in operating income, but then is backed out at the EPS level.

The next question will come from Kyle Peterson with Needham.

I wanted to follow up on Puneet's question relating to backlog. I know it's down a little bit year-on-year. Obviously, the base is bigger heading into this year. I just want to see what the time line to potentially get that replenished and be a little higher? Or is there any concern about kind of exhausting the backlog as the year goes on? Just want to see what the pipeline is to kind of restore that and keep that moving higher versus kind of flat to down?

Yes. It's Tim, Kyle, thanks for the question. I don't think we really would call the backlog between this year and last year materially different. We completed a pretty large sale just at the very end of last year that pumped it up a little bit, and we've made that onboarding. And so I think it wobbles around a little bit, but we think -- we really like 10% of recurring revenue, having that visibility, and it is something that just the visibility that we have with our recurring revenue model with -- we're looking to get, call it, 6% revenue from sales, and we have 10% that we know of really gives us confidence in our ability to deliver. And we're expecting a strong sales year this coming year with a good guide, and we think that will keep things very much in balance.

Great. That's super helpful. And then I guess just a follow-up. I appreciate the color you guys gave for the event-driven revenue and some of the seasonal expected impact in the first quarter. I know we have a tough comp there in the second quarter. I guess, are there any other seasonal items we should be mindful of for this year, either on the event-driven side or the business at whole besides those factors that you guys called out in the prepared remarks?

You got it. I think the only specific item I would call out is event, right? You are aware of our strong comp with the proxy activity in Q2 last year. I would expect Q2 this year to have a grower impact. And we are expecting -- we are aware of a mutual fund proxy that's going to come through in Q1. That is baked into when I spoke about our EPS guidance for Q1 being at 12% to 15%, that higher event activity is essentially baked in there. Nothing else that's material that I would call out.

The next question will come from Patrick O'Shaughnessy with Raymond James.

I want to go back to the topic of the tokenization of equities. How do you think about the potential threat of disintermediation specifically if retail investors were to own tokens as opposed to underlying securities, do they participate in the proxy process at that point?

Yes, Patrick, thank you very much for the question. I think a couple of things. When you look at the sort of the range of asset classes likely to be impacted by tokenization, I would put equities sort of on the lower/later end of that as the overall equities infrastructure is really effective and highly scaled and cost effective. I think you are seeing sort of edge cases around 24/7 trading and things like that, but it's not really affecting sort of the broad, and I don't think really will, the broad breadth of equities. And then within that, as you know, Hester Peirce is one of the SEC commissioners is sort of leading this thinking for the SEC. And one of her clear statements is, first of all, there's this division between what's under the office of the SEC versus under the CFTC and equities are clearly under the SEC. And she's been very clear that tokenized securities are securities. So all of the things that pertain to the underlying will pertain to the token. And that's -- they haven't sort of formalized that, but that's the direction of travel. And so it's not really something that -- we are seeing this as an opportunity to provide infrastructure on the GTO side and potentially disclosure on the ICS side around these new asset classes and do think that they won't sort of take away the disclosure from the existing asset classes.

Got it. That's very helpful. And then how are you guys thinking about your debt profile going forward? You do have the senior notes that are coming due within the next year. Obviously, you have the floating rate debt as well. Kind of how are you thinking about managing the balance sheet going forward?

Yes. So Patrick, we are happy with the level of debt that we have currently. We're -- like I said, we're sitting at 2x leverage, which is at the low end of our 2 to 2.5x range. So I would expect that we would roll forward that debt that's coming current.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Thank you, operator. And I just want to thank everyone for joining our call today. We are really pleased to have delivered another strong year in fiscal '25. I hope you heard in our voices, our excitement about the path ahead as we execute on our strategy for our 3 franchises and as we transform into a platform company. Thank you very much for your interest in Broadridge. We look forward to talking to you next time on what we hope will continue to be strong results as we go through the year. Thank you.