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Ashima Ghei

Thanks, Tim. Good morning. It's great to be here with you today. I'll begin my discussion this morning with 5 key callouts. First, Broadridge delivered strong second quarter results, including 9% recurring revenue growth, and 70% adjusted EPS.
Second, our key revenue growth drivers remain strong. Revenue from sales continues to be the biggest driver of our growth as we tap into our $450 million year end backlog.
In addition, our equity position growth testing is now showing low double-digit growth, which supports our outlook for internal growth. Third, we reported record event-driven revenues modestly ahead of our expectations and surpassing our prior quarterly record from fiscal 2018. Fourth, our strong performance continues to support our ongoing growth investments in product innovation, AI and in our tech capabilities.
[ Frist ] and last, we are on track to deliver strong fiscal '25 results, and we are reaffirming our guidance on all metrics. We also expect to generate free cash flow conversion of 95% to 105%, giving us ample cash flow to repurchase shares or pursue incremental M&A.
With that, let's go to the numbers on Slide 6. Recurring revenues rose 9% on a constant currency basis, driven by 7% organic growth and 2 points from our acquisition of FIS. Adjusted operating income increased 51% driven by strong organic recurring revenue growth and record event-driven revenues. AOI margins rose 420 basis points to 16.6% and adjusted EPS increased 70% to $1.56. As strong recurring revenue growth and higher event-driven revenues more than offset the impact of investments.
Finally, we delivered close sales of $46 million, year-to-date sales were $103 million compared to $106 million last year. Let's move to slide 7. Recurring revenue grew 9% to $980 million. Our growth was driven by a strong contribution from new sales, highlighting the importance of innovation. Internal growth from higher positions and increased trading volumes also contributed to recurring revenue growth.
Let's turn to slide 8 to look at the growth across our ICS and GTO segments. ICS recurring revenues rose 9% to $540 million. Regulatory revenues rose 8%, reflecting low double-digit equity position growth and mid-single-digit fund position growth. Data-driven Fund Solutions revenue increased 8%, driven by growth in our data and analytics products. M&A contributed 0.5 point to Fund Solutions growth.
Issuer revenue grew 18%, led by growth in our Disclosure Solutions and a short-term bump in our transfer agency revenues.
Customer Communications revenue rose 10%, led by double-digit growth in digital revenues driven by new client onboarding and a higher mix of value-added print jobs. Looking ahead to the second half, we expect total ICS recurring revenue growth to be in line with our 6% to 8% full year recurring revenue growth outlook. By product, we expect high single-digit growth in regulatory revenue driven by equity and fund position growth and mid-single-digit growth across the balance of our ICS businesses, including customer communications.
Turning to GTO. Revenues rose 8% to $440 million. Capital Markets revenue grew 6%, all organic, driven by the growth of our global post-trade capabilities, which benefited from higher fixed income and equity trading volumes as well as our BTCS front office solutions. Lower license revenues were a 3-point headwind to capital markets growth. Wealth and Investment Management revenues rose 12%, driven by a combination of 2% organic growth and the addition of 2 months of revenues from the SIS acquisition.
Excluding the impact of e-trade deconversion, organic growth was 6%. As a reminder, this was the last quarter in which we have any drover impact from Etrade.
Looking ahead, we expect GTO revenue growth to be in the low double digits for the second half of the year, driven by high teens growth in Wealth Management and mid- to high single-digit growth in capital markets. Now let's move to Slide 9 to review our key volume indicators. Broadridge continues to benefit from the secular growth in investor participation across both equities and funds. Equity position growth was 11%, driven by managed accounts and modestly ahead of our testing at the end of the first quarter.
Relative to first quarter equity position growth of 3%, we benefited from both an improved mix of companies hosting Annual Meeting and from an overall uptick in position growth. Looking ahead to the more meaningful second half of the year, when we process more than 80% of equity proxy positions, our forward testing is now showing low double-digit growth. The outlook reflects the underlying growth we typically see throughout the year and the additional increase that began in October, as Tim noted. Mutual fund and ETF position growth was more muted at 5%, and our current testing is indicating continued mid-single-digit fund position growth. On the bottom of the slide, trade volumes rose 13% on a blended basis, led by strong growth in both fixed income and equity volume.
I'll wrap up my discussion of recurring revenue growth on Slide 10. Revenue from closed sales remains the biggest driver of our recurring revenue growth at 7 points as we onboard revenues from our $450 million year-end backlog. That growth was partially offset by 3 points of losses, including the deconversion of ETRADE. Internal growth contributed 3 points, primarily driven by fund and equity position growth and higher trading volumes, which more than offset lower 33 regulatory fee revenue. As a result, organic revenue growth was 7%.
Acquisitions contributed 2 points, primarily driven by 2 months of revenue from SIS which closed at the beginning of November.
Finally, changes in FX had an immaterial impact on our growth in the second quarter. With the recent strengthening of the dollar, we now expect changes in FX to be a 50 basis points headwind to recurring revenue and adjusted EPS growth for the balance of the fiscal year.
Let's close our discussion of revenues on Slide 11. Total revenue increased 13% to $1.6 billion, driven by 6 points of growth from recurring revenue. Event-driven revenues rose $69 million to $125 million and contributed 5 points to total revenue growth. This was a quarterly record for event-driven revenues, surpassing the prior high of $97 million set in fiscal 2018. It's an important reminder that while event-driven revenues tend to be variable on a quarterly or annual basis.
their long-term growth is tied to position growth, which has grown to mid- to high single-digit rates over time.
Looking ahead, we expect event-driven revenues to be more in line with the $55 million to $60 million quarterly average over the balance of the year. I will remind you that last quarter, we benefited from the Disney proxy contest in the third quarter, which presents a headwind to growth in the third quarter this year. Low to no margin distribution revenues grew 7%, contributing 2 points to total revenue growth. Higher postage rates represented approximately 90% of the growth. We now expect distribution revenue to grow in the mid-single-digit range for fiscal '25, driven primarily by higher postage rates.
Turning now to margins on Slide 12. Adjusted operating income margin was 16.6%, an increase of 420 basis points from Q2 '24 as our operating leverage from higher recurring and event-driven revenues more than offset the impact of ongoing ongoing growth reinvestment and higher distribution revenues. The net impact of changes in float income and distribution revenues had virtually no impact on AOI margins in the quarter. For the year, we remain on track to generate 50 basis points plus of underlying core margin expansion.
Let's move on to sales. Closed sales were $46 million, $12 million lower than the Q2, '24 sales as higher sales of our GTO products were offset by lower governance sales. Year-to-date, sales are $103 million. Turning to our cash flows. I'll start with a reminder that Broadridge's cash flow generation is typically lower in the first half of the year and strengthens over the second half.
Q2 '25 free cash flow was $214 million, an increase of $46 million from Q2 '24 driven by higher earnings. Year-to-date, free cash flow was $56 million versus $1 million for the first 6 months of fiscal '24. The first half change was driven by an increase in cash taxes and severance payments in the first quarter as well as changes in working capital, which benefited which offset the benefit of higher income. We continue to expect free cash flow conversion of 95% to 105% in fiscal '25.
Turning next to capital allocation on Slide 15. Year-to-date, we have deployed $55 million in capital spending and software and returned just under $200 million to shareholders via our dividend. Platform investments, which in the past have represented a significant source of investment, absorbed only $4 million. In part because of our focus on getting clients to share most of the upfront cost of onboarding. We also invested $193 million in M&A, primarily the acquisition of SIS on November 1, USD 485 million.
We remain committed to balanced capital allocation as part of our long-term growth strategy. After taking into account our strong and growing dividend, Broadridge is well positioned to return capital to shareholders in the form of share repurchases or fund additional tuck-in M&A.
Let's conclude by reviewing our outlook for fiscal '25 on Page 16, followed by closing key messages. We are reaffirming our guidance on all key metrics, including 6% to 8% recurring revenue growth constant currency, 8% to 12% adjusted EPS growth, and closed sales of $290 million to $330 million. With respect to the third quarter, a couple of modeling callouts, we expect Q3 EPS growth to be in the mid to high single-digit range. In addition, changes in license revenue will have an impact on the composition of GTO revenues, contributing to low double-digit growth in capital markets and low single-digit organic growth in Wealth Management.
Turning now to my closing messages. Broadridge delivered strong Q2 financial results, including 9% recurring revenue growth. The demand and secular trends driving our growth remains strong. For the balance of the year, our testing is showing low double-digit equity position growth and mid-single-digit fund position growth. Third, the combination of higher equity position growth and strong second quarter event-driven revenues positions us to deliver on our full year guidance while funding our ongoing investments in new products and technology.
Fourth and last, we are on track to deliver strong fiscal year '25 results and are reaffirming our guidance with strong cash flow that has Broadridge well positioned to repurchase shares or fund additional tuck-in M&A.
With that, let's take your questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Alex Kramm with UBS.

Alex Kramm

Yes. Maybe just starting off on the guidance here where you ended. Obviously, the tone and the year-to-date performance is really, really strong. but then no real change in the outlook. And I know you mentioned FX at the end there being a headwind.
So excluding that, do you feel like underlying results are running better than you expected? Or is there anything else that you would call out?

Ashima Ghei

Thanks, Alex. Great question. So I'll start with, like you said, we're very pleased with the results halfway through the year. Biggest driver of our revenue growth continues to be revenue from new sales. it's coming in essentially in line with our expectations.
And like you said, we are tracking right in line with our guidance for both 6% to 8% recurring revenue growth and 8% to 12% earnings growth. As we think about where we are, clearly, there are some puts and takes that keep us right in that range. So let me break them out.
On the positive side, like you heard, we're seeing strong equity position growth. the market momentum since October has led to our outlook improving to low double digits now. And we have seen strong event-driven revenues in the first half of the year. On the other hand, we do expect event to be lower in the second half of the year, given that we saw some activity coming earlier than expected. Fund position growth remains at the low end of historic trends.
And the dollar strengthening is modestly impacting our non-U.S. earnings. Most importantly, though, we continue to use some of the event upside that we saw in the first half of the year to invest in our business. So overall, we're tracking right around the midpoint of our target range and the first half growth gives us confidence in that guidance range.

Timothy Gokey

And Alex, it's Tim. I just want to reinforce that last part, which is we just continue to see really strong future opportunities across our business and multiple areas where we think we're going to get a really good return on investment. So that's our focus right now. .

Alex Kramm

Okay. Great. And then maybe just shifting gears quickly. sales pretty much in line with last year. And the year-over-year decline in the quarter, I think you explained some slippage.
Obviously, a lot of things going on in the last quarter. But just wondering, post-election, a lot of enthusiasm around the financial services industry. So just wondering if you see a pickup in conversations, if you're feeling more optimistic around end markets. Yes, anything you would you would note as, again, like the financial service industry seems to be more bullish on these days.

Timothy Gokey

Yes. Alex, I'll take that. It's Tim. And I would point out that in the first half, excluding the tailored shareholder report sales from last year, we grew sales 8%, so we feel good about the first half. And as I said, we did see some deals slip too early to say why don't see a common denominator expect those to close, and that's why we're reaffirming the $290 million to $330 million.
When you think about the increased optimism in the market and how that's influencing us, I would say it's just too early to tell.
Our sales cycles tend to be pretty long. And so even if there is increased optimism and increased conversations, it probably wouldn't have that much impact on this year. But what I do really like and want to call attention to is that when we look at our pipeline, which is at a record. The momentum that we have is in the areas where we've been investing. Omnichannel communications with wealth and focus, data analytics and fund solution, front and back office simplification, digital ledger repo and capital markets and on the wealth side, Advisor Solutions, private debt and back-office modernization.
So we're seeing really good conversations in all those areas. As always, there's a lot to do between now and year-end, but we feel good.

Operator

And the next question comes from Scott Wurtzel with Wolfe Research.

Scott Wurtzel

I just wanted to follow up on a point you made in the answer to Alex there just in terms of investing and with the event-driven upside. Can you maybe highlight some of the areas that you are deploying those incremental investment dollars into?

Timothy Gokey

Yes, it is -- thanks for that because it is something we think a lot about. And just as background, Scott, as you know, we're an organic growth company. We are always thinking about what's next and how do we get in front of that and put that in place for our clients, our associates, our shareholders. And so reinvesting for that organic growth is what has helped us deliver consistently over the past 10 years and beyond. And I just highlight some of the areas are the same ones that where we're seeing the sales momentum lot of focus on digital and omnichannel communications with our wealth and focused product, which we demoed at our Investor Day in December 2023, lots of good conversations on that.
continuing to invest in data and analytics.
And as part of that AI, lots of stuff in AI across our portfolio. Front and back office simplification and digital ledger repo and capital markets and then continuing on the wealth side, now with what we're doing in Canada with the SIS platform, a lot of opportunity to bring that platform to life across the Canadian market and to bring the modular solutions that we have been successful with in the U.S., bringing those to Canada, that takes investment as well. So it's an exciting time. And then I'd be remiss if I didn't mention resiliency, cyber, the activity around Dora in Europe, helping clients with solutions for that, helping clients with a solution around data immutability, a lot of uptake for that.
And a lot of belief that our clients and the importance of that. So it's all part of that our view of being our clients' trusted and transformative partner.

Ashima Ghei

And I'll just add, right, while many of these are ongoing investments, we have the ability to flex them up and down as we see things like event activity. And that's what's baked into our guidance as we think about the year.

Scott Wurtzel

Got it. Got it. That's helpful. And then just as a follow-up on the wealth side. I mean, it seems like with the SIS acquisition, things are trending well post close.
Wondering if you can maybe share if you've had any incremental learnings now that you've had the asset under control for a few months and just broadly how you're viewing that opportunity?

Timothy Gokey

Yes, Scott. We are very pleased. When you think about it from the dimensions of clients, associates and the underlying technology, all of those are really tracking nicely. Obviously, we had lots of client discussions before we took on the acquisition and then it's always different once you have the asset and you're talking to the clients, but those conversations about our plans for how we'll support them have continue to be very warm. .
It's been very gratifying to onboard the SIS associates to see their knowledge and passion for what they're doing, but also their excitement about now working with larger associates who have passion around those same topics because they were a bit isolated before as part of Kindrel. And then the plans that we've talked about on technology to bring the open APIs and integration layer and ability to bring the different modules that we have into the clients that are served by the SIS back office, and that's going well. So we're happy. It really fits into the broader strategy of modernizing wealth management with that modular solutions around adviser productivity, including client experience and digitizing operations. And so we think that's going to really play out well in Canada.
And we're feeling very good about it.

Operator

And the next question comes from James Faucette with Morgan Stanley.

James Faucette

Great. I wanted to ask a couple of questions. First, on monetization AI-related product improvements. Previously, you talked about the fact that over time, you thought you might be able to charge incrementally for AI-related product improvements. How are you thinking about that among the key factors or what the key factors are that would drive that transition as well when we can expect some contribution there.

Timothy Gokey

Yes, James. And we talked about being an AI leader in our space. That doesn't mean that we're going to be inventing the next generation of Gen AI models, although with all the recent news, maybe makes you think about that. But it's really about how do we apply that in sort of the arcane areas that we're in. And we are at the center of a unique network.
And over time, we think the power of the large data set that we steward is a potential differentiator for us. But getting more directly to your question around monetization.
We think about AI really across 4 areas. There is -- we believe in the future that AI will be part of their product. So there's really work around bringing AI to our current products and platforms. And I'm not sure if there's a specific monetization opportunity there that's really just -- it is -- I think it's going to be a client expectation, and it's going to be part of making sure that we're on the cutting edge with all those platforms in the future.
The second part, though, is launching new AI products where there's new functionality that is enabled by AI. And we've seen that with Bond GPT, with OPs GPT with our global demand model with industry insights. So we have live products out there. And you also get real learnings from those because when people are beginning to pay incremental money for it, they ask a lot of questions, and you learn a lot about what does it really mean to have this be ready. So we're -- we're excited to have real clients signed up for those and have those in production and being used.
And the there is revenue attached to that. It is not materially enough at this point to be really showing up in our aggregate sales numbers is something that is a material driver. But over time, we would expect it to be more important.
The third piece is productivity. And we have 50-plus AI projects going on across Broadridge, about half of those on the revenue side, half are on the productivity side. We are seeing some nice pickups in coding. We're seeing some nice pickups in when you think about bringing all the events together globally for some of the things that we do and how we source that. But again, too small to be really notably impinging on our margins or other sort of broad cost metrics.
It's still pretty early days. So I wouldn't -- I'm not seeing really a measurable impact probably on this call is not about FY '26, but when we thinking about FY '26, I wouldn't look for a measurable impact in '26 but I'd look for us to do a lot of things that could begin to help after that.
And I'd be very remiss I didn't talk about the governance that we have around all of this. Very important thing for our client. Everyone wants to know where their data is that it's being used in the right way. And so that's also a key focus for us.

James Faucette

Great. Appreciate that. And then on the wealth segment, just wondering if you can give us an update on where you are for your targets to add incremental module sales within wealth and how that's tracking?

Timothy Gokey

Yes. James, we talked about wanting to have relative to the sort of baseline of a couple of years ago, an incremental $20 million to $30 million of wealth sales. And when we look at our pipeline right now, it is quite a bit up since 6 months ago and a nice increase since 12 months ago. And so we feel we're on track for that $20 million to $30 million this year. It's across lots of different things, a couple of chunkier things inside there, but is across a lot of different areas, both in the U.S.
and Canada. .

Operator

The next question comes from Dan Perlin with RBC Capital Markets.

Daniel Perlin

I just wanted to clarify a couple of things on -- I think you called out in GTO that there were lower license sales revenues, and that was a 3-point headwind in the quarter. But then I think actually, you called out in the third quarter, guidance that there's going to be some changes in license sales that's going to impact capital markets like I thought you said low double digits. So would you mind just maybe helping me reconcile some of the book lot there?

Ashima Ghei

Absolutely. Yes. Just for context, Dan, license revenues on a full year basis are not as impactful for us there about 5% of GTO's total recurring revenue. But you're right, they do cause some quarterly noise, and that's what I was aiming to clarify in my notes. The -- for this quarter specifically, we did see a 3-point drag due to license revenue growth, specifically in capital markets.
And we do expect it to have an impact on the third quarter. Because of the noise, we will see strong growth in the third quarter in Capital Markets, we're expecting low double-digit growth, and we will see low single-digit organic growth on the wealth management side, just specifically for the third quarter. But again, across the year, it all evens out. It's not a material driver, just some quarterly noise.

Daniel Perlin

Yes. No, I just wanted to clarify that because historically, I don't feel like it has maybe that much of a swing on the specific.

Ashima Ghei

Yes. (inaudible).

Daniel Perlin

Okay. That's great. And then, Tim, I just had a question for you. Again, you talked a lot about the market backdrop and the strength. What I'm wondering specifically, though, is as we think about maybe 2 things: one, kind of a potentially more robust M&A backdrop.
How does that flow into the business, all else equal, if these deals start to flow in over the next 6 to 9 months, you see a bunch of the stuff happening. Can you just remind us how that impacts your business and where it would show up kind of in the P&L? And then the other piece is just on the regulatory horizon. Are there any things that we need to be mindful of that could be changes with this new administration that could potentially impact your business, both good or bad as a whole?

Timothy Gokey

Yes. Dan, just first of all, on how increased capital markets activity, where it specifically flows into Broadridge. M&A really doesn't affect things that much, if there's a public company that goes away, I guess, that could reduce positions a little bit, but so much of this is private companies, as you know. IPOs is a nice sort of incremental positive that creates more positions. We do have a -- not a large business, but in serving corporate issuers, we do help them with the prospectuses and sort of things around the specific disclosure.
The other place is really on the event-driven side where sometimes with M&A if it needs to come to a shareholder vote, then we'd see activity there. And that can be a pickup. But it doesn't tend to be a hugely material piece. On the regulatory side, I think it is -- obviously, there's a lot going on with the new administration. I think all of us are looking at that and trying to understand the full impact.
There is sort of the positive market sentiment we just talked about, which for the reasons we just discussed is a positive. When we look at the administration's biggest priorities around taxes, tariffs, immigration, cultural issues, and those things are broadly neutral to our business. And they know they have a window to get things done. So they're very, very focused on those core issues. When you look at the things that are in our space, they're not really the primary issues for the administration.
However, it's going to be a broadly deregulatory environment. It will be a new environment. So I think we should anticipate change.
Some of the topic areas that we're certainly tracking digital assets, they are definitely -- probably will be action on digital assets that's an opportunity to make crypto more accessible to main street investors and that could create an opportunity for disclosure over time. So we're certainly tracking that. Likely probably action around reform with proxy advisory firms. We saw that in the previous Trump administration. Certainly, we're making may include everyone that we're not a proxy advisory firm, but also that sort of leads to -- leads to opportunities around shareholder engagement around a lot of inquiries around our shareholder voting platform and pass-through voting.
So those things could be some nice things.
And the last one is just continued progress on digitization, which as you know, we've invested in. So obviously, a lot going on. We'll know a lot more in coming quarters as the new SEC commissioner is approved. We do think that Paul Atkins is a strong choice to lead the SEC. He's been a commissioner before, very knowledgeable, very trusted by markets.
And then I'll just remind you that historically, we've worked with both sides of the aisles, really providing technical assistance and that when there's change, our clients need to adapt to it, and we help them with that.

Operator

And the next question comes from Peter Heckmann with D.A. Davidson.

Peter Heckmann

Most of my questions have been answered, but just a few little more housekeeping items. So even event-driven proxy revenue for the year, is that tracking towards the low $300 million range. Is that right? And then any reason why it wouldn't kind of revert back to a more normalized range in fiscal 2026? .

Ashima Ghei

Yes, I think your math is right, add up the 55 to 60 a quarter over the next couple of quarters. That's kind of where we are. The thing with event-driven is it's choppy, right? It's hard to predict exactly what it's going to be in any quarter or in any year. We typically have more visibility about event within the next 3 to 4 months.
But beyond that, I would expect '26 events to be in line with our average for the long-term averages.

Peter Heckmann

Okay. That's helpful. And then just in terms of the postage increase, I'm just trying to get a better feel of how that affects margins. When do you lap that postage rate increase? And are there others that are already planned that would drive distribution higher?
I guess, ex postage increase, would you expect distribution to kind of grow in the 3% to 5% range a year?

Ashima Ghei

Yes. So this time, for the quarter, like we shared, most of the distribution increase was driven by postage rate changes. The postage rate change came into effect in July. So we have been seeing it for a few months now. It's hard to predict exactly what the postage rate changes would be.
There was some discussion about something else may be coming through. It's hard for me to plan for. What I will say is, yes, if you exclude the impact of posted rate changes, we're looking at low single-digit growth in distribution as we continue to see more and more digitization, both on the regulatory side and on our customer communications side, we're seeing more digital growth than print.

Timothy Gokey

And Peter, we've been -- I think we've been sort of thinking about for probably a decade as to when will distribution grow ex postage turn negative. And I think the print to digital strategy of helping clients think about their future communications platform and what they want to do with that. So as they lose volume, the opportunity to take that over rationalize it, bring it to a new cloud-based platform that can do the remaining print as it runs off, but provide a much better digital experience than they've had before. That combination is one of the things driving our digital business. So you've heard us talk a lot about wealth and focus, but the other sort of big theme is working with clients sort of to help them with that transition.
And that does end up feeding more print volume into our platform at the initial stages of that.
And so despite what we thought would happen, the distribution piece has continue to remain positive.

Ashima Ghei

Yes. And I'll just close off because you mentioned margins, right? The expected impact of distribution is baked into our margin guidance, both as we think about the 20% margins on average as well as if we exclude the impact of it when we talk about the core margin expansion of 50 basis points plus.

Operator

Next question comes from Puneet Jain with JPMorgan.

Puneet Jain

I wanted to quickly follow up on the earlier question about the new administration's priorities. Like have you seen any change in your client behavior from potential deregulation specifically in your GTO segment? And if you can remind us like how -- like reduced level of regulations, how has that impacted client behavior and your GTO bookings?

Timothy Gokey

Yes, Puneet, it's Tim. Thank you for that question. It's -- I think it's too early to tell. I think our clients themselves are sorting things out. I think they are happy -- first happy with maybe some things that won't happen that were scheduled to happen.
Obviously, I think you know the clients have been very concerned about upcoming capital rules like the next phase of Basel III and other things that would significantly increase the amount of capital that they would have to carry and therefore, be real detriment to trading activity. So I think stopping or slowing down some of that is sort of -- is Phase 1. I think as you look at a more deregulatory environment, I think the other piece is the -- the environment has been so punishing for public companies over the past decade that there's been such a move to private assets. And I think some of the deregulatory motion here could could help that balance out a little bit between the advantage of being public versus being private. So I think there are lots of threats.
I think there are all things that will take a while to unfold.

Puneet Jain

Understood. And then like as you think about your capital budgeting plans for next fiscal year? How are you thinking about like M&A versus investments and for the investments, how should we think about ROI or like payback period of those investments?

Timothy Gokey

Yes. Let me just take that and I'll let Ashima add in. I think when you think about this, Puneet, we have to sort of segregate between between investments that are sort of part of our P&L and they go on our balance sheet versus M&A, which is sort of out of free cash flow and share buybacks. And so when you think about the former it's really around what's our investment capacity to continue to invest in the future, while delivering 100% free cash flow and good returns -- earnings returns to shareholders.
So we really sort of prioritize within that framework. As we think about the -- how we deploy our strong free cash flow, I think our principles for capital allocation are similar to what you're aware of from the past, a business model, strong free cash flow conversion remain investment grade and then we really think about balanced capital allocation with a clear priority of what do you need to invest internally according to that algos spoke about how to continue to grow our dividend with earnings. And then what's the balance between high-return M&A and the remainder in share buyback. And we're certainly seeing that play out this year. We think we'll see it play out next year.
Those pencils have been constant, and they have resulted in a pretty different mix at different times. But they've led over time to a nice balance between dividends, M&A, share buybacks. I think if you look at the M&A market right now, it is -- it's -- we've been excited with some of the things we've been able to do, like SIS. There are a lot of assets coming to market. But it's still very unclear what the clearing price for those would be and whether they would fit into our economic criteria.
So if you do see executing something, it's going to be because we found something really compelling, and we don't find something compelling. We're very comfortable buying back our shares.
So I think that was our last question. Is that right? Yes. Okay. So with that, I want to just thank everyone for being with us today.
Thank you for your interest in Broadridge. We are excited about the strong quarter we presented. We're excited about our future momentum, how we're continuing to work with our clients, our associates and delivering returns for our shareholders. And we look forward to talking to you again next quarter.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.