Broadridge Financial Solutions, Inc.BRNYSE
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Operator: Good day, and welcome to Broadridge's Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Mr. Edings Thibault, Head of Investor Relations. Please go ahead.
W. Thibault: Thank you, Alan. Good morning, everybody, and welcome to Broadridge's first fiscal -- first quarter 2026 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'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 Tim Gokey. Tim?
Timothy Gokey: Thank you, Edings, and good morning. I'm pleased to be here to discuss our strong first quarter results. With a positive economic backdrop, equity markets remain strong and the fixed income market is steady. Capital markets are healthy and our financial services clients are benefiting. And last, we're operating against a pro-innovation regulatory backdrop. As a result, it should come as no surprise that Broadridge is off to a very good start to fiscal year 2026. We delivered strong first quarter results, and we're raising our recurring revenue outlook to the higher end of our 5% to 7% growth range. Our pipeline is growing as our clients look at how they can accelerate change across their businesses. And we're also investing in new governance solutions in expanding our tokenization capabilities and in making value-added acquisitions. With that backdrop, let's dig into the results, starting with the headlines. First, Broadridge delivered strong first quarter results, including 8% recurring revenue growth constant currency and 51% growth in adjusted EPS. Second, we continue to execute on our strategy to democratize and digitize investing, simplify and innovate trading and modernize wealth management. That execution is driving our results in the form of strong growth, continued product innovation and a growing pipeline. Third, we are using our investment-grade balance sheet and strong free cash flow to strengthen our business. Over the past year, we made a handful of small acquisitions to strengthen our ICS business. And of course, last year, we acquired SIS to accelerate our platform rollout in Canada. And in the last 2 quarters, we repurchased $250 million of our shares. Finally, we expect to deliver strong fiscal year 2026 results. With our positive start to the year, we now expect to be at the higher end of our 5% to 7% recurring revenue range, and we're reaffirming our guidance for 8% to 12% adjusted EPS growth and $290 million to $330 million of Closed sales. That outlook also keeps us on track to deliver again on our top and bottom line 3-year growth objectives. Let's move to the drivers of our strong start on Slide 4. I'll start with our governance business, where we continue to drive democratization and digitization and to deliver innovation. Governance revenues rose 5%, driven by revenue from sales and continued healthy position growth. Investor participation trends remain healthy across both equities and funds. At 2%, fund position growth was impacted by the timing and mix of communications in the quarter. Looking through that noise, we continue to see fund positions growing in the mid-single digits, consistent with fiscal '25. Total equity position growth was 12%, driven by continued growth in managed accounts. For the first half of the year, we expect mid-teens position growth overall with high single-digit growth in revenue equity positions. 5 years ago, we began to talk about direct indexing, and we're now seeing it is driving growth in managed account positions. Today, we're beginning to see interest in tokenized equities, which could create future sources of demand for new U.S. equity positions. While the speed of adoption is uncertain, the SEC has been clear that tokenized securities are still securities. That means they will need to incorporate all the complex features of corporate governance and corporate actions that regular equities do. And Broadridge is committed to making all that work. We will be there with disclosure and governance solutions for tokenized equities to ensure that there are no roadblocks to widespread adoption. It's too early to say how popular tokenized equities will become. But like direct indexing, we see them as another leg of democratization that will continue to drive position growth over time. Beyond position growth, we're also benefiting from a quiet but significant shift in how asset managers and public companies are approaching shareholder engagement and proxy voting. Last quarter, we talked about how the growth of passive investing is forcing the largest asset managers to rethink how they vote with a growing number of funds, nearly 400 at the end of fiscal '25, representing nearly $2 trillion in assets using Broadridge's voting choice solution to enable their shareholders to engage by expressing their voting preferences. Now we are working with large asset and wealth managers to create an objective, data-driven approach to voting. To be clear, we're a technology company, not a proxy adviser. Our solution, which will be live with a select group of clients this proxy season, will meet an important market need by enabling clients to define and implement independent policies to complement ISS and Glass Lewis. In addition, we're also working with public companies to better engage retail shareholders by increasing the convenience of voting. This past quarter, we launched a pilot program with ExxonMobil to enable retail shareholders to provide standing voting instructions for annual meetings. Shareholders who opt in will continue to receive all the materials they do today, and they can change their vote at any time. This approach makes it more convenient to vote and has the potential to increase retail voting. It's a new and exciting front in shareholder engagement, and we're seeing significant interest from other public companies. Taken together, these innovations across passive funds, active institutional funds and public companies are enabling a quiet revolution in shareholder engagement by leveraging Broadridge's technology to give Main Street investors a greater voice in the companies they own. That's great for our markets. We also completed 2 tuck-in acquisitions in the first quarter to strengthen our governance business. Signal is focused on digital client communications. It yields our customer communications business, a foothold in Europe and strengthens our global relationships with key financial services firms. iJoin as a retirement plan technology provider that will strengthen our Workplace & Retirement Solutions business. Both are great examples of how small strategic M&A can accelerate our product development and deepen our product set. Let's turn next to Capital Markets, where we are simplifying and innovating trading. Capital Markets revenues grew 6%, driven by a combination of new sales and higher trading volumes with a boost for tokenization, which I'll comment in a moment. The growth in new sales is being driven by a balanced mix across both front and back-office solutions. In the front office, we're seeing strong demand for our connectivity solutions. And in the back office, we're seeing increased demand for solutions that help our clients simplify their global trading operations. We're also engaging clients in some of the market structure changes coming in calendar '26, namely the move to 23x5 trading of equities in the second half of '26, and centralized clearing for treasuries at the end of '26. The good news is that the move to 23x5 trading will be seamless for Broadridge clients, highlighting the benefit of a mutualized platform. As we move toward treasury clearing, that is accelerating demand for our DLR, Distributed Ledger Repo solution. In September, we processed over $300 billion in tokenized equity -- excuse me, tokenized trades per day, up from $100 billion per day 6 months ago. And we're clearly the leading at-scale platform. Next, we're going to real-time repo, which will make repos a trading and financing instrument and further scale volumes. While we started with repo, the platform is fully multi-asset and we'll be going to other asset classes over the next 12 months. We'll also be incorporating stablecoin as the cash rails for real-time transactions. More broadly, we see tokenization as a megatrend over the next 10 years. It's ideal for less liquid, harder-to-settle asset classes, and there could be real benefits in other areas of fixed income, collateral, private credit, and alternative assets. One of the avenues for tokenized activity to grow is on the Canton Network, a public permissioned digital asset network designed specifically for financial services. As a result of our investment in Digital Asset Holdings and our work on DLR, we have been a Super Validator on the Canton Network since the beginning of fiscal '25, for which we have earned Canton Coins. In Q1, we recorded $4 million in recurring revenue from our Super Validator role. In addition, the coin holdings we earned previously have also gained materially in value, as Ashima will share in a moment. We see the potential for the Canton Network to serve as the operating system for tokenized institutional markets, including DLR. To support this vision, an investor group led by DRW announced yesterday the formation of a Canton-focused digital asset treasury or DAT, which intends to invest in Canton Coin and create applications for the network. We are contributing a portion of our Canton client holdings to take an 8% pro forma stake in that DAT, which will trade on the NASDAQ. This transaction is just one more indicator of the potential for our DLR and broader tokenization capability to create value as tokenized activity grows. Moving to wealth, where we're modernizing Wealth and Investment Management. Revenues grew 22% in the quarter, paced by solid organic growth and the acquisition of SIS. Fiscal '25 was a strong sales year for our wealth business with 3 significant platform sales. So I'm pleased to note that we're making good progress in onboarding these new clients and are on track to begin recognizing revenue at the end of fiscal '26. November 1 marked the 1-year anniversary of the SIS acquisition, and I'm pleased with how it's driving value for our business and our clients. Over the past year, we've extended our relationship with key Canadian clients and are making strong progress in integrating SIS onto our wealth platform. More broadly, we continue to see a strong pipeline across our wealth business. Finally, Closed sales. After a strong finish to the fiscal '25 year in June, we closed $33 million in Q1 sales. More importantly, our pipeline continues to strengthen, and we are on track to deliver on our full year guidance of $290 million to $330 million. All this means that Broadridge is better positioned than ever. Tokenization is just one of the many innovations we are driving that are transforming our industry and setting the stage for long-term growth. Let me close with some final thoughts. First, Broadridge delivered strong first quarter results. Second, our first quarter performance as Broadridge on track to deliver another strong year, including recurring revenue at the higher end of our 5% to 7% range and 8% to 12% adjusted EPS growth. We're also deploying capital to drive value. Third, our results are being driven by the execution of our long-term growth strategy. We're driving the democratization and digitization of governance by delivering new voting solutions that put Main Street investors front and center. We're simplifying and innovating in capital markets across both the front and back office and we're modernizing wealth management by delivering platform capabilities for clients in both the U.S. and Canada. Fourth, we're positioned to benefit from the growth of digital assets and the trend toward tokenization. The combination of a pro-innovation regulatory backdrop and accelerating technology change is putting digital assets and tokenization front and center as a new megatrend in financial services that creates significant opportunity for Broadridge. Across our businesses, Broadridge is well positioned. Tokenization is the next wave of democratization to drive equity position growth and our early start makes us the leader in supporting the technology behind tokenized assets and trading. And finally, Broadridge is well positioned to deliver on its 3-year financial objectives and beyond. This will be the fifth consecutive 3-year period in which we've met our goals and the opportunity going forward is even larger. Before I turn it over to Ashima, I want to thank our associates around the world. Their focus on serving clients and driving change is how we add value to our clients and our industry every day and is making a real difference in the financial lives of millions. Ashima?
Ashima Ghei: Thanks, Tim. Good morning. It's great to be here today to share our Q1 results. Before I begin my review, I want to make 5 key callouts. First, Broadridge is off to a strong start to fiscal '26 with strong recurring revenue and adjusted EPS growth. Second, event-driven revenue. We reported $114 million of event-driven revenues in Q1, well above the long-term average, driven in part by a proxy election at a major mutual fund complex. Third, we are deploying capital to drive shareholder returns. During the first quarter, we completed 2 tuck-in M&A deals for a total of $56 million and repurchased $150 million of our shares. Fourth, we continue to expect to deliver strong fiscal '26 results. We are now raising our recurring revenue growth outlook to the higher end of our 5% to 7% guidance range. We are also reaffirming our guidance for 8% to 12% adjusted EPS growth and Closed sales of $290 million to $330 million. And one final call out, digital asset revenues and mark-to-market gains. As Tim referenced, Broadridge recognized $4 million of digital asset revenues related to our work as a Super Validator on the Canton Network. While we have been earning coins for this service over the last year, they had de minimis value. Now as these coins have increased in value, they are not only contributing to revenue, their value is also being recognized on our balance sheet. As a result, we recorded a $46 million unrealized gain on the value of the $1.7 billion coins we held at the end of the quarter. That gain was excluded from our calculation of adjusted EPS. With that, let's go to the numbers on Slide 6. Recurring revenues grew 8% on a constant currency basis, including 5% organic growth. Adjusted operating income margin expanded by 280 basis points to 15.8%. Adjusted EPS grew 51% to $1.51, driven by strong event revenue and Closed sales were $33 million. Let's move to Slide 7 to discuss our segment recurring revenue, starting with our ICS or governance segment. ICS recurring revenues rose 5% to $518 million, including a 1 point benefit from acquisitions and a 1 point headwind from lower interest rates. As a reminder, the earnings impact of lower interest rates is functionally hedged by lower interest expense on our variable rate debt. Regulatory revenues rose 4% in Q1, driven by 7% growth in equity revenue positions and 2% growth in fund positions. Regulatory revenues were partially impacted by a shift in fund communications from September to October, which lowered Q1 regulatory growth by 2 points. Data-driven fund solutions revenue grew 2% as a 3-point headwind from lower interest rates partially offset strong growth in our Retirement & Workplace Solutions revenue. We also completed the acquisition of iJoin in mid-September, which had only a modest impact on growth in the quarter. We expect to see data-driven fund revenue growth accelerate in the second half of the year. Issuer revenues grew 6%, driven by strong growth in both our disclosure solutions and our shareholder engagement solutions. Customer communications revenues rose 8%, driven by organic growth in digital and print revenues and the addition of Signal. For the year, we expect ICS recurring revenue at the high end of our 5% to 7% total recurring revenue guidance, including a modest benefit from the iJoin and Signal acquisitions and the continued drag from lower interest rates. Turning to GTO. Revenues grew 12% in Q1, including 6% organic. Capital Markets revenues grew 6%, driven by the growth in our Global Post Trade solutions, which benefited from high trading volumes and by the recognition of digital asset revenues, which together more than offset 1 point of losses related to the business exit that we discussed last quarter. Digital asset revenues contributed $4 million or 1 point to the growth of our Capital Markets business in the first quarter. With the recent increases in coin value, we expect these digital asset revenues to contribute approximately 1 point to capital markets growth in fiscal '26. Taken together with our growing revenues from Distributed Ledger Repo platform, it's exciting to see our tokenization efforts starting to drive a small but real revenue contribution to our Capital Markets business. Wealth and Investment Management revenues grew 22%, driven by 5% organic growth and the impact of the SIS acquisition. As a reminder, we closed the SIS deal on November 1, '24, and that revenue will be reported as organic for the last 2 months of our second quarter and in the second half of the year. For the year, we continue to expect GTO recurring revenue growth within our 5% to 7% guidance range with higher growth in Wealth. Now let's move to Slide 8 to review our key volume indicators. We continue to see healthy growth in investor participation across both equities and funds. Equity position growth was 12%, including 7% growth in revenue positions. Looking ahead, our testing shows mid-teens total position growth in Q2. Full year testing is showing low double-digit growth, which would imply revenue position growth in the mid- to high single-digit range. Q1 fund position growth of 2% was impacted by the timing of fund communications in the quarter. Our testing continues to indicate mid-single-digit position growth for both the first half and the full year. In GTO, trade volumes rose 17% for the quarter, driven by double-digit growth in both equity and fixed income volumes. I'll wrap up my discussion of recurring revenue growth on Slide 9. In Q1, recurring revenue growth constant currency was 8%, primarily driven by 5 points of organic growth. Revenue from Closed sales remains the biggest driver of our organic growth at 5 points as we onboarded revenues from our $430 million fiscal '25 year-end backlog. Our retention rate was 98% for the quarter. Internal growth contributed 2 points, primarily driven by higher trade volumes and digital asset revenues. Acquisitions, primarily SIS, contributed 3 points to growth. And finally, changes in FX contributed 1 point. Let's close our discussion of revenues on Slide 10. Total revenue increased 12% to $1.6 billion, driven by 5 points of growth from recurring revenue. Higher event-driven revenue drove 4 points of growth. Q1 '26 revenues of $114 million were our second highest quarter ever. The biggest driver of event-driven revenue in the quarter was Board elections at a major mutual fund complex. This fund company had its last proxy event in the first quarter of fiscal 2019. In the 7 years since that event, the number of positions grew approximately 30%, highlighting the long-term growth drivers propelling event-driven revenues. Looking ahead, we expect event-driven revenues to return to historic average levels of $50 million to $60 million per quarter for the balance of fiscal '26. Low to no margin distribution revenues grew 8%, primarily driven by higher postage rates and contributed 3 points to total revenue growth. Turning now to margins on Slide 11. Adjusted operating income margin was 15.8%, an increase of 280 basis points from Q1 '25. This growth was driven by higher event-driven revenue and operating leverage from our scale business, partially offset by our ongoing reinvestments. The net impact of lower interest rates and higher distribution revenues reduced AOI margins by 30 basis points. Let's move on to earnings on Slide 12. Q1 adjusted EPS grew 51% to $1.51, driven by higher event-driven revenue. Interest expense was $24 million in the quarter, a decrease of $8 million from Q1 '25, driven by a combination of lower balances and lower rates. As I noted in my call outs, Broadridge recorded a $46 million unrealized gain driven by the increase in the value of our Digital Asset Holdings in the quarter. That noncash gain was reported in other nonoperating income and was excluded from our calculation of adjusted EPS. Given the volatile nature of digital asset values, we expect to continue to record gains and/or losses as we mark these digital assets to market every quarter. Let's turn to sales now on Slide 13. Broadridge reported Closed sales of $33 million, driven by sales of our governance solutions. Looking ahead, our pipeline remains strong, and we are reaffirming our guidance for full year closed sales of $290 million to $330 million. Turning to our cash flows on Slide 14. Broadridge generated free cash flow of $13 million in the first quarter. Our strong cash performance was driven by 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 continue to take a balanced approach to capital allocation. In Q1, we invested $30 million in capital spending and software spend with an additional $7 million to onboard clients onto our solutions. We deployed $56 million during the quarter on 2 tuck-in acquisitions to strengthen our governance franchise. In addition, we continue to expect our previously announced acquisition of Acolin to close at calendar year-end, pending approval by German regulatory authorities. During the quarter, we also repurchased $150 million in Broadridge shares and returned an additional $103 million to shareholders via our quarterly dividend. And yesterday, we entered into an agreement to use approximately $340 million of our Canton Coin holdings as part of a PIPE offering in Tharimmune, Inc., a NASDAQ-listed company with the ticker THAR that intends to execute a digital asset treasury strategy for Canton Coins. When the deal closes later this week, we anticipate holding warrants for 8% of the publicly traded vehicle. Let's start to wrap by reviewing our fiscal '26 guidance on Slide 16. As I said in my call outs, Broadridge is on track to deliver strong fiscal '26 results. Given our strong start to the year and the incremental revenue from our Signal and iJoin acquisitions, we now expect fiscal '26 recurring revenue growth constant currency to be at the higher end of our 5% to 7% guidance. We continue to expect adjusted operating income margin of between 20% to 21%, adjusted EPS growth of 8% to 12% and $290 million to $330 million in Closed sales. Additionally, I will highlight that we are expecting a more normalized level of event-driven revenue in the second quarter of '26 compared to last year's record $125 million. As a result, we expect 2Q adjusted EPS to be approximately 13% to 15% of our full year outlook. I'll wrap by summarizing my key points. Broadridge is off to a strong start to the year and the combination of strong performance and recent acquisitions has us incrementally more confident in growth in recurring revenues. We are deploying capital to boost growth and shareholder returns. And last, we remain very much on track to deliver another strong year of recurring revenue and adjusted EPS growth in fiscal '26, and deliver again on our top and bottom line 3-year objectives. With that, let's move to Q&A.
Operator: [Operator Instructions] Our first question comes from James Faucette of Morgan Stanley.
Michael Infante: It's Michael Infante on for James. I just wanted to ask on the recurring revenue outlook tracking towards the high end of the range versus the reiteration on the EPS front. I recognize that we're going to see a reversion of some of the event-driven revenue strength in the quarter. But can you just walk through some of the puts and takes as to why EPS wouldn't similarly track towards the high end of the range, just given the high incremental margin nature of that event-driven revenue you saw in the quarter?
Ashima Ghei: Absolutely. Thanks, Michael. I'll take that. You're right. We're off to a strong start of the year. And as a result, we raised our guidance for recurring revenue to the higher end of the 5% to 7% range. The biggest driver of the revenue upside is the acquisitions that we are seeing from iJoin and Signal that we announced earlier this year, which are more than offsetting the additional rate cuts that we are seeing in the year. I will say beyond that, we are seeing strength in our underlying business. Revenue from sales from converting our $430 million backlog is continuing to deliver consistent results and fuel our growth. Position growth is another important factor for us, and we are growing increasingly confident about the mid-teens growth that we are expecting for equities in Q2 and mid- to high single-digit revenue growth for the full year. Fund position and revenue growth also continues at mid-single digit. And we've seen a bit more upside from the digital asset revenues, driven by increase in market value relative to the starting point of the year. And specifically in Q1, as you noted, we also saw the impact of higher event, which we were expecting given the large mutual fund proxy that was planned in Q1. All in all, all of this gets us to a super strong start to the year, which enables us to invest in our business while we continue to drive towards our 8% to 12% adjusted EPS growth.
Timothy Gokey: I'm just going to add on to that a little bit because it's pretty early in the year for us to think about the translation of any incremental margin, if I can talk, into earnings. And I just note this is a time of great opportunity in the industry for us and for our clients. And we're really pleased that we're in a position to be both investing and delivering on our commitments. And I just want to focus you on 4 key areas that we're investing in now: tokenization, digital assets, shareholder engagement, digital communications, AI and platform. And each of these are areas where we have a strong right to win and can bring real value to our clients by helping them really drive innovation. And so it's just -- it's early in the year to think about the balance of investment and earnings delivery. And so really staying with our guidance is the right call right now.
Michael Infante: That's helpful. And then maybe just a quick housekeeping one on Canton. I recognize you're using some of those funds or those holdings to participate in the pipe. But maybe after contemplating that transaction, do you intend to convert some of those holdings to cash, if at all, to sort of mitigate some of the GAAP volatility? And if so, like how should we think about maybe like a theoretical 10% change in Canton Coin and the impact on GAAP EPS?
Timothy Gokey: Yes, I'll take that. Just at a very high level. I do think there's -- we're going to see some GAAP volatility. That's why we're certainly going to adjust this. We do think this is going to be a pretty volatile asset and it's probably something we'd prefer you to have off on the side. I think the core thing here is we're an operating company, not an investment company. And so I think you should expect to see us liquidate these holdings over time. There are reasons because a lot of the momentum in the network and the potential for the network to become really the rails for institutional financial transactions that Bitcoins could become a lot more valuable over time. So I think this will be something that you'll see us evolve over probably a few years.
Ashima Ghei: Yes. The only thing I'll add is, remember, in terms of the revenue, at least, I called out that we expect this to be about 1 point of impact to our capital markets business. So in the larger scale, I wouldn't expect the value to have a significant impact to Broadridge revenues.
Operator: Our next question comes from Kyle Peterson of Needham.
Kyle Peterson: I wanted to talk a little bit on sales cycles and kind of what you guys are seeing, particularly if there's been any impact from the government shutdown. Obviously, at least some things in capital markets and things have been hit snags a little bit. But I guess, have you guys seen any impact to getting deals across the finish line or client conversations that might have kind of slowed down in the last month plus?
Timothy Gokey: Yes, Kyle, thanks. It's Tim. And first of all, I think we are really pleased with the strong close we had to fiscal '25, and we're still on our guidance for this year. Specifically to your question, I think the selling environment that we're seeing is pretty stable. It is -- we haven't seen any slowdown in conversations because of the government shutdown. Now I think many of our conversations are -- they have a sales cycle that's really outside the window of whether a few weeks makes a difference unless we're coming right up on the end of the year like we talked about last spring. So I think it's really -- we're not seeing any change. It's pretty early in the year in terms of doing anything other than confirming our guidance. And all that said, I think the market remains strong. The conversations we're having with our clients are pretty exciting around strategic topics in digital communications and shareholder engagement, and platform, among others. And the conversations that I'm having with clients are really very much more on the transformational side, which I think is a testament to the investments that we've made. So we have a lot of confidence going forward. It's grounded in those conversations, it's grounded in our pipeline, which remains healthy and has actually grown since the beginning of the year.
Kyle Peterson: Great. That's really helpful. And then maybe just a follow-up broadly, kind of your thoughts on how digital assets and tokenization fits within Broadridge, obviously, several moving pieces. You guys are starting to get some revenue from that. You made the investment. But I guess, how should we think about how digital assets should continue to evolve? And what role do you see that playing in your business, both in the near and long term here?
Timothy Gokey: Yes. Thank you for that. I think we see digital assets and tokenization as a megatrend for the next 10 years and is a real opportunity for Broadridge and the industry. And our strategy is to drive tokenization across the asset classes where we have deep expertise. and where we think the asset class will benefit the most. And that certainly includes fixed income, repos, collateral. Longer term, tokenized equities, we think, can be part of the next wave of democratization that drives demand for U.S. equities and contributes to long-term position growth. And then sort of as a double-click within that, we think the Canton Network is -- has the potential, early days, but potential to become an operating system that makes a lot of that more possible. So I think as you look across our businesses, you're seeing the continued progress on Distributed Ledger Repo and Capital Markets. And there, we're certainly going to be expanding to additional use cases, including real-time, new asset classes, stablecoin. There's a Canton Network side of things, which is also sort of within capital markets. Tokenized equities, we see as a longer-term opportunity that would be really affecting more our -- somewhat on the capital markets side, but more our ICS business in terms of extending position growth and really being the next wave of the evolution of democratization to drive that mid-single, high single-digit position growth into the foreseeable future and beyond. So -- and then last, on the wealth management side, this demand for digital assets is putting pressure on wealth managers to integrate those assets into their traditional client service operations. And they've sort of stayed away from them in the past, and I think that is changing quickly now. But when you think about a wealth manager now offering digital assets to clients, there's all the other things that you need to do, tax, margin, statements, all those things. And so we think that's an area where we can really help. Our core engines will be enabled to represent digital assets by early next calendar year. And that is going to allow our clients to flow transactions through for everything from cost basis, tax, margin, [ SAG ] statements, asset servicing and all that complexity that comes with being a large-scale, either capital markets or wealth manager.
Ashima Ghei: I'll just -- maybe I'll just add on because you were also asking about the near-term and the midterm implications from a revenue perspective, right? So I'll just tack on, as you know, we -- specifically for Canton Coins, we earn these Canton Coins for being a Super Validator on the Canton Network. In Q1, we recognized $4 million of revenue, like we said, associated with this service. The actual revenue that we earn over the course of the remainder of the year would vary based on the actual minting activity, the number of coins specifically and the price of these coins, right? They have -- we've got a whole minting schedule. But bottom line, it translates into about 1 point of impact to capital markets, higher in Q2 and lower in Q3 and Q4. So that's from a revenue perspective. And on the balance sheet perspective, the only thing I'll call out is we do have -- at the end of last quarter, we have 1.7 billion coins that were valued at $74 million, right? And like you said, we've contributed some of these to the DAT, but there could be volatility associated with the $74 million, which we'll continue to adjust out of our adjusted EPS.
Operator: Our next question comes from Scott Wurtzel from Wolfe Research.
Scott Wurtzel: Ashima, just on the 2Q EPS guide about 13% to 15% of full year EPS. I understand that we should see a normalization of event-driven revenue. But just wondering if there's anything else going on there that we should keep in mind for 2Q EPS?
Ashima Ghei: No, that's really the major driver, Scott. It's just a tough compare when -- because of the event activity that we saw last year in Q2. Just wanted to make sure you guys saw the grow over impact coming in from that. Nothing else significant to call out.
Scott Wurtzel: Got it. Got it. That makes sense. And then forgive me, I was hopping from another call, so I may have missed the commentary here. But just wondering if you can talk a little bit more about the position growth trends that you saw in the quarter and how that sort of trended relative to expectations?
Timothy Gokey: Yes. Thanks, Scott. Look, position growth is remaining strong, and we're seeing really nice strength in the underlying drivers for equity positions, which grew 12%, really driven by healthy growth in managed accounts, but also pretty good growth in self-directed. As we talk to our clients, they continue to tell us that direct indexing is a significant driver of the managed account growth. And then the equity revenue positions, taking out the smaller accounts and the fractional shares was 7%, which is really in line with what we've seen over the long run. And then I noted that on the fund growth side, it was 2%, but that was really an anomaly driven by timing, and we're continuing to see underlying position growth in the mid-single digits. It is still early in the year, but our testing is now beginning to begin to give a little bit of visibility into the second half. And that's showing, again, continued strength across funds and equities, low double-digit equity position growth, continued mid-single-digit fund growth for the balance of the year. I know you asked about drivers right now, but I just -- since I have the floor, I think that the key takeaway here is that innovation remains the key driver for long-term position growth. 15 years ago, we were talking about the rising popularity of ETFs. And 10 years ago, we started to talk about managed accounts. 5 years ago, it was zero-commission trading. And we started talking 5 years ago about direct indexing, but now we're seeing how that's beginning to become an important component of growth now. And as I said in my remarks, now we're beginning to hear beginnings of interest in tokenized equities. And I think that just highlights the ongoing innovation that has driven position growth for the past 40 years that there's always the next thing. And that's exciting. And so I think really, we feel good about the long-term health here.
Operator: Our next question comes from Puneet Jain of JPMorgan.
Puneet Jain: So I want to make sure like I understand like -- so the Super Validator status that stems from the digital asset repo platform, it seems like. So is it common for you to be paid for that repo platform in form of coins? And then the second question on that is like the investments that you made in Canton Network, like how do you expect to make returns on that investment?
Timothy Gokey: Yes. It's Tim, Puneet. So first of all, just to be clear, the role as Super Validator is separate from what we are doing on Distributed Ledger Repo. So we built a Distributed Ledger Repo platform, which is, at this point, actually on the -- it's on a private version of the Canton Network. It will go public later on. But that's an investment we've made. And I was just saying that because of our closeness to Digital Asset Holdings, they invited us to be a super validator. That was a separate investment we made for that activity. And it's just a separate activity. So related but separate. And in terms of getting paid and how people get paid for that role, yes, it is very common to be paid in coin. There's a whole governing document for the Canton Network, much like there are for Ethereum or Bitcoin that explains the different roles that people play and how the economics of that works. And so the payments we're getting, which, again, until this quarter, we really didn't have any value. We are picking this up, but now they do. So it's sort of interesting. Does that help? And then the investment in Canton, it's really -- the investment that we made was just the investment to become a Super Validator and to operate that, which was frankly rather low.
Puneet Jain: Got it. Got it. And then the guidance increase for recurring revenue growth, can you talk about puts and takes like the acquisition contribution? I think, Ashima, you mentioned like the lower interest rates, that being a headwind there. So can you talk about various puts and takes that drove 1 point increase in the guidance?
Ashima Ghei: Yes, sure. I'll just reiterate what I said before, Puneet. Yes, the biggest driver of our revenue upside, the guidance was the contribution that we saw from iJoin and Signal, both of which were announced within the quarter. It's really less than 50 basis points of contribution coming in from those. We are -- so that's one put. The other side I'll call out is we are seeing additional rate cuts. What we are baking in right now is our expectation based on the latest Fed dot plot, right, which calls for 2 more interest rate cuts in the balance of our fiscal year. That's baked into our guidance as well. But beyond that, the guidance really reflects our growing confidence in our underlying growth, right? Tim spoke a little bit about position growth that continues to be strong. Our revenue from sales is tracking well. And the digital asset revenue, while it's super small, is helping our growth overall. So all of that gives us confidence in our guide towards the higher end of 5% to 7% recurring revenue growth.
Operator: The next question is by Patrick O'Shaughnessy of Raymond James.
Patrick O'Shaughnessy: In a world where tokenized equities trades are recorded on the blockchain, do you see that impacting the need for intermediated communications between corporate issuers and their shareholders?
Timothy Gokey: Patrick, thank you very much for the question. And look, we see this as an opportunity. And really, we see it as the next wave of democratization that's going to create new sources of demand and position growth. And as I said in my remarks, the SEC has been really clear that tokenized securities are still securities. At a week before last at a major industry event, Paul Atkins was asked specifically about tokenized equities on the main stage. And he was clear that they're going to be subject to all the same regulation, including Reg NMS and all the governance provisions that traditional equities are. We believe the vast majority of tokenized equities are going to be purchased through a broker-dealer or exchange and that those intermediaries are going to have the same financial -- same asset servicing obligations they have today, including proxy, but also corporate actions, class actions, protecting the personal information of their clients, all of which creates a real opportunity for Broadridge. So as I said in my remarks, we're going to be there to manage the complexity of disclosure, governance and all of that. And we're already talking to clients and industry participants about how we enable them to make this possible. So I think -- and then as I said earlier, this work on tokenized equity is just part of our broader strategy to drive tokenization across multiple asset classes where there's real value and where we have a deep expertise.
Patrick O'Shaughnessy: All right. Got it. And then total trade volume growth continues to be a healthy tailwind for GTO segment revenue. Can you remind us the percentage of segment revenue that's tied to trading volumes? And how durable do you view this growth to be?
Ashima Ghei: Yes. So overall, Patrick, if you think about the GTO revenues, I'd say about 1/3 of GTO revenues are tied to trade volumes. Not all of it is exactly paper trade, right, one-on-one, though. I would say about half of that is direct paper trade, half of that is bank kind of structures that we have. And we're definitely seeing the impact of higher volumes on that direct paper trade portion. It is -- you typically see higher trade in periods of higher volatility. It's proven to be double digits for the last many quarters. We're not counting on very elevated levels of trade volumes going forward, but we're expecting continued strong growth.
Operator: This concludes the question-and-answer session. I would like to hand things over back to management for any closing remarks.
Timothy Gokey: Well, thank you, operator, and I want to thank everyone for joining our call today. Again, just to reiterate, we're really pleased with the strong start to the year. We're excited about what we see coming forward. We're excited about the innovation in the industry. And we hope that you're as excited as we are about everything that's happening in our industry and about the year ahead as we continue to really work with our clients to transform the financial services industry. So thank you for your interest in Broadridge. We look forward to speaking to you on the next call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.