Edings Thibault:

Thank you, Andrea. Good morning, everybody. And welcome to Broadridge's fourth quarter and fiscal year 2024 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 Interim Chief Financial Officer, Ashima Ghei. Before I turn the call over to Tim, a few standard reminders. One, we'll 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 in 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 their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim.

Ashima Ghei:

Thank you, Tim. Great to be here.

Ashima Ghei:

Thank you, Tim. It's great to join all of you to discuss the strong results and to review our guidance for fiscal ‘25. Broadridge has a long track record of delivering strong and sustainable top and bottom line growth with strong shareholder returns, and this year was no different. Fiscal ‘24 recurring revenue grew 6% constant currency, and adjusted EPS grew 10%. Before I go through the results, I want to call out the key items that give me confidence that we are on track to deliver on our fiscal ‘25 guidance and our three-year growth objectives. First; sales and backlog. Record closed sales of $342 million drove a 13% increase in revenue backlog, giving us strong visibility into our revenue growth in fiscal ‘25 and ‘26. Second, position growth. Equity position growth was 6% in ‘24, and fund position growth was 3%. Our current testing shows a modest improvement in those trends with continued mid-to-high single-digit growth in equities and mid-single-digit growth in funds. Third; expenses, investments and margins. We have a long history of driving operating leverage. This quarter, we completed a restructuring initiative that will position us to continue to fund long-term growth investments, grow core margin and deliver earnings growth. Fourth and last, capital allocation. In fiscal ‘24, we repurchased 2.3 million shares for $450 million and have recently announced three tuck-in M&A investments. That capital will contribute directly to our top and bottom line growth. These four areas position us well to deliver our three-year financial objectives and our fiscal ‘25 guidance which calls for 5% to 7% recurring revenue, constant currency growth, almost all organic and 8% to 12% adjusted EPS growth. With that let's go through the numbers on Slide 8. Fiscal ‘24 recurring revenues grew to $4.2 billion up 6% on an organic constant currency basis. Adjusted operating income grew 9%. Adjusted EPS grew 10% to $7.73 and we reported record closed sales of $342 million which drove our recurring revenue backlog to $450 million. Turning now to the fourth quarter headline numbers. Recurring revenue grew 5% on a constant currency basis to $1.3 billion. Adjusted operating income grew 5% and AOI margin was 28.8%. Adjusted EPS rose 9% to $3.50 and closed sales rose 74% to a fourth quarter record $157 million. Moving to Slide 9, fourth quarter recurring revenue rose 5% to $1.3 billion driven by a combination of converting revenue from sales and mid-single digit position growth. For the full year recurring revenue growth was 6% essentially all organic and in line with our three-year organic growth objective of 5% to 8%. Let's turn to the next slides to review the growth across our ICS and GTO segments. In Q4 ICS recurring revenue grew 6% powered by growth across all four product lines. We also saw the benefit of the timing delays we'd called out in our Q3 results which added 1 point to fourth quarter growth. For the full year ICS recurring revenues were up 5% to $2.6 billion. Regulatory revenue grew 7% in Q4 and 5% for the full year in line with position growth. Looking ahead we expect continued mid-single digit revenue growth in fiscal ‘25 in line with our position testing. Data-driven fund solutions revenue increased by 7% in the fourth quarter and for the full year driven by growth in retirement and workplace solutions and our data and analytics products. The acquisition of AdvisorTarget which closed on June 1st made a very modest contribution to growth. Issuer revenue grew 5% in Q4 and 7% for the full year led by growth in our registered shareholder solutions and disclosure products. Customer communications recurring revenue rose 3% in the fourth quarter and 2% for the full year as we continue to execute our print to digital strategy. Digital revenues grew double digits for both the quarter and the year. We expect customer communications growth to accelerate in fiscal ‘25 driven by a combination of digital growth and new client wins. Looking ahead to fiscal ‘25 we expect stronger ICS recurring revenue growth driven by revenue from strong fiscal ‘24 sales, continued mid-single digit position growth and strong growth in digital which will more than offset the loss of 33 revenues and lower float income. Turning to GTO on Slide 11, Q4 recurring revenue growth was 4%. For the full year GTO revenues grew 8% to $1.6 billion. At the high end of our three year 5% to 8% organic growth objective, driven by strong growth across both our capital markets and wealth businesses. Capital markets revenue grew 6% in the fourth quarter. Strong growth in revenue from sales and higher trading volumes more than offset lower license revenue. Full year revenues increased 8% powered by strong growth in BTCS and revenue from sales from new global post-trade clients. Wealth and investment management revenue increased 7% for the full year. Fourth quarter growth was flat, as revenue from new sales was offset by the E-Trade deconversion and lower license revenue. We expect the impact of E-Trade will continue to weigh on the wealth and investment management growth through the first half of fiscal ‘25, especially in the first quarter. Looking ahead to fiscal ‘25, we expect GTO revenue growth to be at the low end of our 5% to 7% recurring revenue guidance range, with stronger growth in capital markets and lower growth in wealth and investment management. Excluding the impact of E-Trade, wealth and investment management growth would be at the higher end of the 5% to 7% recurring revenue guidance. Now, let's turn to slide 12 to review volume trends. Position growth returned to mid to high single digits for both equities and funds in the fourth quarter. Equity position growth rose to 7% in the fourth quarter, in line with our testing. Full year growth was 6%, driven almost entirely by double digit growth in managed accounts. Our fiscal ‘25 first half testing continues to show healthy mid to high single digit growth. Fund position growth metric rebounded to 6% in the quarter. Full year fund position growth was 3%, driven by growth in passive funds and double digit growth in money market funds. Fund flows have strengthened in recent months and our current testing of underlying fund positions is indicating a modest pickup to between 4% to 5%. Turning to trade volumes, trade volumes grew 15% on a blended basis in Q4, driven by both higher fixed income and equity volumes. For the full year, trading volumes were up 13%. Let's now move to Slide 13 for the drivers of recurring revenue growth. For the quarter, recurring revenue growth was 5%, virtually all organic, and balanced between net new business and internal growth. Revenue from closed sales provided 5 points of growth. Our recurring revenue retention rate was 97% for the quarter and for the full year. Adjusting for the E-Trade deconversion, retention rates remained at 98%. And internal growth, primarily positions and trading volumes contributed 3 points. Lastly, we closed two small acquisitions in our ICS segment. Advisor target contributed less than 5 basis points to fourth quarter revenue growth and CompSci closed at the beginning of July. We expect these two acquisitions will contribute approximately 20 basis points to fiscal ‘25 recurring revenue growth. I'll finish the guidance on revenue on Slide 14. Total revenue grew 6% in Q4 to $1.9 billion, and recurring revenue was the largest contributor, with 4 points of growth. Event-driven revenue was $76 million and contributed 1 point to Q4 growth. Event-driven revenue benefited from higher levels of mutual fund proxy and equity contest activity versus the fourth quarter of last year. Low to no margin distribution revenue increased 4% and contributed 1 point to total revenue growth, driven by higher postal rates. Remember, these have a dilutive impact on our adjusted operating income margin. So let's turn to margins on Slide 15. Adjusted operating income margin for Q4 was 28.8%, as the positive impact from operating leverage was offset by the timing of annual expenses. On a full-year basis, adjusted operating income margin was 20%, up 20 basis points from fiscal ‘23. The combination of operating leverage and the benefits from our fiscal ‘23 restructuring enabled us to absorb the deconversion of E-Trade and higher amortization from our wealth platform, while increasing our investments in long-term growth and meeting our earnings objectives. The net impact of higher float revenue and distribution, which have little impact on earnings, increased margins by 30 basis points. During the fourth quarter, we completed the restructuring program we began last year to realign some of our businesses and streamline our management structure. We incurred $56 million in fourth quarter charges, which were not included in our calculation of adjusted operating income and adjusted EPS. We estimate that these actions will generate over $100 million in annualized cost savings, which will position us to fund investments, further scale our business, and deliver earnings growth. Rounding out the fourth quarter non-GAAP items, I would also note that we incurred $10 million in charges to settle various legal matters. Let's move ahead to closed sales on Slide 16. Broadridge had a very strong sales year. Fiscal ‘24 sales rose 39% to a record $342 million, driven by a very strong fourth quarter, where closed sales grew 74% to $157 million. As you heard from Tim, we benefited from strong sales of our tailored shareholder report solutions and digital, as well as strong growth across both our capital markets and wealth and investment management solutions. These strong sales lifted our revenue backlog to $450 million, equal to 11% of our fiscal ‘24 recurring revenue. I'll now turn to cash flow on Slide 17. Broadridge generated free cash flow of $943 million in fiscal ‘24, up 26% from fiscal ‘23. Free cash flow conversion increased to 102% from 90% in Fiscal ‘23 and 42% in ‘22, returning to a more historic levels after a period of higher investment. We expect free cash flow conversion of approximately 95% to 105% in fiscal ‘25. Let's move next to capital allocation on Slide 18. We continue to take a balanced approach to capital allocation. In Fiscal ‘24, we made platform investments of $41 million and deployed $113 million on capital expenditures and software spend. Fiscal ‘24 also marked a return to tuck-in M&A. In total, we enhanced our data and analytics solutions with the $35 million acquisition of Advisor Target and closed the smaller acquisition of CompSci on July 1 to augment our issuer capabilities. In May, we announced the proposed acquisition of SIS from Kyndryl for approximately $200 million. SIS is a leading Canadian wealth and capital markets technology platform with annual revenues of $80 million to $85 million. The acquisition is expected to close during the first half of our fiscal year and will not have a significant impact on our margins or adjusted EPS during the first year of operation. Given the inherent timing, uncertainty of regulatory review, we have not included it in our guidance. We will add SIS to our Fiscal ‘25 guidance after it closes. After internal and external investments, we return excess capital to shareholders. We returned $781 million to shareholders in Fiscal ‘24 through a combination of dividends and share repurchases. During the fourth quarter, we repurchased $300 million of shares, bringing our total gross repurchases in Fiscal ‘24 to $450 million. Finally, we repaid $60 million of debt, ending the year with a 2.2x leverage ratio, below our long-term target of 2.5x. Last night, our Board approved a 10% dividend increase to $352 per share. As Tim noted, this is our 12th double-digit increase in the last 13 years, which emphasizes both, our sustained earnings growth and our long-term commitment to balanced capital allocation. I'll close my prepared remarks this morning with some detail on our guidance on Slide 19. We expect another year of sustainable recurring revenue growth, core margin expansion, strong adjusted EPS growth, and very healthy closed sales in fiscal ‘25. Let me walk through each of those points, starting first with revenue. We expect recurring revenue growth constant currency of 5% to 7%, almost all organic, driven by new sales as we onboard our $450 million revenue backlog. We expect ICS recurring revenues to be at the higher end of that range, with GTO lower. We expect event-driven revenues to be at the high end of our historic range, driven by a proxy campaign at a major mutual fund complex in our second quarter. Distribution revenues are forecast to grow at low double-digit rate, powered by higher postage rates and stronger BRCC print volume. We expect these low-to-no margin revenues to have a dilutive impact on our reported margins. Second, let's move to margin. We expect adjusted operating income margin will be approximately 20%. We anticipate the combination of higher operating leverage and disciplined expense management will enable us to deliver over 50 basis points of underlying core margin expansion, in line with our three-year financial objectives. We expect this to be partially offset by the impact of higher distribution revenues and lower float income. Third, EPS. We expect adjusted EPS growth of 8% to 12%. Embedded in this outlook is an expected tax rate of 21%. Fourth, we expect another year of strong closed sales. Our guidance range of $290 million to $330 million reflects continued growth from our fiscal ‘24 results, excluding sales of tailored shareholder report solutions. And lastly, I will remind you that our guidance does not include the impact of SIS. Taken together, our Fiscal ‘25 guidance highlights the strength of the Broadridge business model. Now before I conclude, let me offer some insight on our first quarter. We expect our first quarter earnings will account for 10% to 11% of our full year adjusted EPS, at the low end of our historical range, driven in part by lower event-driven revenue versus Q1 of ‘24 and the E-Trade impact. So let's wrap up with a quick summary of the key takeaways from our strong fiscal ‘24 results. First, Broadridge delivered another year of strong and sustainable recurring revenue and adjusted EPS growth. Second, our record closed sales highlight the strong demand for our solutions and give us increased visibility into future growth. Third, we are putting our strong free cash flow to work for shareholders, with another double-digit dividend increase, strategic and value-creative acquisitions, and share repurchases. Finally, Broadridge is poised to deliver another strong year in Fiscal ‘25, keeping us well on track to achieve our three-year growth objectives for the fourth consecutive cycle. With that, let's move to Q&A.

Dan Perlin :

Thanks. Good morning. Tim, I just wanted to ask you, and you touched on this a little bit in the prepared remarks, but we are seeing a pretty material uplift in volatility here, and I appreciate the recurring revenue model. The question is really, in times where we’ve seen this kind of volatility in the past. What have kind of the client behaviors been, and how has the business kind of performed, and are there things structurally different about the business today that you think if we look at other historical periods where we had this heightened volatility, we might have more stable hands, so to speak, this quarter around? Thank you.

Dan Perlin:

That's great. Thank you so much.

Darrin Peller:

Guys, thanks. And Ashima, congrats, and welcome to the call. I just want to touch base on the strength in bookings trends. I think you hit $340 million in closed sales for fiscal ‘24, which was above the range. I think the midpoint you had said was $300 million for the year. So just, maybe just revisit what – if you take it a step back and revisit the key drivers and the strength, and then really where you are seeing in demand right now, going forward in terms of drivers and areas of real demand for the new bookings and new closed sales.

Darrin Peller:

All right. Very good. Thanks guys.

James Faucette:

Great. Thank you very much. I wanted to ask on wealth. It seems like on the wealth front, you alluded to strong pipeline growth for some of the new wealth management solutions. Are you still on track to deliver the $20 million to $30 million of incremental module sales, and how should we be thinking about incremental opportunities down the road there?

James Faucette:

That's great. Thanks.

Puneet Jain :

Yeah, hi. Thanks for taking my question. It seems like the advisor target and CompSci deals are different from your prior or typical deals. As you noted, they are both small tuck-in in nature, as well as both of them are in digital areas. Should we expect more deals like this as your M&A priority over the near term?

Puneet Jain :

Okay. Thank you. Then quickly if I can ask, like, is the duration of backlog, $450 million, any different from what it generally is and that has been in the past?

Tim Gokey :

And Puneet, I'd just add that when you look at the revenue, and this is part of the prepared remarks, but the backlog as a share of recurring revenue, it's 11% this year. If you look back last year, it was 10%. So it's not dramatically different but incrementally better.

Operator:

The next question comes from Patrick O'Shaughnessy of Raymond James. Please go ahead.

Ashima Ghei :

Thanks Patrick. I'll take that one. So you know this, Broadridge has a long history of being able to fund long-term investments, while delivering on our earnings objectives, and margin expansion is a super important part of that story. We've delivered on average 80 basis points of annual margin expansion over the last 10 years. Having said that, we do see margin expansion as a means to an end. What we are really focused on, is on delivering sustainable double-digit earnings growth, while investing in our long-term growth opportunities, both of which we effectively achieved in fiscal ‘24 and is what we are guiding towards for fiscal ‘25. So as we think about fiscal ‘25, you are right in pointing out, we're guiding to 20%. We do expect to see the impact of float income coming in lower. We've factored in a couple of rate cuts into our estimate. We expect the impact of distribution. But we do expect the benefits from the restructuring program that we just did and core margin expansion to allow us to fund our long-term growth investments, still getting us right on track with the 8% to 12% sustainable earnings growth.

Patrick O'Shaughnessy:

Perfect. Thank you. And then just a quick clarifying question. So the 5% to 7% recurring revenue growth outlook for the year, that embeds 0.2% contribution from the two smaller tuck-ins and nothing from the SIS deal. Do I have that correct?

Patrick O'Shaughnessy:

Thank you.

Tim Gokey :

Yeah, thank you operator. As you can tell, we believe that the Broadridge business model is resilient. That resulted in strong fiscal ‘24 results with outlook for another strong year in fiscal ‘25 and for a three-year period. We believe we're executing on a growth strategy. We have long-term trends behind us that we're very well positioned in a $60 billion and growing market. Thank you very much for your interest in our company. We look forward to reporting our next set of results to you later this fall.

Edings Thibault:

Thank you, Andrea. Good morning, everybody, and welcome to Broadridge's third quarter fiscal year 2024 earnings conference call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our Chief Executive Officer; and our Chief Financial Officer, Edmund Reese. Before I turn the call over to Tim, a few standard callouts. One, we'll 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 their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you, Tim, and good morning, everyone. Let me start by saying that I'm pleased with the third quarter results relative to our full year guidance. While third quarter recurring revenue growth was impacted by the timing of annual meetings, we are entering the seasonally larger fourth quarter in a strong position. Through three quarters, we reported 6% recurring revenue growth, 11% adjusted EPS growth, and have received 98% of proxy records through April. That gives us a high confidence interval in our ability to deliver 6% recurring revenue growth, approximately 20% adjusted operating income margin and adjusted EPS growth of approximately 10%. Of equal importance is our cash flow performance for the year. We are on track for 100% free cash flow conversion, which will allow us to return a total of $700 million to $800 million to shareholders through the dividend and with share repurchases of $350 million to $450 million. So, with clarity on fiscal 2024, in my view, what matters most to achieving our three-year financial objectives are the wins that we have at our back, which are driving positive momentum in the business. First, closed sales through the first three quarters are up 19% over last year. And our healthy pipeline reinforces our conviction that we will achieve 15% to 30% sales growth in our full year '24 guidance. Second, while our testing shows 6% equity and 3% fund and ETF position growth for full year '24, the early testing for Q1 '25 is consistent with more recent increased retail market activity and our long-term outlook of mid to high single digit growth. Third, we continue to focus on actively managing our expenses and finalizing our restructuring effort in the fourth quarter to create investment capacity for organic growth in fiscal '25 and '26, while delivering continued earnings growth. Finally, our free cash flow conversion is definitively back at historical levels, positioning us to supplement our organic growth with accretive tuck-in M&A or return capital to shareholders. As a result, when I look ahead, I see strong momentum in the Broadridge business. Strong closed sales, driving five to eight points of growth from new sales, position growth supporting two to three points from internal growth, M&A investment contributing additional growth, and active expense discipline that will enable Broadridge to continue to invest in organic growth and deliver continued earnings growth. We continue to execute the Broadridge financial model and that gives me confidence that we remain on track to deliver again on our three-year financial objectives and on mid- to high teens ROIC. So, now turning to the financial summary on slide six. You see the performance for the third quarter. Recurring revenue rose to $1.1 billion, up 4% on a constant currency basis, all organic. Adjusted operating income increased 7%. And AOI margins of 21.4% expanded 40 basis points. And adjusted EPS rose 9% to $2.23. Finally, as Tim noted, we delivered third quarter closed sales of $80 million, up 29% over Q3 '23. On slide seven, you see that recurring revenue grew 4% to $1.1 billion in Q3 '24. Recurring revenue growth driven by converting our backlog to revenue and growth in GTO was impacted by proxy communications that were delayed into our fiscal Q4. So, for more context on this point, March is typically a heavy month for proxy communications, accounting for almost a quarter of our full year positions. As Tim mentioned, in 2024, we saw a modest delay in the timing of annual meetings, which pushed volumes from March into April. While that lowered our Q3 revenue, we have since processed virtually all of those delayed positions, and that will benefit regulatory revenue in the fourth quarter. On slide eight, we can see recurring revenue growth across our ICS and GTO segments. In Q3, ICS recurring revenue grew 1% largely impacted by the quarterly noise that I just mentioned. Regulatory revenue was flat as mid single digit equity position growth in revenue from sales were partially offset by the timing of the annual meetings. As I explained earlier, while these timing variances have no real impact on full year revenues, they can result in quarters that vary from our reported position growth. We continue to expect full year regulatory revenues to be in line with mid single digit position growth. Data driven fund solutions revenue increased by 4% due to higher float revenue in our retirement and workplace products as well as growth in our data and analytics products. Issuer revenue was up 3% driven by strong sales of our disclosure solutions and higher float income in our registered shareholder solutions. Our Q3 registered shareholder solutions were also impacted by the timing of the annual meeting cycle. So, I will note that the issuer business has grown 10% year-to-date and we still expect high single digit full year revenue growth. Customer communications revenue rose 1% as growth in higher margin digital revenue was offset by the lower growth of lower margin print. We expect volumes to increase in the fourth quarter as we onboard new clients. For the full year, we expect low single digit top line growth driven by double-digit growth of higher margin digital revenue and low single digit print growth. This is in line with our print-to-digital strategy, which should yield expanding margins and continued low double-digit earnings growth. Looking ahead to Q4, we expect ICS at the high-end of our organic growth objectives, with recurring revenue growth of 7% to 9%, driven in part by the benefit of timing differences. Turning to GTO. Recurring revenue grew 9% to $425 million. Capital markets revenue increased 8%, led by new sales in higher equity and fixed income trading volumes. I will also note that we continued to see strong performance in our front office BTCS solutions, which again had double-digit recurring revenue growth in the third quarter. Wealth and Investment Management revenue grew 11%, powered by the UBS contract and higher license revenue, partially offset by the E-Trade transition, which began late in the fiscal first quarter. Looking ahead, we continue to expect capital markets growth in the fourth quarter to be impacted by growing over high Q4 '23 license revenue. And we will also have another full quarter impact from the E-Trade transition in our wealth business. That said, GTO recurring revenue growth is 9% year-to-date, giving us high confidence that full year growth will be well within our 5% to 8% organic growth objectives for both businesses. Turning to slide nine for a discussion of volume trends. Equity position growth was 5% in the quarter, in line with our testing. Growth was driven by continued double-digit growth in managed accounts. We are now in the peak period for annual meetings and proxies. And through the end of April, we've received record data for 98% of proxies that are expected for the year. This data gives us high confidence in our outlook for position growth. For the full year, we expect equity position growth of approximately 6%. And while still early, our testing data is extending in the Q1 '25 and is showing mid single digit growth, continuing to support our outlook for mid to high single digit equity position growth. We continue to be encouraged by expanding investor participation in financial markets serving as a long-term tailwind that drives growth in our business. Fund and ETF positions declined by 1%. For the full year, we expect position growth of 3% with slower growth in passive funds and declines in active funds. Turning now to trade volumes on the bottom of the slide. Trade volumes grew 11% on a blended basis in Q3. Once again, we saw a difference in asset classes with increased volatility driving double-digit fixed income volume growth, now 11 consecutive quarters, and more modest equity volume growth. Let's now move to slide 10 for the drivers of recurring revenue growth. Recurring revenue grew 4% constant currency. Revenue from net new business contributed three points of growth. Internal growth, primarily trading volumes, expanding client relationships and float income, offset by the timing of proxy communications, contributed one point. Foreign exchange had a non-material 20 basis point positive impact on recurring revenue growth and based on current rates, we expect a similar benefit in full year recurring revenue growth, relative to fiscal year '23. I'll wrap up the revenue discussion with a view of total revenue on slide 11. Total revenue grew 5% in Q3 to $1.7 billion, with recurring revenue being the largest contributor, delivering three points of growth. Low to no margin distribution revenues contributed one point to total revenue growth. Distribution revenue grew 4% due to postal rate increases, which are a headwind to our adjusted operating income margin. We continue to expect distribution revenue to grow in the high single digit range, driven by the continued impact of postal rate increases. Event driven revenue was $67 million, up 29% over last year and adding one point to revenue growth. As anticipated, we saw more normalized levels of mutual fund proxy activity and elevated contest activity, including our work with Disney in Q3. With the combination of increased mutual fund proxy activity and higher contest activity, we now expect $260 million to $280 million in full year event driven revenue. In our Q2 call, we mentioned that we expected event driven revenue to trend above our historical levels for the full year. We modestly increased growth investments in Q2 based on the above trend event driven revenue. We continue to make investments in Q3 as we are committed to investing in long-term growth, while still delivering on our short-term fiscal '24 adjusted EPS guidance. Turning now to margins on slide 12; adjusted operating income margin was up 40 basis points from prior year to 21.4%. The net impact of higher distribution revenue and higher float income, which have an immaterial impact on earnings growth as I detailed at Investor Day, increased margins by 20 basis points in the quarter. Adjusted operating income margin continued to benefit from the operating leverage on our higher recurring and event revenue and the benefit from our restructuring initiative that we began in Q4 '23 to realign some of our businesses and streamline our management structure. As part of the initiative, we exited a small non-core GTO business in Q3 '24 and we remain on track to complete the restructuring initiative and have the remaining restructuring charge by the end of the fiscal year. The restructuring charges are excluded from our calculation of adjusted operating income and adjusted EPS. We have a long track record of disciplined expense management. This discipline, along with the operating leverage inherent in our business model, allows us to invest in long-term growth investments and meet our earnings growth objectives. Looking ahead, we continue to expect adjusted operating income margin to increase year-over-year to approximately 20%. Let's move ahead to closed sales on slide 13. Third quarter closed sales were $80 million, up 29% from $62 million in Q3 2023, and bringing our year-to-date total to $185 million, 19% above Q3 year-to-date '23. Our strong performance on closed sales has been in product areas where we've been investing and innovating, such as tailored shareholder reports, BTCS, and wealth. We continue to see clients willing to invest in areas that either drive revenue, lower cost or address regulatory requirements. With the performance through three quarters and our five-year history of closing on average 40% of full year sales in the fourth quarter, we continue to have high confidence in meeting our full year guidance of $280 million to $320 million, again, strengthening our revenue backlog and providing strong momentum entering fiscal year '25. I'll turn now to free cash flow on slide 14. Q3 '24 free cash flow was $167 million, $5 million better than last year. Through three quarters, free cash flow is a positive $259 million, relative to $47 million in the first nine months of 2023. These results are being driven by our continued strong earnings growth and lower client platform spend. Free cash flow conversion was 108% in Q3 '24, up from 63% last year. This is consistent with our expectations and has us on track for free cash flow conversion of 100% for fiscal year '24. On slide 15, you can see that over the first nine months of the year, we invested $109 million on our technology platforms and converting clients to our platforms. Additionally, before option proceeds, we returned $424 million in capital to shareholders due to dividend and share repurchases year-to-date. And given our expectations for 100% free cash flow conversion, we are positioned to return additional capital to shareholders in fiscal year '24. We continue to estimate $350 million to $450 million in total share repurchases for the full year, which includes an additional $200 million to $300 million in the fourth quarter. And let me put this into context for you. While we are still early in this current fiscal '24 to fiscal '26 three-year cycle, our capital allocation is unfolding right in line with our expectations. As I said at Investor Day, we are in a strong capital position, on track to generate approximately $3 billion of free cash flow, with another $1 billion available at our 2.5 times leverage objective. After the dividend, we are off to a strong start, balancing investment for growth with capital return to shareholders, which we expect to reach $700 million to $800 million this year and we remain well-positioned to execute accretive tuck-in M&A. We expect that this balanced capital allocation will increase ROIC to mid to high-teens level over the next three years. Turning to guidance on slide 16. We continue to execute the Broadridge financial model in fiscal '24. With two months left and high visibility in the fiscal '24 position growth, we expect recurring revenue growth constant currency to be approximately 6% for the full year, at the low end of our guidance range. We continue to expect AOI margin expansion to approximately 20%. Adjusted EPS growth at the middle of our 8% to 12% range, and closed sales of $280 million to $320 million and I'll also note that we remain on track to drive 100% free cash flow conversion and have capital return of $700 million to $800 million through dividends and share repurchases in fiscal 2024. To bring all of this together and highlight what it means to our financial objectives, I will conclude by emphasizing what I said earlier. First, the results through the third quarter and the visibility into the fourth quarter, give us confidence in delivering a fiscal 2024 in line with our guidance, marking a strong start to the fiscal '24 to fiscal '26 three-year cycle. Second, we have positive momentum in our business, including strong sales demand, growing investor participation, the actions we are taking to create investment capacity and sustain our steady and consistent growth, additionally, we have the capital capacity for accretive tuck-in M&A to supplement our organic growth. Finally, those two items, fiscal year '24 performance and positive forward momentum, position us to deliver on our three-year financial objective. And with that, let's take your questions. Andrea?

Tim Gokey:

David, thank you very much. It's Tim and thank you for the question on AI. It's an area that we're pretty excited about, as you know and we have talked about being a leader in AI in our space. We've talked about how we're bringing that to -- really into all of our products. We think in the future, every product will be part -- will have AI as part of it and then to introduce commercial products as well and use it for internal efficiency, and do all that in a safe way. We are really pleased by the progress of OpsGPT and BondGPT. With OpsGPT, we're in production with our first client and we're actively engaged with another five. BondGPT, we have three proofs-of-concepts underway, eight additional discussions. So there's lots of good activity around those. We're also doing things in the asset management side with our global demand model, where we have six of the largest 50 asset managers already signed up and an additional 10 of the largest 100 in contracting. So, I think people are really attracted to these use cases. When we see sort of the biggest areas going forward, I think it's really deepening in these sort of unique areas that -- where it really makes sense for us to be the one to invest. It doesn't make sense for others to invest in the sort of depth of capital markets or in some of these marketing areas in asset management and we think there's real opportunity for us there. We're excited about how it's going to drive things in the fixed income world. When you think about this in the future, it's really there will be a commodity part of it where it's part of just having a good product, and then there will be a more exclusive part of it where, if you have proprietary data, you can really leverage something and create something unique and we think there are definitely areas where we have proprietary data. So we continue to be excited about AI. It will be a while for it to sort of begin to show in the economics, but we begin to be excited about it. I think on the M&A side, let me just turn to that, I think that's a really important question and David, as you know, our growth is primarily organic and we have a long runway for that with the $60 billion market opportunity and as you know, our three-year objective for M&A is sort of one point to two points and we've been on this sort of pause post our BTCS acquisition, but now as you point out, having reached our leverage and our free cash flow conversion goals, we do have flexibility to invest. And I think in past calls, I have been cautious about buyers and sellers coming together on price and I do think now, looking at the market that, that logjam is beginning to break up. We are beginning to see more tuck-in opportunities that have the potential to meet both our strategic and financial criteria and as you know, we always look for opportunities that tightly align with our strategy where we're the right owner and that's IRR sort of in the really attractive mid-to-high teens well in excess of our cost of capital. So we do think that there will be opportunities this year. We think there'll be opportunities when you look across the areas that we do. Wealth management has some very interesting things going on. Data and analytics have some very interesting things going on and we're beginning to see all the PE firms really polishing up their properties to make them look attractive to strategics like ourselves and so we think there will be a stream of opportunities. We'll be very, very selective. If you see us do something, you'll know that we're doing it because it's very attractive and will -- and enough opportunities out there that we can be very disciplined in doing things that we think will have very good returns for shareholders.

David Togut:

Understood. Thanks so much, Tim and Edmund.

William Vu:

Hey guys. Thanks for taking my questions. This is Will on for Darrin here. I had two related to some of the bookings trends. First and foremost, you guys in the past have talked about some of the underlying bookings being more -- or being less transformative. And I was curious as to if you guys can comment on some of the more recent characteristics within your pipeline. Are you seeing any deal sizes expanding or any of that. And then my second question being, as we look on the wealth management side, kind of curious how -- what opportunities are really resonating with some of your prospective customers that you're seeing on this end? Thanks.

William Vu:

That's great. Thanks.

Patrick O'Shaughnessy:

Hey. Good morning, guys. When you kind of think about the factors that are driving 6% recurring revenue growth this fiscal year as compared to the high end of your range of 9%, what are the factors that are kind of resulting in revenue coming towards the lower end of the range and then how does that inform your outlook point for next year?

Patrick O'Shaughnessy:

Yeah. I appreciate that. A quick follow-up. Just to make sure I'm understanding your commentary on timing and shareholder meetings getting pushed into April from March. So that would show up in the regulatory revenues line and the issuer revenues line, but no impact to data driven fund solutions or customer communications. Am I understanding that correctly?

Patrick O'Shaughnessy:

All right. terrific. Thank you.

Operator:

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Edings Thibault :

Thank you, Jamie, and good morning, everybody, and welcome to Broadridge's second quarter fiscal year 2024 earnings conference call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our CEO; and our Chief Financial Officer, Edmund Reese. Before I turn the call over to Tim, a few standard call-outs. 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. With that, let me now turn the call over to Tim Gokey. Tim?

Edmund Reese :

Thank you, Tim, and good morning, everyone. I'm really pleased to be here to discuss the results for the second quarter. But before moving into the detailed review, it's important to highlight with the first half signals. For the seasonally larger second half and full year fiscal '24. First, we continue to execute the Broadridge Financial model in the second quarter results have us right on track to deliver another strong year of recurring revenue growth, margin expansion and adjusted EPS growth, right in line with our guidance. Second, strong free cash flow of positive $91 million through 2 quarters highlights the capital-light nature of our business and increases our confidence and our 100% free cash flow conversion objective in fiscal '24. Third, the combination of strong free cash flow and modest M&A in fiscal '24, means that we expect higher capital return to shareholders through increased share repurchases in the second half of fiscal '24. And finally, the demand for our products is strong. First half sales were up 12% over last year, and our pipeline and current client discussions reinforce our conviction that we will meet our full year objectives. Additionally, our equity position testing shows mid-single-digit growth for the full year. So we continue to be encouraged by expanding investor participation in the financial markets, serving as a long-term tailwind for our business. These 4 items are the meaningful and significant signals from our results and the performance through the first half. So now turning to the financial summary on Slide 6, you see the performance for the second quarter. Recurring revenues rose to $899 million, up 6% on a constant currency basis, all organic. Adjusted operating income increased 1% as we modestly increased growth investments given above-trend event-driven revenue. AOI margin declined 100 basis points to 12.4%. Adjusted EPS was up 1% to $0.92. And finally, we delivered closed sales of $58 million in the quarter, bringing our first half total to $106 million up 12% over the first half of fiscal '23. Let's get into the details of these results, starting with recurring revenue on Slide 7. Recurring revenue was within our full year guidance range and grew 6% to $899 million in Q2 '24. Our recurring revenue growth was driven by a combination of converting our backlog to revenue, fund position growth in ICS and double-digit trade volume growth in GTO. And on Slide 8, we can see recurring revenue growth across our ICS and GTO segments. ICS recurring revenue grew 6% to $493 million, driven by new sales, position growth and float income. Regulatory revenue grew 8%, led by healthy fund and equity position growth and revenue from new sales. Data-driven Fund Solutions' revenue increased by 9% due to higher float revenue in our retirement and workplace products as well as growth in our data and analytics products. Issuer revenue was up 15%, driven by higher float income in our registered shareholder solutions and revenue from strong sales of our disclosure solutions. Customer Communications revenue was flat, with strong growth in higher-margin digital business was offset by a decline in lower margin print revenues. We expect print volumes to increase in the second half of fiscal '24 as we onboard new clients. And I will again pause here to note that customer communications continues to execute on its print to digital strategy, replacing declining print volumes with higher-margin digital revenues. Over the long term, we expect the combination to result in low single-digit top line growth with expanding margins and continued low double-digit earnings growth. Turning to GTO. Recurring revenue grew 8% to $405 million. Capital markets revenue increased 10%, led by new sales in equity and fixed income trading volume growth. I'll also note the continued strong performance in our front office BTCS solutions, which again had double-digit recurring revenue growth. Wealth and investment management revenue grew 4% as revenue from the UBS contract was partially offset by the successful transition of E-Trade to the Morgan Stanley platform. which occurred late in the fiscal first quarter. Looking ahead, we continue to have high confidence in both businesses and full year GTO growth being in line with our 5% to 8% organic growth objective. With second half growth in both capital markets and wealth more weighted to the third quarter, driven by the timing of license revenues relative to last year. Turning to Slide 9 for a discussion of volume trends. Position growth for both equity and funds remained at healthy levels in the second quarter. The long-term trends that we highlighted at Investor Day, more investor participation in financial markets and more positions per investor underpin that growth. Equity position growth was 6%, driven primarily by double-digit managed account growth and more modest growth in self-directed accounts. As we approach the spring proxy season, which typically generates over 80% of our equity communications, our testing is now extending into the second half of the year, giving us insight on the full year relative to our mid- to high single-digit range. Equity position testing shows mid-single-digit growth for the second half of the year. As a result, we now expect mid-single-digit position growth for the full year of fiscal '24 keeping us on track to deliver our guidance of 6% to 9% recurring revenue growth. Mutual fund and ETF position growth improved from Q1 '23 to 5%, again driven by passive funds. We expect to see continued mid-single-digit growth for the second half of the year. And turning now to trade volumes on the bottom of the slide. Trade volumes rose 12% on a blended basis with strong growth in fixed income trading volumes, which benefited our capital markets revenue. And let's now move to Slide 10 for the recurring revenue growth drivers. Recurring revenue growth of 6% constant currency was all organic and in line with our 5% to 8% 3-year organic growth objective. As I mentioned during Investor Day, we have a decade-long history of delivering 6 points or better of revenue from closed sales each year. In Q2 '24 had 8 points of contribution with 6 points in ICS and 10 points in GTO, including a boost from wealth management. With continued high retention from existing customers, revenue from net new business contributed 4 points of growth. Internal growth contributed 2 points to recurring revenue growth, including 1 point from position growth. Foreign exchange had a 0.5 point benefit on recurring revenue growth. So I'll wrap up the revenue discussion with a view of total revenue on Slide 11. Total revenues grew 9% in Q2 to $1.4 billion, with recurring revenue being the largest contributor powering 4 points of growth. Low to no margin distribution revenues contributed 3 points to total revenue growth. Distribution revenue grew 9%, primarily due to postal rate increases which are a headwind to our adjusted operating income margin. We continue to expect distribution revenue to grow in the high single to low double-digit range, driven by further postal rate increases. Event-driven revenue was $55 million and added 1 point to growth. As anticipated, we saw more normalized levels of mutual fund proxy activity compared to lower levels in Q2 '23, driving a 47% increase in event-driven revenue over last year. I will also note that while contest activity is immaterial through the first half of the year, we expect the combination of increased mutual fund proxy activity and higher contest activity will now have us trending modestly above our historical $230 million to $250 million level for the full year. As I mentioned earlier, we have the flexibility to ramp up or ramp down investments based on performance, and we modestly increased growth investments in Q2 based on the above trend event-driven revenue. We are well positioned to stay committed to investing in long-term growth while still delivering our short-term fiscal '24 adjusted EPS guidance. Turning now to margins on Slide 12. Adjusted operating income margin was down 100 basis points from prior year to 12.4%. Adjusted operating income margin continued to benefit from the operating leverage on our higher recurring in event revenue and the benefit from the Q4 '23 restructuring initiative to realign some of our businesses, and streamline our management structure. The net impact of higher distribution revenue and higher float income, which have an immaterial impact on earnings growth as I detailed at the Investor Day, contributed the positive impact of 45 basis points in the quarter. Those benefits were offset by the timing of other expense items and the impact of our growth investments as our outlook on the full year gave us the confidence to invest in product enhancements in our digital technology platforms. Looking ahead, we continue to expect adjusted operating income margin to increase year-over-year to approximately 20%. And I'll remind you that we remain focused on disciplined expense management and creating investment capacity. So we continue to expect to complete the restructuring initiative that began in Q4 '23 and have the remaining restructuring charge by the end of the fiscal year. This restructuring charge will be excluded from our calculation of adjusted operating income and adjusted EPS. Let's move ahead to close sales on Slide 13. Closed sales were $58 million in the quarter, bringing the first half total to $106 million, up 12% from the first half of 2023. I was also pleased to see a strong start to the second half with continued sales growth in January. More importantly, the pipeline momentum that Tim mentioned gives us increased confidence in meeting our full year objective. And I'll turn now to free cash flow on Slide 14. Q2 '24 free cash flow was $168 million, $64 million better than last year. For the first half, free cash flow is a positive $91 million relative to the negative $115 million in the first half of 2023. These results are being driven by our continued strong earnings growth and lower client platform spend. Free cash flow conversion, calculated this trailing 12-month free cash flow over adjusted net earnings was 110% in Q2 '24 up from 51% last year. This is consistent with our expectations and has us on track for free cash flow conversion of 100% for fiscal year '24. On Slide 15, you can see that we remain committed to a balanced capital allocation policy. For the first half of the year, we invested $66 million on our technology platforms in converting clients to our platforms. Additionally, through the first 6 months, before option proceeds, we returned $330 million in capital to shareholders due to dividend and share repurchases. Given our expectations for 100% free cash flow conversion, we are positioned to return additional capital to shareholders. Based on our current outlook for limited M&A in fiscal 2024, we estimate $350 million to $450 million in total share repurchases, which includes an additional $200 million to $300 million in the second half. So moving to guidance on Slide 16, along with some concluding thoughts. We are successfully executing the Broadridge financial model in fiscal '24 and therefore, reaffirming our full year guidance on all of our key financial metrics. We continue to expect 6% to 9% recurring revenue growth, constant currency, adjusted operating income margin of approximately 20%, adjusted EPS growth of 8% to 12% and closed sales of between $280 million to $320 million. And I'll note that embedded in that full year guidance is high single-digit year-over-year adjusted EPS growth for both Q3 and Q4. In addition to the guidance for fiscal '24, it's important that I highlight our high free cash flow business model. We are investing for the long term beyond 2024. And after 6 months in our fiscal year of strong free cash flow conversion, we are confident in our ability to consistently generate 100% free cash flow conversion. That free cash flow conversion, combined with our current outlook for limited M&A in the next 2 quarters, positions our capital return through dividends and share repurchases to reach a total of $700 million to $800 million in fiscal 2024. And finally, the drivers of growth, both strong demand and investor participation, combined with the investments that I mentioned earlier, give us confidence in meeting our 2024 to 2026 objectives in driving sustainable long-term growth. So with that, let's take your questions. Operator?

James Faucette :

Great. I just want to check some quick math on the Wealth segment. It looks like client losses were about a 3-point drag to constant currency recurring revenue growth. And if I presume that those losses were concentrated in the wealth business, without them that business probably would have grown about 6% to 7%. Are we kind of looking at that arithmetic about right?

James Faucette :

Got it. Got it. Okay. That's helpful. And then more broadly, I guess, obviously, constructive to see the year-to-date closed sales number. And I think you had previously spoken about some of that being adversely impacted by European tech discretionary weakness. But you've now reiterated the closed sales outlook. Your tone seems particularly bullish on that. So can you give a little more insight into maybe if there is an improvement in the overall demand environment, what you think is motivating that? And how Broadridge is -- are there incremental opportunities for Broadridge to take advantage of?

Operator:

Our next question comes from David Togut from Evercore ISI.

Edmund Reese:

Yes, thanks for the question. I think it's an important one and gives us an opportunity to emphasize our confidence in being in line with the full year guidance that we have. Your first question is really on headwinds and tailwinds relative to the overall guidance and how we think about event as part of that. Let me first maybe make a comment on the event and then talk about the overall recurring revenue guidance itself and the headwinds and the tailwinds. On event, thus far, as we talked about in the prepared remarks, through the first half of the year, we have seen strong event. And while headlines might suggest sort of higher contest activity, it was really driven by a recovery in the mutual fund proxy activity given the low levels that we saw in Q4 '23, we expect that to continue in the back half of the year. And there could likely be some more contest activity. But I did mention that we started increasing investments in Q2 in this current quarter because of the outlook on the full year, including the outlook on the event-driven revenue. And it's good when we have these types of transparency earlier in the year, because, as you know, we have a number of unfunded investments that when we are performing above our expectations. We go deeper in that list and increase those investments. We're able to do that because it drives long-term growth and still allows us to be within our overall guidance of 8% to 12%. And so I think as we think about strength and event being above those levels, we'll continue to look for opportunities to invest while we have the opportunity to do it. Overall, on the recurring revenue guidance, as I've said before, I think it really comes down to 3 items in those 3 items are our ability to be able to convert our revenue backlog to revenue and as you know, we've had a long history of being able to do that, driving over 6 points of growth from that, and we had a very, very strong quarter. So I continue to feel very confident that we will be right in line with our expectations there. We had included in our guidance, mid- to high single-digit position growth. The testing is now showing mid-single-digit growth. So that allows us to stay right in line with the guidance. And I think the third item that I'll mention here has been float income, which really is a first half event and no change to that thinking. So I think halfway through the year, we're still very comfortable about where we are and still being within that 6% to 9% range. On expenses, look, I am really, really pleased about not just the long history of being able to drive margin expansion here. I know you know very well, 50 basis points over the last 10 years, including 77 basis points in our last 3-year objectives. But we have been able to execute based on the operating leverage that we have in the business based on our move to digital, based on the initiatives that we have been taking to realign our businesses and not only deliver margin expansion but create investment capacity. I do not get hung up in any particular quarter when it comes to margin expansion. As I think about the full year, it is playing out just as we expected. We still expect to be approximately at 20% AOI margin. But more importantly, we're creating that capacity to be able to invest in the items that Tim mentioned in his prepared remarks. So we'll be right there as the year completes.

Dan Perlin :

I just wanted to maybe revisit the wealth expectation as we just go into kind of the third and fourth quarters here. So you said that E-Trade kind of came off, I think you said late in the quarter. And so I don't want to get over our skis kind of jumping into the March quarter. So the expectation is that the 143 that you printed, it could step down from there despite the fact that new sales look pretty robust in that area? Is that a fair assumption? As we think about modeling that second half?

Dan Perlin :

Okay. Got it. That's super helpful.

Dan Perlin :

Got it. That's super helpful. Tim, this is kind of a bigger picture question. You alluded to it a little bit, but you said you talked to a bunch of clients at Davos, we turned the page on the calendar here. So just the operating environment, the expectations, the pace of commitment from clients. I'm just trying to figure out where the pockets of, I guess, incremental demand in your view, will come from? And then maybe the speed with which you think clients are willing to put capital back into their business.

Operator:

Our next question comes from Darrin Peller from Wolfe Research.

Tim Gokey:

Darrin, it's Tim. Thank you because it's a -- we think it's a great topic for us. We talked at our Investor Day about how the pipeline has really accelerated over the past year is now at over $200 million. And so then the question has really been about how to begin to convert that pipeline into sales. And what I just talked about is as we have live software and it makes a huge difference for our clients to be able to demo, hands-on keys, have a sandbox, see the software with their own data inside. And so I think that is one of the things that has really led to the strong first half and why we feel like we have a good traction in the second half. And it is across a pretty broad set of components. Remember that for UBS, there were 29 different components that we invested in and modernized and brought to the cloud. And so whether that's tax or it's client onboarding or its corporate actions, many clients see a little bit different path in terms of what their immediate need is and sort of their -- on their transition to sort of a north star. And so we're having just lots of good conversations both in the U.S. and in Canada. So it's -- we feel good about where we are.

Darrin Peller :

And then just one quick follow-up. Just to revisit the BRCC, the customer communications business. I know you talked about the obvious digital transformation from print. I mean, maybe just help us understand how to think about the growth profile of that business. I know it's -- it had been challenged a little bit after you first closed the deal and then it went to pretty strong positive growth rates pretty consistently. I think it was flat right now. Just remind us again what your expectations are for that?

Operator:

Our next question comes from Peter Heckmann from D.A. Davidson.

Tim Gokey:

Yes. Peter, thank you. And remember that when the industry moved to 30e-3, we got a sort of an uptick. We argued against it, but we got a sort of a $30 million uptick. And we had commented that when the -- when the world moved away from 30e-3 that we would have a headwind of about $30 million in revenue. And what I'm really pleased about is as we look at the -- now is the help our clients solve the issues that tailored shareholders, and I'll come back to this in a second, the issues that it creates. I think we're going to see that revenue more than replaced, which is very nice. The challenge that clients face with tailored shareholder reports, just to remind people what it is. It's taking the 150-page or so annual and semiannual reports that people receive and it is saying, what are the key data points that are inside there that people really care about and creating a condensed, much more readable sort of 2- to 3-page summary that is much more digestible for investors. So that's good. The challenge it creates for our clients is that those reports, the new regulation has them the wires tailored. It has to be specific to the share class that, that client has. So in the past, you would have gotten a report and you have a table and you said, we'll have to look up your share class and try to figure out for you what it means now has to be specific to you. That dramatically increases the number of SKUs. We talked in an earlier call about a fund we talked to you that had something like 120 to 150 different reports and now that's going to be 1,200 different reports. That makes it very hard to print the reports in advance and inventory level. So the solution that we have is because we've invested in digitizing all of this and a digital database of all the latest regulatory reports, we can -- for that percent of things that is print, which is -- a lot of this is digital, it's 80% digital, but there's still a lot of print. We can print that in line right in our facility and put multiple things in the same envelope significantly savings on creating significant savings on all the inventory but also all the postage and the envelopes and all of that. And so that ability to consolidate multiple reports into a single envelope all digitally in line, it creates a very significant savings for our clients over any other way of doing it. So we're having a really -- a high percent of funds are coming to us for that. And in fact, many funds that used to do this themselves on the registered side are also coming to us for that. So that's the whole sort of output and mailing side of things. The other thing I'm really pleased, though, about is moving upstream into the composition side of things. And historically, that work has been done by others, by Donnelley Financial and by Confluence. And one of the other unique things in the regulation is that the reports need to be tagged with XBRL and -- which is great for digital delivery and extraction of data points. That can be a very laborious process. And the composition engine that we have is pretty unique in that it's -- first of all, it's built in a way that makes it very easy to have many versions, same thing. And is also built with the XBRL tagging sort of natively embedded in it so that you don't have to come back as a second process. So it's a much better solution on the composition side. We're a newer player there, but we've seen a lot of client interest and that's really enabling us to move upstream to have a much deeper relationship with the asset managers.

Patrick O'Shaughnessy :

So for GTO, in past quarters, I seem to recall you guys speaking to a 5% to 7% growth outlook for that business both in, I think, fiscal '24 as well as the medium term. And today, I heard you speak to 5% to 8% growth. So I'm curious if anything has changed in terms of your outlook for that business? And then I think specific to this year, is faster or higher trading volumes may be a bigger contributor to growth than you had previously anticipated?

Patrick O'Shaughnessy :

All right. And as you guys are to being able to modulate your investment spend due to higher event-driven revenue. Can you maybe give a little bit more detail on kind of the type of spending that represents? Are you bringing on more consultants? Are there other kind of very short-term expenditures that you're able to ramp up?

Operator:

And our next question comes from Brendan Miles from JP Morgan.

Tim Gokey:

Yes. So let me just start with the last one and then come back to the broader capital market because I'm pleased to be able to talk about AI. It is an area that we're investing in, as I talked about earlier, we expect to be a leader in our space, and it is a real natural place for mutualization where -- because we're doing this for many clients, a particular activity and because really getting value out of this often depends on the nuances of a specific activity. we can invest more than it makes sense for any one client to invest, and we can have better data than any one client would have. So it's a really nice opportunity for a mutualized benefit and to -- and for the benefit of our clients. Now in terms specifically of the data, we obviously -- we do house lots of data across clients. We are being very careful on this in terms of how we leverage our models that we are at this point, doing that client by client. It is -- we are -- it is -- that data is owned by our clients and we're extremely careful about that. Could there be a longer opportunity with client permission to have across those pools, that could be possible in the future, but it is would be specifically with our clients' permission. When we look at things like OpsGPT, today, when there's, say, a fail, there's a whole research process that it kicks off and you have knowledgeable and fairly expensive ops people looking up in this database and then that database and then cross referencing it. And by working out what's the reason for the fail and then contacting the other party about it? That sort of research process can be easily automated here. And it is not that sort of looking at the Internet of things like that, it's using AI to write SQL queries to real databases to get real data to put that together and join it and be able to present an answer to an ops professional who can quickly validate it and really cut out tons of time. And this is just -- we're just scratching the surface in terms of what will be possible. But I think our clients are very excited about it and very excited about the idea that we'd be taking on this investment really on behalf of the industry to really help drive a lot of efficiency. And remember, we're a technology company, not so much a people company. So as we make things more efficient, that's not coming out of our personnel that's really helping our clients save money. So that's AI, and I'm sure we'll be talking about it a lot more. The other part was just the state of the market on capital markets?

Tim Gokey:

And I'm sorry, I have to just add one other thing, which is -- when you take our capital markets -- capital margin is a very esoteric business. You take our capital markets team put in front of any even very top tier client. And it is a very impressive team. And the -- you see that in the innovation with digital ledger repo, with LTX, with AI across all those areas that are at the leading edge of where capital markets are going, front to back, we are showing real thought leadership and having great conversations with clients.

Tim Gokey :

Jamie, thank you very much, and thank all of you for joining us this morning. As I hope you heard, we see a long runway for growth ahead. And as we enter our seasonally larger second half, we are on track to deliver another strong year and to continue to make a difference for investors everywhere and for our clients, our associates and our shareholders. Thank you very much for your interest this morning.

Edings Thibault:

Thank you, Kate, and good morning, everybody, and welcome to Broadridge's first quarter fiscal year 2024 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, Edmund Reese. 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?

Edmund Reese:

Thank you, Tim. And thank you, in particular, for those comments on Bob. There is no doubt that he will be missed. Good morning, everyone. I’m really pleased to be here to discuss the results from another strong quarter and a strong start to fiscal 2024. Before reviewing this quarter’s results, let me share a few key points. First, Broadridge delivered strong top line growth, led by strong recurring revenue in line with our expectations and higher event driven revenue. Second, and as a result, we expect to generate approximately 25% of adjusted EPS in the first half of fiscal 2024. Third, we are reaffirming our fiscal 2024 guidance. And finally, we resumed share repurchases in Q1 as we are confident in our ability to drive 100% free cash flow conversion and return more capital to shareholders. As you can see from the financial summary on Slide 6, recurring revenues rose to $871 million, up 8% on a constant currency basis, all organic. Adjusted operating income increased 33% and AOI margin expanded 220 basis points to 13.9%. Adjusted EPS was up 30% to $1.09. And I’ll remind you that while higher interest expense partially offsets operating income growth, the interest rate impact at the Broadridge level is fully offset by higher float income in our ICS segment. Continuing with the results. We delivered closed sales of $48 million, up $19 million over Q1 2023. And finally, I will note again that we repurchased $150 million of Broadridge shares as part of our balanced capital allocation model. Let’s get into the details of these results, starting with recurring revenue on Slide 7. Recurring revenues grew 8% to $871 million in Q1 2024 and was at the higher end of our full year guidance range of 6% to 9%. Our recurring revenue growth was driven by a combination of converting our backlog to revenue and double digit trade volume growth. Let’s turn now to Slide 8 to look at the growth across our ICS and GTO segments. We continued to see growth in both ICS and GTO. ICS recurring revenue grew 6% to $469 million. Regulatory revenue grew 5% and was led by fund and equity position growth. More importantly, position growth remains in line with our expectations, as I’ll detail in a moment. Data-driven fund solutions revenue increased by 9%, primarily due to higher float revenue in our mutual fund trade processing unit, which we have rebranded to be Broadridge Retirement and Workplace. Issuer revenue was up 19%, driven by growth in our registered shareholder solutions and customer communications recurring revenue was up 2%, propelled by continued double-digit growth in our higher margin digital business, which more than offset lower growth in our lower margin print revenues. And while we do expect print volumes to pick up over the balance of fiscal 2024, we continue to expect print revenues to decline over time and be replaced with higher margin digital revenue. As a result, over the long-term, we expect our customer communications business to have low-single-digit top line growth with expanding margins and continued low-double-digit earnings growth as it execute on its print to digital strategy. Turning to GTO. Recurring revenues grew 11% to $402 million. Capital markets revenue increased 9%, led by continued strong performance in BTCS and elevated equity and fixed income trading volume growth. Wealth and investment management revenue grew 14%, powered by the onset of revenue recognition related to the UBS contract, partially offset by the successful transition of E-Trade to the Morgan Stanley platform, which occurred at the beginning of September. Looking ahead, we continue to have high confidence in full year GTO growth being in line with our historical 5% to 7% growth objective. Now let’s turn to Slide 9 for a closer look at volume trends. As you can see by our results, investor participation in financial markets has continued to increase despite the market volatility. Equity position growth was 8%, driven by continued double digit growth in managed accounts. Our testing of position growth continues to prove reliable as Q1 was in line with our expectations. We have now extended our testing into Q2 and Q3, and those results support our outlook for mid to high-single-digit growth for the full year. Mutual fund position growth moderated from Q4 2023, but grew 3%, driven by strong growth in passive funds. Based on our testing, we continue to expect mid-single-digit growth for the full year. Turning now to trade volumes on the bottom of the slide. Trade volumes rose 15% on a blended basis, led by double-digit volume growth in both equities and fixed income, which benefited our capital markets business. Let’s now move to Slide 10 for the drivers of recurring revenue growth. Recurring revenue growth of 8% was all organic and grew above our 5% to 7% growth objective for a six consecutive quarter. Revenue from net new business contributed 5 points of growth. Internal growth, primarily trading volumes, expanding client relationships and float income contributed 3 points. Foreign exchange had a non-material 15 basis point positive impact on recurring revenue growth. And based on current rates, we expect a similar benefit in full year recurring revenue growth relative to fiscal 2023. I’ll finish the discussion on revenue on Slide 11. Total revenue grew 12% to $1.4 billion, of which recurring revenue was the largest contributor with 5 points of growth. Event driven revenue was $87 million and added 2 points to growth. As expected, event driven revenue increased sequentially and was above our seven year average. Event driven activity in the quarter was particularly strong and benefited from the timing of mutual fund proxy activity and significant corporate actions. We continue to expect more normalized event driven revenue for the remainder of the year and for the full year to be $230 million, $250 million in line with recent years. Low to no margin distribution revenues contributed 5 points to total revenue growth. Distribution revenue was elevated and reached 14%, with half of that growth coming from postal rate increases, which have a dilutive impact on our adjusted operating income margin. We continue to expect distribution revenue to grow in the high-single to low-double-digit range, driven by further postal rate increases. Turning now to margins on Slide 12. Adjusted operating income margin was 13.9%, a 220 basis point improvement over the prior year period powered by a combination of operating leverage on our higher recurring and event driven revenue, higher float income and continued discipline expense management. Excluding the net impact of higher distribution revenue and higher float income, which was accretive to margins in Q1, we delivered over 100 basis points of margin expansion after absorbing the amortization from our wealth platform. This performance gives us confidence in our ability to both fund long-term growth investments and still meet our earnings growth objectives. We continue to expect adjusted operating income margin to increase year-over-year to approximately 20% as we overcome the dilutive impact of higher distribution revenue. Let’s move ahead to closed sales on Slide 13. Closed sales were $48 million, $19 million higher than Q1 2023. We were encouraged by our strong start to the year with higher sales across all three of our franchises. We saw strong BTCS sales in GTO and strong customer communications and regulatory sales in ICS. As Tim noted, our pipeline remains strong as we continue to see strong interest from clients in our technology solutions. I’ll turn now to cash flow on Slide 14. I’ll start with a reminder that Broadridge’s cash flow generation is typically negative in the fiscal first quarter and strengthens throughout the year. Q1 2024 free cash flow was negative $76 million, a $142 million better than last year, driven by a reduction in client platform spend, which I’ll discuss in a moment. Free cash flow conversion, calculated as trailing 12 month free cash flow over adjusted net earnings, was 103% in Q1 2024. This is consistent with our expectations of free cash flow conversion of approximately 100% for full year 2024. On Slide 15, you’ll see that we remain committed to a balanced capital allocation policy that prioritizes our investment grade credit rating, internal investment, a strong and growing dividend and strategic tuck-in M&A that meets our financial criteria with excess capital being returned to shareholders through share repurchases. Our total capital investment for Q1 2024 was $34 million, including platform investment of $20 million, down significantly from the prior year’s $163 million. We returned $86 million to shareholders through the dividend, and with no M&A activity in the quarter. We returned an additional $150 million to shareholders through share repurchases, our first share repurchase activity since fiscal year 2020. Turning the Guidance on Page 16. As I said in the beginning of my remarks, the strong start to fiscal 2024 gives us the confidence to reaffirm our full year guidance on all of our key financial metrics. We continue to expect 6% to 9% recurring revenue growth, constant currency, adjusted operating income margin of 20%, adjusted EPS growth of 8% to 12%, and closed sales of between $280 million to $320 million. Additionally, we expect approximately 75% of our earnings to be generated in the second half of the year with 25% in the first half in line with our performance over the last 10 years. Finally, let me summarize my key messages. Broadridge delivered strong Q1 financial results. The demand and secular trends driving our growth remain strong, and our testing is showing continued equity and fund position growth into the second half of the fiscal year. We expect free cash flow conversion of approximately 100% in fiscal 2024, allowing us to invest for growth and return capital to shareholders in line with our balanced capital allocation model. We are reaffirming our fiscal year 2024 guidance, highlighting the strength of our business and financial model. And with that, let’s take your questions. Operator, back to you.

David Togut:

Thank you. Good morning. Good to see the strong start to fiscal 2024. Looks like you’re running at about 3x the EPS growth targeted for the year as a whole, 30% versus 8% to 12%. Granted, 1Q is your smallest quarter of the year, and fourth quarter is the most important. Can you unpack the drivers of outperformance between recurring elements, which seem to be expense discipline, recurring revenue growth and some that are non-recurring, like event driven fees and obviously E-Trade was on your system perhaps a little longer than anticipated. But it looks like you’re on track to outperform versus your annual guide. What’s keeping you a little more conservative?

David Togut:

Appreciate that. Just as a quick follow-up. Good to see the improved bookings performance in Q1 after a somewhat soft second half of FY2023, despite the pipelines being strong last year. Was there anything that changed in particular in the first quarter that gives you a better line of sight to your full year bookings target? Or is it just some of these sales cycles just got over the goal line?

David Togut:

Understood. Thanks so much. And condolences on Bob’s passing. I remember him well from your Investor and Analyst Day’s.

Operator:

The next question is from Peter Heckmann of D.A. Davidson. Please go ahead.

Tim Gokey:

Yes. Good. Peter, good morning. I would say, and we can talk about components across all of our franchises, but I think you were specifically asking a little bit more on the wealth side. And we really remain quite pleased with our progress on wealth. And obviously we began recognizing revenue from UBS in July. And on the components, we really started that marketing the components last spring with a really significant kick-off at the Securities Industry Conference, the CIFFA Conference in May, demoing live software, really being able to show clients working components. And so we’re sort of fully into selling mode on that. Our pipeline has built nicely and is quite a bit where it was a year ago. And we’re seeing – I think in the near-term, we’re seeing demand around things that can help drive advisor productivity. We’re seeing demand in corporate and class actions. We’re seeing demand around helping people process alternatives. So lots of things that are meeting some important needs that our clients have. So as I said, we now have clients – multiple clients live with at least one component and others in implementation. I think that shows that component approach is working. As you said, we are targeting $20 million to $30 million in incremental sales, and I think we’re on track to achieve that over time. So I think when you look at how we’re looking about our wealth strategy, we’re really assuming mostly these component sales within every few years, something a little bit larger that will boost sales in that year. But I think right now we’re focused on the component side.

Tim Gokey:

Yes, it is. I think if you look at the market there’s still a disconnect between buyers and sellers in terms of what the values are. So the landscape in terms of what is available is a little light, I would say. There are some interesting things that we are looking at. So I wouldn’t be surprised if we’re able to transact something in 2024. But the degree of pipeline and activity is definitely way below where it was a few years ago. I think one of the things, Peter, is that with the investments that we’ve made, we’re feeling really good about our ability to drive organic growth through organic investment. And so that balance between organic growth and M&A that may be a little bit different over the next few years than it was in past. But we will continue to look for the right opportunities that meet our criteria.

Operator:

The next question is from Darrin Peller of Wolfe Research. Please go ahead.

Tim Gokey:

Sure. Darrin, thank you very much. Thank you for that question. We really liked this quarter because we’re now beginning to see that conversion of print to digital that we’ve been talking about. So this quarter we had a significant client that went live on our next-generation digital solution and moved a lot of communications from print to digital. So they saved a ton of money, and their end clients and advisors are really happy with the new solution and are very engaged with it and seeing real upticks in satisfaction. So on the base of that, we saw lower print volumes on that client, but overall, we saw a double digit increase in our digital revenues and a double digit increase in profitability. So that really shows how this transition can work for us. So I do think – just stepping back a little bit, our main story is that continued flow towards digital. But I do have to put an asterisk on it, which is that we are continuing to see a lot of demand from companies that are seeking to rationalize their print facilities. And so there still is an opportunity sort of in that midterm to be the consolidation point for print, which we'll do and are happy to do as long as the digital comes with it so we get the transition over time. So longer term, we expect to see lower growth in print, with strong growth in digital and strong profitability growth, which is exactly what we saw in the first quarter. But there will be some bumps along the way where we have stronger print volume.

Darrin Peller:

Quick follow-up just on the positional growth side, specifically on mutual fund, but maybe more – first more, just more broadly what you're seeing and what you're expecting on trends. You guys tend to have a lot of really good data as you always say, in terms of at least the next six months. So just remind us your conviction on what you're seeing now on that front broadly. But then specifically mutual funds, I think, were 3%, I think you said driven by passive – and so – if you could just add color on active mutual fund position trends here broadly and just couple that into the first question on overall position growth.

Darrin Peller:

Okay, thanks a lot.

Matthew Roswell:

Hopefully you can hear me now.

Matthew Roswell:

Excellent, sorry about that. It's Matt Roswell on for Dan Perlin. Congratulations on a nice quarter. Just a couple of quick questions, hopefully. What was the FX impact in the quarter? And how should we think about it for the rest of the year?

Matthew Roswell:

Okay. And then on the margin expansion for the remainder of the year, is there anything we should look out for in terms of either seasonality or grow over compared to last year?

Matthew Roswell:

Hello?

Matthew Roswell:

Okay, all right. Just lost you for a second there. And then I guess the final question I have is just what's the repurchase assumptions in the guidance?

Tim Gokey:

And I think the only thing I would add to that is we tend to wait on that until we really have high confidence on how the year is coming out. So that from a – it's really almost more of a 2025 question because any share repurchase we do would tend to be later in the year and not affect our weighted average share count for this year.

Tim Gokey:

Yes.

James Faucette:

Great. Thank you. I wanted to ask a couple of questions here. First, on the announcement of the UBS go live on the DLP platform, is that incremental to the $75 million of contribution outlined previously? Or is that project already contemplated in that number?

James Faucette:

Okay, thank you for that. And then I wanted to ask a more broad-reaching question around competition. I think we all know about the competitive dynamics at play within the proxy space. But there were – have been one or two announcements of more AI-focused players that seem to be pretty well funded that are looking to get into the space. Anything to call out in terms of changes in competitive dynamics or where there may be some incremental investment needed from your perspective?

Edmund Reese:

And I also – James, I just want to comment back to your first question, overall across both UBS and across the success that we've been seeing with DLR with our Digital Ledger Repo system. Right now, the economics to Broadridge are not material at all for any of our clients. We've had great success really signing that up, but the economics are still not having a significant material impact on our guidance for fiscal 2024.

Operator:

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

Operator:

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

Edings Thibault:

Thank you, Jamie. Good morning, everybody, and welcome to Broadridge's Fourth Quarter and Fiscal Year 2023 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, Edmund Reese. 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?

Edmund Reese:

Thank you, Tim and good morning everyone. I'm pleased to be here to discuss the results from yet another strong quarter and the strong full year fiscal 2023. Today I'll also provide you with some additional color into our guidance for fiscal 2024 which continues to be in line with our historical three year financial objectives. Before jumping into a review of our strong results and guidance, I want to emphasize some of the significance of some key milestones bones that we achieved in fiscal 2023. First, we completed the investment in our wealth management platform, reduced our client platform spend, and are now going live with our anchor client recognizing revenue in July. Second, free cash flow conversion improved to 90%. Third, we paid down debt and reached our leverage objective, in line with our commitment during the activity acquisition. And fourth, we positioned ourselves to return more capital to shareholders, via higher dividend and the resumption of share repurchases in fiscal 2024. And finally, as Tim noted, we kept our current three year cycle where we delivered at or above the high end of our three year objectives. Those milestones were a direct outcome of our strong fiscal 2023 results. And as you can see from the financial summary, on slide 9 Broadridge’s full year recurring revenue growth was at the higher end of our fiscal 2023 guidance. And with operating leverage in our business and continued disciplined expense management, high single digit adjusted EPS growth was right in line with our full year guidance, despite the lower event driven revenue. On a full year basis, recurring revenue rose to approximately $4 billion, up 9% year-over-year on a constant currency basis, all organic. Adjusted operating income increased 12% and margin expanded 110 basis points to 19.8%, outpacing our annual margin expansion objective despite the drag from increase low to no margin distribution revenue. And I'll remind you that while higher interest rate expenses partially offset operating income growth, the interest rate impact at the Broadridge level is fully offset by higher float income in our ICS segment. Adjusted EPS rose 9% to $7.01. And finally, we delivered close sales of $246 million. Turning to the fourth quarter, recurring revenue grew 8% on a constant currency basis to $1.3 billion. Again, the growth was all organic. Adjusted operating income grew 22% right in line with our expectations, and AOI margins expanded 360 basis points. Adjusted EPS increased 21% to $3.21. And close sales were 19% lower at $90 million. Let's get into the detail of these results starting with recurring revenue on slide 10. Recurring revenue grew 8% to $1.3 billion in Q4, 2023. Our recurring revenue growth was all organic, driven by a combination of converting sales to revenue and mid-single digit position in trade growth. For the full year at 9% recurring revenue growth was at the higher end of our full year guidance range of 6% to 9%. This 9% growth exceeds our 5% to 7% organic growth objective in March three consecutive years of organic growth of at least 8%. In addition to our strong organic growth, the acquisition of BTCS contributed 2.6 points of growth to our fiscal year 2020 to fiscal 2023 recurring revenue CAGR right in line with what we communicated at the time of acquisition. As a result, we also exceeded our total recurring revenue growth objective of sub 7% to 9%, with a three year constant currency CAGR of 11%. Let's turn now to slide 11 to look at the growth across our ICS and GTO segments. We continue to see strong growth in both ICS and GTO. In Q4, ICS recurring revenue grew 7%, all organic to $858 million with solid growth across all four product lines. Regulatory revenue grew 5% to $444 million on the back of continued growth in U.S. equity and fund positions, partially offset by lower growth and international proxy. Data driven fund solutions revenue increased 12% to $113 million, primarily due to higher float revenue and our mutual fund trade processing unit. And Issuer revenue grew 7% to $134 million led by growth in our registered shareholder and disclosure solutions. Our customer communications, recurring revenue was up 7% to $166 million led by new client wins, higher print volumes and very strong double digit growth in our digital business. Our digital customer’s communications business has now surpassed $100 million in recurring revenue, which is a sign that our print, the higher margin digital strategy is working. For the year, ICS grew recurring revenue at 9% with regulatory at 7% in double-digit growth across all other product lines. Turning the GTO on slide 12, Q4 recurring revenue grew by 9% to $401 million. Capital markets revenue grew 12% to $257 million, propelled by higher licensed revenue and BTCS continued fixed income trading volume growth and new sales growth. Wealth and Investment Management revenue increased 4% to $143 million, driven by healthy growth from new sales offset by lower trading volumes and the grow-over impact of higher license revenue in Q4 2022. For the year, GTO grew recurring revenue at 8%, ahead of our 5% to 7% growth objective, driven primarily by double-digit growth in our capital markets business. Now let's turn to Slide 13 for a closer look at the volume trends. We have healthy position growth for both equities and funds in the fourth quarter, consistent with our testing results. Equity position drove flat high teen growth in Q4 2022 and was 6% in the quarter and 9% for the full year, with continued double-digit growth in managed accounts. Mutual fund position growth in the quarter ticked up to 8% and full year growth was also 8%, with continued strong flows in the money market funds. Looking ahead to the first half of fiscal 2024, our current testing for equity positions is showing mid-single-digit growth, which supports our full year outlook of mid-to-high single-digit growth. Turning now to trade volumes on the bottom of that slide. Trade volumes grew 3% on a blended basis in Q4, driven by another quarter of double-digit fixed income volume growth, which benefited our capital markets business and modest declines in equity volumes impacting our retail wealth business. For the full year, trading volume was up 4%. Now I move to Slide 14 for the drivers of recurring revenue growth. For the quarter, recurring revenue growth of 8% was all organic in balance between net new business and internal growth. Revenue from closed sales and our continued high retention from existing customers provided four points of growth. Our recurring revenue retention rate was 99% in the quarter and 98% for the full year. And internal growth, primarily higher positions, trading volumes and float income also contributed four points. Foreign exchange impacted recurring revenue by one point, with most of that coming in our GTO business as you can see in the table on the bottom of the slide. I'll finish the discussion on revenue on Slide 15. Total revenue grew 7% in Q4 to $1.8 billion, and recurring revenue was the largest contributor with five points of growth. Event-driven revenue was $59 million and a one point headwind to Q4 growth. Event-driven revenue increased sequentially and was in line with our 7-year average as mutual fund proxy activity improved. While we're not forecasting any large fund proxy campaigns, we do expect some of the delayed mutual fund proxy activity in fiscal 2023 to come through in fiscal 2024 as event-driven revenue returns to more historical levels. Low than no margin distribution revenues contributed three points to total revenue growth, distribution revenue increased 9% with postal rate increases contributing 8 points of that growth. Given that postal rate increases are passed through, elevated distribution revenue have a dilutive impact on our adjusted operating income margin. Turning now to margins on Slide 16. Adjusted operating income margin for Q4 was 28.9%, a 360 basis point improvement over the prior year, driven by a combination of our operating leverage in our business, higher float income and continued disciplined expense management. On a full year basis, we delivered 110 basis points of margin expansion. The impact of interest income more than offset a 30 basis point headwind from the growth of low to no margin distribution revenue. Excluding both, margins expanded 60 basis points, which is above our 50 basis point long-term objective. As I mentioned earlier, we have a track record of disciplined expense management. This discipline, along with the operating leverage inherent in our business model allows us to invest in our long-term growth investments and meet our earnings objectives. As we exit fiscal 2023, we are undergoing a modest restructuring that will realign some of our businesses, streamline our management structure and impact approximately 2% of our 14,700 associates. As a result, we incurred a $20 million restructuring charge in Q4 2023, and we anticipate that these actions will generate approximately $50 million in annualized savings. Again, allowing us to continue to fund growth investments and deliver earnings growth. Looking ahead, we expect another $15 million to $30 million charge in Q3 2024 as we complete this restructuring initiative and seek to create further room to invest. These restructuring charges are excluded from our calculation of adjusted operating income and adjusted EPS. Let's move ahead to closed sales on Slide 17. We ended our fiscal year closing $90 million in closed sales for the fourth quarter. For the full year, sales were down 12% off a record fiscal 2022 to $246 million. Closed sales were below our full year guidance, driven by lower international sales. Strong U.S. sales were driven by customer communications, digital solutions and retirement solutions. Our pipeline entering fiscal 2024 is at a record high, and the demand for our technology solutions remains strong. Importantly, the slowdown in sales we experienced in Q4 2023 is fully incorporated into our fiscal 2024 guidance. Our $400 million backlog equal to 10% of our fiscal 2023 recurring revenue provides strong visibility into the revenue conversion from closed sales that will drive fiscal 2024 revenue growth. I'll now turn to cash flow on Slide 18. In fiscal year 2023, we generated $748 million in free cash flow, doubling fiscal 2022 levels. As a result, free cash flow conversion, calculated as free cash flow over adjusted net earnings improved to 90% in fiscal 2023. This improvement was the product of reduced client platform spend and payments from UBS as we finalize the rollout and go-live plan, along with strong working capital management. Looking ahead to fiscal 2024, we estimate free cash flow conversion of approximately 100%. Let me make a note here before we move on to capital allocation. With a new contract with UBS in place, we have now moved our focus to marketing and driving $20 million to $30 million in sales of the wealth management platform components. As a result, we have moved approximately $600 million of software investment from the deferred client conversion line to intangible assets. This is consistent with balance sheet classification of platform technology that will be marketed to multiple clients. We continue to expect to recognize $57 million of annualized amortization expense in fiscal 2024, resulting from our wealth platform investment and this change will have no impact on the free cash flow or the income statement. Let's now discuss capital allocation on Slide 19. We spent $369 million on investments for growth, primarily our wealth platform and returned a net of $312 million to shareholders in fiscal 2023. In addition, we repaid $385 million of debt. The combination of strong earnings growth and lower debt moves our leverage ratio at the end of fiscal 2023 to 2.6 times. This level is consistent with the leverage objective we set when we announced the Itiviti acquisition and is in line with our goal of maintaining an investment-grade credit rating. As a result, we expect to return to more balanced capital allocation in fiscal 2024. To that end, we are pleased that our Board has approved a 10% annual dividend increase to $3.20 per share in fiscal 2024, in line with our targeted dividend pay-out ratio of 45% of adjusted earnings. We have capacity for modest strategic tuck-in M&A and we are also in a position to resume share repurchases for the first time since fiscal 2019. I'll close my prepared remarks this morning with some detail on our fiscal 2024 guidance, which is on Slide 20. Our fiscal 2024 guidance calls for mid- to high single-digit recurring revenue growth, margin expansion strong adjusted EPS growth and a recovery in closed sales. Let's break down the relevant components and drivers of each guidance point starting first with revenue. We expect fiscal 2024 recurring revenue growth constant currency of 6% to 9%, all organic, driven by new sales as we work to onboard our $400 million backlog. For modeling purposes, we expect GTO growth to be in line with our historical 5% to 7% organic range. In our wealth business, we anticipate that we will recognize approximately $75 million in incremental revenues from wealth platform clients. This growth will be significantly offset by the loss of revenue transitioning E-Trade to the Morgan Stanley platform. We are assuming flat trading volumes. We expect event-driven revenue to return to more historical levels in the range of $230 million to $250 million. Distribution revenue is anticipated to grow in the high single to low double-digit range, driven by further increases in postal rates. This continued strong growth in low to no margin distribution revenue does create a margin headwind that I'll discuss in a moment. I'll also note that using the current forward curve for FX suggests a 0.5 point benefit in recurring revenue relative to fiscal 2023. Second, let's move on to margins. We expect our adjusted operating income margin will be up year-over-year to approximately 20%. We expect the net impact of higher distribution revenues and higher float income to be dilutive to our margins in fiscal 2024. Excluding the headwind from distribution and float income, we expect that the operating leverage in our business and our disciplined expense management will allow us to absorb the amortization from our wealth platform and fund higher growth investments in our business while driving greater than 50 basis points of margin expansion, in line with our historical objectives. Third, EPS. We expect adjusted EPS growth of 8% to 12%. Embedded in this outlook is an expected tax rate of 23%, a slight uptick driven by the lower impact of discrete items on higher earnings and the geographic earnings mix. Finally, closed sales. We expect a strong year in sales with the fiscal 2024 range of $280 million to $320 million based on our strong pipeline. We expect balanced sales between ICS and GTO, and I want to reiterate that the delays in the timing of our sales have only a very modest impact on our medium-term revenue outlook given our backlog. Taken together, our fiscal 2024 guidance demonstrates the strength of our financial model. We continue to be focused on driving sustainable recurring revenue growth. Using the operating leverage in our business to create capacity for continued investment and continued margin expansion while also delivering steady and consistent adjusted EPS growth, all while maintaining an investment-grade balance sheet and a balanced capital allocation policy. Before I move on from guidance, we briefly discuss our Q1 and first half adjusted EPS outlook. Historically, Broadridge has generated a little less than a quarter of our earnings in the first half, and we anticipate this year to be no different, with earnings slightly more weighted towards Q1 versus Q2, driven apart by higher event-driven revenue in the first quarter. With that final note, let me wrap up with a quick summary of my key messages. Broadridge delivered strong Q4 financial results to close out a strong fiscal 2023. We delivered at or above the high end of our 3-year financial objectives. And with our fiscal 2024 guidance, we are positioned to deliver another strong set of financial results. Last, we expect to return to more balanced capital allocation in fiscal 2024, including double-digit dividend growth, the resumption of stock repurchases and potential tuck-in M&A. And with that, let's take your questions. Operator?

Peter Heckmann:

Hey good morning everyone. Really complete call. You checked off a number of my questions as we went. I didn't hear -- I think I heard the equity position growth embedded in guidance was about mid-single digits. Would you assume funds would continue kind of mid- to high?

Peter Heckmann:

Okay. That's helpful. And then in terms of the -- so it sounds as if the first quarter might have a little bit more event driven as well as a relatively easy comparison on the margins. So first quarter looks like a little bit larger than historical, so certainly, the current consensus appears to be appropriate, if not a little low on the adjusted EPS side.

Peter Heckmann:

Okay. And if I could just sneak in one more. Just on the bookings side in the second half of fiscal 2023, any other characteristics that you would say in terms of U.S. being pretty much on target, Europe a little weaker? Any way you can talk about maybe individual solution sets or any particular thing, big projects, small projects, any other color in terms of the delays that would be helpful.

Operator:

And ladies and gentlemen, our next question comes from Dan Perlin from RBC Capital. Please go ahead with your question.

Edmund Reese:

Tim, let me maybe just start off and give a little bit -- I'll talk about the first day and thanks for the questions, and I'll talk a little bit about the backlog, but I want to put it in the context of our overall 2024 guidance. And then maybe I'll turn it over to Tim to talk a little bit more about the closed sales. When you think about our guidance for fiscal 2024, there's a high level of confidence. And keep in mind, we're operating in this very volatile macroeconomic environment and continue to deliver the results that we just talked about for a moment. And as I think about our fiscal 2024 guidance, your point on the backlog is the first thing that comes to mind. Our continued conversion of the backlog to revenue, I don't think that there's anything in that backlog that's unique. We've said before that we see anywhere from a 12 to 18-month conversion cycle. Clearly, we are going to have the wealth management revenue come across earlier in this year from the backlog. But continuing to execute on that is what we expect and the cycle continues to be the same. Further, I think about the position growth that we have, and as I said, the testing that we're seeing now suggests that our outlook for mid-to-high single-digit position growth continues to be in line. That continues to give us confidence in our recurring revenue guidance. And again, we have a 6-month window insight upfront to look at that. And so if something changes, we have the time to react on that. And then our continued execution on margin expansion in our business to be able to drive the guidance that we have and coming off of 77 basis points for the last three years, we continue to feel good about that guidance. So nothing specific that's different about the conversion to revenue cycle. And those are the factors that I take in mind as I think about the overall guidance. And Tim, you might want to give some other comment on sales, if anything.

Daniel Perlin:

Okay. No, that's great. And then just a quick follow-up on margins. A couple of just, I guess, moving parts here. I just want to make sure I heard everything right. So if we look at 2023 kind of ex-distribution in some of these things or traded revenues, I think you said it increased 60 basis points versus the 110. So that's kind of the pure number that we should be focused on. And I think embedded in your guidance, I think you also said as you kind of remove some of these obstipated [Ph] things around higher distribution and then maybe flow going against it, also absorbing amortization that you'd be able to do 50 basis points of margin expansion. So I guess one is that I characterize both those correctly. And then secondly, anything you call out in terms of underlying momentum that you have in the margin structure?

Operator:

Our next question comes from Puneet Jain from JPMorgan. Please go ahead with your question.

Timothy Gokey:

Yes, Puneet, thank you very much for that. So first of all, just on the -- will it be back-end loaded. I think it is. As you know, our sales are always back-end loaded. It would certainly be my ambition that it might be a little less back-end loaded this coming year, but it's really no promise. It's very hard to judge these because there are large deals in there and the timing of those can just be hard to judge. What we will always do is each call based on where we are, we'll give you an update on where we think we're going to end up for the year. And then with respect to 2024, but what about beyond, that's a great question. As I said, we feel very good about 2024 based on the backlog we have and everything is baked into our guidance. When we look beyond that, as we think about the recovery we anticipate in our sales this year that really refills our backlog nicely. And we don't anticipate there will be any time where our on-boarding teams would end up with sort of lack of work to do. So it's really about the pace of on-boarding and we think we'll be in good shape for the midterm.

Edmund Reese:

Well, I think, Puneet, what you're going to see is a repeat of what I just said because I think it is -- I think you're going to continue -- I think we have a long runway for continued margin expansion. Let's put it in the context a little bit. I've now said 77 basis points over 50 basis points per year for the fiscal ‘20 to ‘23 time period. If you look back at the 3-year cycle before that, it was over 80 basis points per year and ‘14 to ‘17 over 50 basis points, I think 53 basis points sort of ‘14 to ‘17 period and look at what the drivers are of that margin expansion. One is the operating leverage. So scale, bringing on new sales without adding new expenses to drive that, our continued move to digital that is at a higher margin product. I talked on the call about the growth in the digital business and our customer communications business, and we continue to be more digital in our regulatory business as well and then the operating efficiencies. And since I've come on board over the past three years, I can tell you that the focus from the company on continuing to have that disciplined expense management really setting ourselves up to have investment capacity is what we've been focused on. So I do think that there's a continued long runway for margin expansion to be able to drive earnings and create room for investment capacity. And I don't think that's going to change anytime soon.

Darrin Peller:

Guys, thanks. Let me just start off with the components of margin. It looked like the gross margin improvement was fairly notable. I saw COGS changed quite a bit. I think it was over 300 basis points. Maybe, if you could just help us understand the dynamics there and maybe the sustainability or what's the recurring dynamics there for a moment would be helpful.

Darrin Peller:

And that sounds like the new baseline should be reasonable.

Darrin Peller:

Okay. And then just very quickly to follow up on [indiscernible] for the sales. I know there's been a couple of questions already, but I know the volatility can come timing-wise. So maybe just help us understand a little bit more over what was actually any type of surprise in the current quarter, just given again that it was a little below the initially or the recently lower number for the year for this quarter. But again, going back to the conviction, I understand you feel strongly about your confidence on bookings or closed sales for the year ahead. So I guess, Tim, maybe just give us a sense of where you're seeing the strength, that gives you that much conviction in terms of what business lines would be helpful.

Operator:

Our next question comes from David Togut from Evercore ISI. Please go ahead with your question.

Timothy Gokey:

Yes, Dave. So for Q1, we are -- what we see in our testing is I’m going to say on the high side of mid-single digit is what we're seeing right now, and that does tend to float up a little bit as time goes on because what the testing is we're making a poll right now. And so each week, it ticks up just a little bit. So it's really based on our testing. And as you know, it's a small portion of the year. And so it's hard to say it's fully predictive of the entire year, but it certainly gives us nice confidence. I can't really drill down by sector or other things.

David Togut:

Understood. Then just as a follow-up, could you kind of walk through the wealth management platform now that the UBS platform is completed and being marketed to a broader audience in terms of -- is the demand continuing to be mostly on modules or APIs? Or are you seeing it broaden out a little bit to transformational deals.

Operator:

Our next question comes from Michael Infante from Morgan Stanley. Please go ahead with your question.

Edmund Reese:

Thanks Michael. I'll start off with a few comments. I think it's actually -- the equity positions decelerated down to 6%. And we've seen over the last 10 years, 6% to 8% growth in line with the outlook that we have now from mid-to-single digits. So it was the equity positions that came down. Mutual funds continue -- they've been stable throughout the year, and they actually uptick in Q4 to 8% and ended for the full year at 8%. So again, I think all that just sort of boils down to the confidence that we have in the full year guidance in that mid- to single-digit range for both equity positions and mutual funds.

Patrick O'Shaughnessy:

Hey good morning. I apologize if I missed this, but did you provide an outlook for your CapEx and capitalized software development in fiscal ‘24?

Patrick O'Shaughnessy:

Sorry if I missed this earlier, but did you guys provide an outlook for your CapEx and capitalized software development for fiscal ‘24?

Operator:

Ladies and gentlemen, this will conclude our question-and-answer session for this morning. I'd now like to turn the floor back over to management for any closing remarks.

Operator:

Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Edings Thibault :

Thank you, Kate. And good morning, everybody, and welcome to Broadridge's Third Quarter Fiscal Year 2023 Earnings Conference Call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our CEO; and our CFO, Edmund Reese. Before I turn the call over to Tim, let me make a few standard reminders. One, we will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K. Two, we'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Edmund Reese :

Well, thank you, Tim. And good morning, everyone. Today, I am going to review our Q3 financial performance. I want to provide some additional insights on our rising free cash flow conversion. And I'll outline the drivers of our Q4 growth, which give us confidence in our recurring revenue and adjusted EPS guidance for fiscal '23. Starting with Q3, I am pleased to share the results from another strong quarter, where recurring revenue growth and continued disciplined expense management drove mid-single-digit adjusted EPS growth despite weaker event-driven revenue in the challenging macroeconomic environment. We continue to see robust organic recurring revenue growth from converting our sales backlog to revenue and healthy position growth. And as you can see from the financial summary on Slide 6, recurring revenue rose to over $1.1 billion, up 9% on a constant currency basis, all organic. Adjusted operating income increased 10% as we lapped elevated investments in fiscal '22 and realized the benefit from targeted cost actions that we initiated in Q4 '22, both of which more than offset the impact of lower event-driven revenue. AOI margins of 21% expanded 60 basis points and adjusted EPS rose 6% to $2.05. Finally, we delivered closed sales of $62 million, up 8% over Q3 '22. And I'll remind you that while higher interest expense partially offsets the operating income growth, the interest rate impact at the Broadridge level is fully offset by the higher float income in our ICS segment. On taxes, we continue to project an overall tax rate of approximately 21% for fiscal '23. And let's get into the details of the Q3 results, starting with recurring revenue on Slide 7. Recurring revenues grew 9% to $1.1 billion in Q3 '23 and was at the high end of our full year guidance range of 6% to 9%. Our recurring revenue growth was all organic, again, keeping us on track to exceed our 5% to 7% 3-year growth objective. Let's turn now to Slide 8 to look at the growth across our ICS and GTO segments. We continue to see strong growth in both of our segments. ICS recurring revenues grew 11%, all organic to $693 million, with regulatory at 8% and double-digit growth across all other product lines. Continued growth in equity and fund positions underpinned an 8% increase in regulatory revenues to $346 million. Data-driven fund solution revenues increased by 14% to $102 million, primarily due to the higher float revenue in our mutual fund trade processing unit. Our issuer revenues grew 25% to $58 million, led by growth in our registered and shareholder disclosure solutions. Finally, we continue to benefit from strong demand in our customer communications business, where recurring revenue rose 10% to $188 million, led by new client wins and higher volumes in print as well as double-digit growth in our higher-margin digital business. Turning to GTO. Recurring revenues grew to $388 million or 7%, driven by new sales revenue and wealth management and strength in our global post-trade products and capital markets. Capital markets revenue grew 5% to $246 million propelled by new sales growth and higher fixed income trading volumes, which offset the grow-over impact from higher license revenue in Q3 '22. Wealth and investment management revenue increased by 10% to $143 million, led by healthy growth from new sales and professional service fees. As a reminder, license revenues can impact quarterly revenue growth, and we expect a grow-over impact in Q4 for wealth management. Looking forward, I have a high degree of confidence in our ability to deliver GTO full year organic growth within our targeted 5% to 7% range, given our strong results over the past 9 months. Let's now turn to Slide 9 for a closer look at volume trends. We had healthy position growth for both equities and funds in the third quarter despite the market volatility. Equity position growth was 10% in the quarter, and growth was driven by continued double-digit growth in managed accounts and while more modest continued growth in self-directed accounts. We are now in the peak period for annual meetings and proxies. And through the end of April, we have received record data for 92% of the proxies that are expected for the year. Position growth results have consistently been in line with our testing. So this data gives us high confidence in our Q4 estimate. For the full year, we expect equity position growth of approximately 8%. We continue to be encouraged by expanding investor participation in financial markets serving as a long-term tailwind that drives growth in our business. Mutual fund position growth remained steady at 6% despite outflows from equity and fixed income funds to money market funds, and we anticipate growth in a similar range for Q4 and for the full year. Turning now to trade volumes on the bottom of the slide. Trade volumes grew 1% on the blended basis in Q3. And once again, we saw a difference in asset classes with increased volatility driving double-digit fixed income volume growth now for 7 consecutive quarters and a modest decline in equity volume growth given the lower activity at our retail wealth management clients. We will be lapping a strong Q4 '22, but we expect full year trading volume growth to be better than our initial guidance and slightly up for the year. Let's now move to Slide 10, where we summarize the drivers of recurring revenue growth. Recurring revenue growth of 9% was all organic and balanced between net new business and internal growth. Revenue from closed sales and our continued high retention from existing customers provided 4 points and internal growth primarily positions, trading volumes and float income contributed 5 points. Foreign exchange impacted recurring revenue by 1 point with the majority of that impact coming in our GTO business, as you can see, in the table on the bottom of the slide. I'll finish the discussion on revenue with a view of total revenue on Slide 11. Total revenue grew 7% in Q3 to $1.6 billion including 5 points of growth from recurring revenue. Event-driven revenue was down $7 million and was a modest headwind to growth as we saw continued lower mutual fund proxy activity. I will again highlight that lower mutual fund proxy activity is driven by the timing of fund and ETF board elections, which may be pushed back but are not an optional activity. Looking ahead to the balance of the year, we expect activity to remain weaker in Q4 with full year revenue in the $210 million to $220 million range, below the $240 million to $260 million level that we've seen in recent years. Low to no margin distribution revenues increased by 8% and contributed 3 points to total revenue growth as the higher volumes in customer communications and the impact of postal rate increases more than offset the lower event-driven activity. We continue to expect double-digit distribution revenue growth for the full year, and I'll again reiterate that the elevated distribution revenue from postal rate increases and higher customer communications volumes have a dilutive impact on our reported adjusted operating income margin. Turning now to margins on Slide 12. Adjusted operating income margin for Q3 was 21%, a 60 basis point improvement over the prior year, driven by a combination of operating leverage in our business, higher float income and continued disciplined expense management and the impact of targeted cost actions that we initiated at the end of Q4 '22. Our progress through 3 quarters gives us increased confidence that we will be able to offset inflation and FX impacts and deliver on our margin expansion objective of approximately 50 basis points for fiscal '23. Let's move ahead to closed sales on Slide 13. Third quarter closed sales were $62 million, up from $57 million in Q3 '22 and bringing our year-to-date total to $156 million, $13 million below Q3 year-to-date '22. Over the last 5 years, we have closed on average 46% of our full year sales in the fourth quarter. So meeting our full year close sales objective continues to be heavily dependent on Q4 performance. I'll turn now to cash flow on Slide 14. Q3 '23 free cash flow strengthened to $162 million, up 189% from $56 million in the prior year period. Free cash flow conversion over the last 12 months calculated as free cash flow over adjusted net earnings improved 12 points sequentially to 63%, driven by operating cash flow improvement. And this improvement was the product of strong working capital management and most notably, a year-over-year decline in the level of client platform spend consistent with our expectations. Total client platform spend for Q3 '23 was $74 million, a reduction from last year's $114 million. The wealth platform was the primary component of the investment in the quarter and the lower spend demonstrates our progress in completing the testing and development phase of that project. We are clearly managing the investment spend, and we now expect to deliver fiscal year '23 free cash flow conversion that is significantly higher than fiscal '22, and we remain confident that we will continue to return to more historical levels of free cash flow conversion in fiscal year '24. And before moving on from our client platform spend, I'll add that consistent with our prior comments, we are on track to complete the spend on the wealth platform in Q4 '23 and recognized revenue during the first quarter of fiscal 2024. And as Tim said, we've made progress on finalizing a rollout approach that delivers solid economics to Broadridge, and we'll share more on the near-term economics when we finalize the plan with UBS. We continue to have confidence that the operating leverage and the ability to prioritize other investments inherent in our business model will allow us to mitigate the dilutive impact and continue to deliver on our earnings growth objectives. Let's now move to Slide 15 to discuss capital allocation. On Slide 15, you see that year-to-date, we've spent $315 million on investments for growth and returned $214 million to shareholders. Our capital allocation model balances investment for growth with capital return to shareholders while maintaining an investment-grade credit rating. And we feel very good that the combination of our earnings growth and free cash flow after lower client platform spend in fiscal year '23 has us on track to pay down debt and continue to make progress towards the 2.5x leverage ratio objective that we communicated at the time of the Itiviti acquisition. Next, let's turn to our updated guidance on Slide 16 and some final thoughts on our fourth quarter. First, we expect to deliver recurring revenue growth at the higher end of our 6% to 9% guidance range. And as always, this guidance reflects a constant currency view. And it's important to note that year-to-date, there is a [1.8 point] differential between the reported and the constant currency recurring revenue growth. Second, we are reaffirming our adjusted operating income margin expansion guidance of approximately 50 basis points and adjusted EPS growth of 7% to 11%. Finally, on closed sales, we expect to be near the low end of $270 million to $310 million. And I want to reiterate that the delays in the timing of sales have only a very modest impact on our medium-term revenue outlook given our strong sales backlog. Embedded in this full year guidance is a strong Q4 '23, and there are 3 items worth highlighting as the primary drivers of growth in Q4. First, continued conversion of sales to revenue, and I'll emphasize the visibility that the revenue backlog provides. Second, proxy revenue from position growth and as I said earlier, we have strong visibility into this seasonally important quarter, having already received over 92% of record data. Finally, significant margin expansion as we grow over discrete growth investments in fiscal '22 and see the impact of targeted cost initiatives that we initiated at the end of Q4 '22. And before I close, I want to quickly address some questions that we've received over the last few weeks about our exposure to regional banks. First, our revenue exposure from the banks that have stopped operating is less than 20 basis points of our $3.7 billion of fiscal '22 recurring revenue. Regional banks more broadly make up less than 2% of our overall recurring revenues across the more than 900 client relationships. Finally, the overwhelming majority of our banking operations and deposits with the systematically important banks is our internal policies prioritize safety of capital. So again, we have very small exposure to these institutions. With that final note, I will close by reiterating my key messages. Broadridge delivered strong Q3 financial results. We are positioned to deliver strong fourth quarter results and more importantly, another strong fiscal year. Our updated guidance calls for the higher end of 6% to 9% recurring revenue growth, constant currency, higher margins and 7% to 11% adjusted EPS growth. We have finalized the wealth platform development and testing, our past or peak investment spend and once again, driving strong free cash flow allowing us to pay down debt and progress on our investment-grade 2.5 leverage ratio objective. The strength and resiliency of our business and financial model is visible in our performance and as Tim noted, we are poised to deliver against our 3-year growth objectives for the fourth consecutive time. And with that, let's take your questions. Back to you, operator.

David Togut :

Could you just go perhaps a level deeper, Tim, on some of the delays you're seeing in new bookings, particularly why you think some of the longer sales cycles in Europe will kind of reach fruition over the next couple of quarters and not materially affect FY '24?

David Togut :

Appreciate that. And just as a follow-up, Edmund, I've received some investor questions about the implied fourth quarter guide, perhaps suggesting a steeper-than-normal ramp versus the March quarter. And I know you did call out kind of extensive testing pointing to a strong proxy season. But is there anything else in the implied fourth quarter guide that would suggest a steeper June versus March quarter ramp?

Operator:

The next question is from Dan Perlin of RBC.

Edmund Reese :

Yes. I mean -- so thanks, good to have you join the call, Dan, first of all.

Edmund Reese :

What I would say is you've seen the sequential uptick 48% from fiscal '22, which had our peak level of investment in it. We said that, that client platform spend was going to be lower beginning in Q2 of '23 after going through our peak quarter of Q1, and we saw that client platform spend was down 50% in Q3 -- in Q2 and is down 35% in Q3, and I expect to see the continued decline year-over-year as we go into Q4 as well. As a result, you've seen the free cash flow conversion tick up 10 points over the last 2 quarters and sequentially in each of those two quarters. So as that client platform spend drops, we'll continue to see improvement. We're not yet ready to give exactly what that number is for fiscal '23. But I think the trend you see gives us -- is what gives us high confidence that we'll continue to see it significantly better than fiscal year '22. And as we've been saying this entire time trending towards our more historical levels as we go into Q4 '24 -- as we go into fiscal year '24.

Tim Gokey:

Yes. Dan, thank you very much. And also this is Tim. Also welcome to the call. Thank you. Good to have you here. I think there are -- as we've said in past calls, it is we really like the evolution of how we're going to market in terms of a componentized approach, which really allows clients to, as we call it, transform on their terms, which means really take a North Star and put in place solutions that are on the direction to that North Star that create value along the way. We are seeing a lot of interest in some of the foundational technology, the client and relationship master and that really sort of pulls things together with our onboarding solution. We're seeing strong interest in corporate actions and have multiple firms in the pipeline there. That's been a sore point for the industry for some time. And in addition to the components of the existing platform, they are all the existing solutions we had, which -- things like securities-based lending and other solutions to digital marketing that are -- have strong demand as well. So it's been nice to see the growth this quarter but really more importantly, to see how the pipeline is building over time.

Peter Heckmann :

I just wanted to see if you had any additional thoughts on tailored shareholder reports and where Broadridge might see opportunity to offset some of the revenue loss related to notice and access.

Peter Heckmann :

That's helpful. Helpful insight. And then can you just remind us in terms of the -- I think is it the retirement account trading business that generates the float? And remind us just some of the mechanics there and kind of what type of flow we're talking about.

Operator:

The next question is from Darrin Peller of Wolfe Research.

Tim Gokey:

Yes. Absolutely. Darrin, let me just start with the second part first. Obviously, this, as we have built, the platform has been a significant investment for us. And as we look going forward in terms of bringing on additional clients, we would -- I wouldn't say that the investment to bring on additional clients is 0, but we expect to be much, much lower. It's not the platform build. There's just really the data conversion and things like that. It's also -- since it's a componentized approach, the testing is dramatically simpler. And so the investment to bring on new clients will look a lot more like our regular GTO business, which does have pretty attractive incremental margins. So we do expect good incremental margins on those. Let me come to your free cash flow topic. And let me just wrap in something to that. So -- and just to be clear, I didn't -- none of us said it will be 100% in '24. What we just said is historically, it has been around that number, and we will be going to more historic. So it's a little bit like the transitive property of a equals to b, but we're not committing to that now, and it's a little too early in the cycle for that. I do want to call your attention, though, I think that as we return to high free cash flow conversion, what it really does for us on the capital allocation side. And our capital allocation is really unchanged from what it has been, but the result of that can be different. So we're committed to investment-grade credit rating. We're committed to growing a dividend to then funding high-return internal investments, making high-value tuck-in M&A and then not letting capital build up on the balance sheet to return excess to shareholders. And so we're really at an inflection point now with 2 things going on as we enter '24. So first, we do expect to return to more historic free cash flow conversion. And second, as we exit '23, we're trending strongly towards our committed 2.5x leverage, which means a lot less need for debt paydown. So therefore, and when we get there, which we're not there yet, but when we get there, we'll have a lot more flexibility to return to our historic approach on capital allocation that really balances share buybacks and strategic tuck-in M&A. And as I mentioned last quarter, we expect an outcome of all of that to drive increased ROIC to the mid- to high teens over the medium term. So we do think that this -- we did want to make an emphasis on the cash flow point in this quarter because we do think we're sort of turning a page here and moving to something that people will like going forward.

Tim Gokey:

Sure. Let me take the Crédit Suisse, UBS piece first. And to be clear, the transaction hasn't closed, UBS has not completed its integration plan. So all of this is very preliminary. But if you look at the footprint of the 2 institutions and how it lines up versus us, first of all, on the wealth side, Crédit Suisse does not have a significant wealth business in the United States. There's very little impact there. I will note that UBS has reaffirmed that continuing to grow U.S. wealth will be a strategic priority for UBS. And so in terms of the work that we're doing with them on the wealth side, that will continue. And we've seen really no slowdown in their focus on that. The other side of things is the capital market side. And as you may know, UBS is an important client for us on the capital market side in North America. Crédit Suisse is as not a client for us on that side. And so that's an opportunity. UBS does plan what they've said certainly as a sort of speculation. What they said is that they will be reducing the size of that business in Crédit Suisse. But that said, whatever is left. And again, I don't have any specific information on this, but it would be logical for them to try to consolidate infrastructure and to bring that on to the Broadridge infrastructure. So we think that will be a modest uptick for us. So as we look at that overall transaction, we're seeing it as a modest uptick. Then on to position growth, it's a bit of a two-fold question there, Darrin. But on to position growth, it has been elevated the past 2 years, and investors have wondered if we'd see positions decline to pre-pandemic levels or if it would grow from that new base. And that's been a question throughout this year. I think now with 92% of the data in for this year, we feel pretty confident in our outlook. We do have early testing on the first half of next year. It's pretty early to make any real reference about that, and that is a relatively small part of the year. But all that said, there's nothing in that, that indicates anything other than a continuation of the trends next year that we're seeing now. And so I think our conclusion on this is that there was a sort of a fundamental onetime lift that took place during the pandemic as people moved on to some of the new free trading apps and other kinds of things. And then what we're seeing is on top of that new base the continued growth from the other long-term drivers that you and I have discussed before, including managed accounts and more recently direct indexing. So that's sort of how we're seeing it play out. We have a little less insight on sort of specific economic indicators and things like that, but really just more focused on the long-term trends.

James Faucette :

Appreciate your comments on capital allocation and how you expect that to change or return to previous uses. I'm just wondering on particularly acquisitions. We saw acquisition of one of your BTCS competitors in SimCorp over the past week? And how does that impact your thinking on acquisitions generally and how should we be thinking about the assets you could be targeting either by geography or product, et cetera?

Edmund Reese :

And the only thing I'd add to what Tim said, which was spot on, James, is that we continue to have our revenue growth model focused on organic growth. We drive 5 to 7 points of our recurring revenue from organic growth drivers. And if we find, as Tim just said, the right sort of tuck-in strategic fit, then we could expect to see 1 to 2 points of growth from that.

Edmund Reese :

So let me start, James, and Tim might jump in here. As we just said in the prepared remarks, we are now complete with the development and the testing of it and still on track to go live in this calendar year and start to recognize revenue in fiscal -- in our first quarter fiscal '24. And when we finalize that rollout plan with them, we'll share more specifics on the economics of it. As we said before, we'll recognize that revenue in fiscal '24 in the first quarter of that. It will be dilutive to us. As Tim just said, we have a very strong pipeline. We'll be able to bring on more sales that are at very accretive margins to us to help us get back to the returns that we've historically seen in our rollout. And so that's what we're focused on now, and we'll share more as we finalize the plans with UBS.

Operator:

The next question is from Puneet Jain of JPMorgan.

Tim Gokey:

Sure. Sure, Puneet. I think that -- I think part of the good news is that our clients are continuing to prioritize their technology spend. And I think they view -- in many cases, they view that as table stakes to continue to drive their business forward. And so it's interesting that we haven't really seen any decline in the volume of conversations. And so that's what makes us believe that this is more of a timing issue. Is it weak macro? Is it just the number of other moving parts that they have? It's hard for us to untangle those. But it's -- what we're heartened by is that the conversations continue to be very positive.

Edmund Reese :

So Puneet, we've continued to see balanced growth across those 2 items, not just this year, but historically, over the past few years, balanced growth, half of it coming from converting the sales backlog, that Tim mentioned earlier, to revenue. We saw 4 points from that in this quarter and the other half coming from the position growth that we've seen and other trading growth in our GTO business. In this particular quarter, we saw 5 points coming from that. And I think you're going to continue to see that same balance of contribution from those 2 areas as we move forward into Q4 and again, as I mentioned to David earlier, I think our -- the actions that we've taken on the expense management side of it will play a big role in our ability to be able to hit the Q4 objective as well.

Tim Gokey :

Thank you, operator, and thank you, everyone, who has joined us today. I hope, as you can tell, we're excited about our progress against our long-term objectives and about the way those are playing out within this year and how that sets us up for the future. We are making important progress on our key strategic milestones across each of our businesses of governance, capital markets and wealth. We're seeing the benefits of that in our business results, and we're seeing the benefits of that in really increasingly strong free cash flow. So thank you very much for your interest in Broadridge. We look forward to reporting the results of another strong and consistent year to you when we meet in August. Thank you.

Edings Thibault:

Thank you, Allison, and good morning, everybody and welcome to Broadridge's second quarter fiscal year 2023 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, Edmund Reese. 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. With that done, let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you, Tim and good morning, everyone. I'm pleased to share the results from another strong quarter where recurring revenue growth and continued disciplined expense management drove double-digit adjusted EPS growth, even in the challenging macroeconomic environment. We continue to see organic recurring revenue growth from converting our sales backlog to revenue and healthy position growth. This performance in Q2 and the continued execution of our strategy gives us the confidence to reaffirm our fiscal '23 guidance. As you can see from the financial summary on Slide 6, recurring revenues rose to $840 million, up 8% on a constant currency basis, all organic. Adjusted operating income increased 23% as we lapped elevated investment in fiscal '22 and realize the benefit from targeted cost actions that we initiated in Q4 '22, both of which more than offset the impact of the lower event driven revenue. AOI margins of 13.4% expanded 220 basis points, and adjusted EPS rose 11% to $0.91. Finally, we delivered closed sales of $65 million. I'll note that the operating income growth is being offset by lower discrete tax items in Q2 '23 and interest rates. On taxes, we continue to project an overall tax rate of 21% for fiscal '23. And I'll remind you that while higher interest expense partially offsets operating income growth, the interest rate impact at the Broadridge level is fully offset by higher float income in our ICS segment. Let’s get into the details of Q2 results, starting with recurring revenue on Slide 7. Recurring revenue grew 8% to $840 million in Q2 '23, marking a second consecutive quarter near the higher end of our full year guidance range of 6% to 9%. Our recurring revenue growth was all organic, again, keeping us on track to exceed our 5% to 7% three year growth objective. Let's turn now to Slide 8 to look at the growth across our ICS and GTO segments. We continue to see growth in both of our segments. ICS recurring revenues grew 10%, all organic to $467 million, with regulatory at 9% and double-digit growth across all other product lines. The 9% increase to $181 million in regulatory revenue was driven by continued growth in equity and fund positions. Data driven Fund Solutions revenue grew 11% to $96 million, propelled by revenue from sales in our data and analytics products and higher float revenue in our mutual fund trade processing unit. Our issuer business revenue increased 12% to $27 million, led by growth in our registered shareholder solutions. Finally, we continue to benefit from strong demand in our Customer Communications business. Where recurring revenues rose 11% to $163 million, driven by new client wins in print and growth in our higher-margin digital business. Turning to GTO. Recurring revenues grew to $373 million or 6%, driven by new sales and continued strength in our capital markets, including BTCS, Capital Markets revenues grew 12% to $235 million, again propelled by strong growth from BTCS, new sales and higher fixed income trading volumes. Wealth and Investment Management revenues declined by 3% to $138 million. Growth from sales was offset by a decline in license revenue as we grew over a large client renewal from Q2 '22. As a reminder, license revenues can impact quarterly revenue growth, and we expect to grow over impact in Q3 for capital markets and in Q4 for Wealth Management. Looking forward, we expect GTO full year organic growth to be within our targeted 5% to 7% range. Now let's turn to Slide 9 for a closer look at volume trends. We had solid position growth for both equities and funds. As you can see by our results, investor participation in financial markets has remained steady despite market volatility. And we continue to be encouraged by this long-term tailwind. Equity position growth of 9% was driven by continued double-digit growth in managed accounts. Looking to the seasonally larger second half, our testing continues to show mid-single digit growth. And with those results, we continue to expect equity position growth in the mid to high-single digit range for the full year. Mutual fund position growth moderated from Q1 '23 levels, but still grew 6%, largely driven by the growth in passive funds. We expect to see continued mid-single digit growth in the second half. Turning now to trade volumes on the bottom of the slide. Trade volumes grew 5% on a blended basis in Q2 driven by double-digit fixed income volume growth and modest equity volume growth as continued higher trading by institutional investors more than offset the lower activity at our retail wealth management clients. As we lap a strong Q4 '22, we continue to expect full year trading volume growth to be essentially flat for the year. Let's now move to Slide 10, where we summarize the drivers of recurring revenue growth. Recurring revenue growth of 8% was all organic and this organic growth was balanced between net new business and internal growth. Revenue from closed sales and our continued high retention from existing customers contributed 4 points and internal growth primarily positioned growth in trading volumes also contributed 4 points. Foreign exchange impacted recurring revenue by 2 points with the bulk of that impact coming in our GTO business, as you can see in the table on the bottom of the slide. I'll finish the discussion on revenue with a view of total revenue on Slide 11. Total revenue grew 3% in Q2 to $1.3 billion, with recurring revenue being the largest contributor driving 4 points of growth. Event driven revenue was down $27 million from the prior year and was a headwind of 2 points as mutual fund proxy activity slowed to a historically low level, the lower mutual fund proxy activity is driven by the timing of fund in ETF board elections as funds reacted to the combination of weaker markets and record withdrawals. Board elections for these funds may be pushed back from time-to-time, but they are not an optional activity and over the long term, event driven revenue will grow in line with fund and ETF position growth. Looking ahead to the second half of fiscal '23, we expect the combination of higher contest activity and lower mutual fund activity will have us trending towards the low end of the $240 million to $260 million range that we've seen in recent years. Low to no margin distribution revenues increased by 3% and contributed 1 point to total revenue growth, as the higher volumes in customer communications and the impact of the July postal rate increases offset lower event-driven activity. We continue to expect double-digit distribution revenue growth for the full year. And I'll reiterate that the elevated distribution revenue from July and January postal rate increases and higher customer communications volumes have a dilutive impact on our reported adjusted operating income margin. Turning now to margins on Slide 12. Adjusted operating income margin for Q2 '23 was 13.4%, a 220 basis points improvement over Q2 '22, driven by the operating leverage in our business, higher float income, continued disciplined expense management and the impact of targeted cost actions that we initiated at the end of Q4 '22. Our progress through Q2 gives us increased confidence that we will be able to offset inflation and FX impacts and deliver on our margin expansion objective of approximately 50 basis points for fiscal '23. Let's move ahead to Closed sales on Slide 13. Second quarter closed sales of $65 million which brings our year-to-date total to $94 million, that's 16% off of H1 '22. Strong ICS sales in the quarter were powered by the large digital wealth and focused sales that Tim mentioned earlier. As a reminder, closed sales are historically weighted towards the fourth quarter. And given our robust pipeline, we remain on track to achieve our full year closed sales guidance of between $270 million to $310 million. I'll turn now to cash flow and capital allocation on Slide 14. I'll start with a reminder that Broadridge's cash flow generation is typically negative in the fiscal first quarter and strengthens over the course of the year. And we're seeing that trend play out again this year. Q2 '23 free cash flow improved to $104 million, up 276% from $28 million last year. Free cash flow conversion calculated as free cash flow over adjusted net earnings was up 10 points over last year to 51% driven by operating cash flow improvement. This improvement was the product of higher earnings, strong working capital management and most notably, a year-over-year and sequential decline in the level of client platform spend as we expected. Total client platform spent for Q2 '23 was $78 million, a reduction from last year's $154 million and less than half of the Q1 '23 level of $163 million. The wealth platform accounted for the majority of the investment in the quarter and the lower spend is a strong indicator of our progress in completing the development of that project. As we remain on track to recognize revenue on the wealth platform in mid calendar '23, we expect client platform spending to continue to be lower than last year. Keeping us on track to deliver free cash flow conversion that is higher than fiscal '22. We remain confident that we will return to more historical levels of free cash flow conversion in fiscal year '24. On Slide 15, you see that the client platform spend is our most significant use of cash and that we continue to return capital to our shareholders through the dividend. Let's turn now to Slide 16 to review our fiscal year '23 guidance, followed by some final thoughts on the second quarter results. We are reaffirming our full year guidance on all of our key financial metrics. We continue to expect 6% to 9% constant currency recurring revenue growth driven by healthy growth across ICS and GTO approximately 50 basis points of adjusted operating income margin expansion and adjusted EPS growth in the 7% to 11% range and closed sales between $270 million to $310 million. And before I move on from guidance, let me briefly discuss our second half outlook, which is embedded in that full year guidance. We expect Q3 adjusted EPS growth to be in the low to mid-single digit range as the impact of continued recurring revenue growth is partially offset by lower capital markets license revenue. We expect adjusted EPS growth to be higher in the seasonally larger fourth quarter as we recognize the benefit of growth in our proxy business and the timing of investments. Finally, let me reiterate my key messages. Broadridge delivered strong Q2 financial results. Demand for our mission critical technology is strong, and our testing is showing continued equity and fund position growth in a seasonally larger second half of the fiscal year. We are now past the peak period of investment and again, driving strong free cash flow in Q2 '23, and we continue to expect our client platform spend to be lower than last year, resulting in improved free cash flow conversion in fiscal '23 and a return to a more historical conversion level in fiscal '24. We have a resilient business and financial model with a proven track record of performance through the economic cycle, but we are reaffirming our fiscal year '23 guidance. With that, let's take your questions. Operator?

David Togut:

Good morning. I'll ask my question and follow-up together upfront. First, both Tim and Edmund, you reiterated your view that you'll recognize revenue from the UBS contract in mid-calendar 2023. What does the annualized revenue and profit run rate look like from that contract kind of once you're up and running?

David Togut:

That's the first question. The second question is really the guide to decelerating stock record growth in the second half to mid-single digit from 9%. What's behind the deceleration in stock record growth in the back half?

Edmund Reese:

Maybe I'll start off with the first question. And good morning, David, and thanks for the question. I mentioned on our last call, in Q1 -- for Q1 '23 in November that we expected the annualized revenue on the existing and in-flight contracts that we're working on to be roughly $100 million and the amortization associated with all of the build and conversion cost to be roughly about $65 million. We continue, as I said in my prepared remarks, to expect to recognize revenue in mid-calendar '23, this will not be at the full annualized amount that I just mentioned and that we shared in November. The fiscal '24 specific amount will be subject to the rollout approach that UBS has and will have a more definitive view of what those near-term economics are when we finalize those plans. And as we've previously mentioned, I'll go on to say that we do expect it to be dilutive to margins, but we can offset that and continue to deliver margin expansion. I think the important thing, as we mentioned -- we both mentioned in our prepared remarks is that we're now past that peak period of investment and expect to return to more historical free cash flow and be able to deliver on our long-term financial objectives. Tim, I'll maybe turn it to you for the second component.

Edmund Reese:

And David, I'd just add to Tim's point. Again, equity position growth of 9% is flat to last year and the testing that Tim just mentioned continues to be in line with what our expectations were in our original guidance and what we have as well at that mid to high-single digit level. So we are reaffirming our guidance and outlook on that. And again, the same thing with the fund position growth as well. You saw a little bit of a deceleration sequentially in that. But again, we said mid to high-single digits, and we still expect that level to play out.

Operator:

And our next question today will come from Peter Heckmann of D.A. Davidson. Please go ahead.

Timothy Gokey:

Yeah. Thanks, Peter. It's Tim. I do think that this is one of those things, it's the latest in a long series of investment product innovations that have help drive sort of the broad trend that we call the democratization of investors on top of things we're all familiar with, like 401(k)s (ph) and IRAs and ETFs and managed accounts. It's pretty early days. I think it is even too early to really sort of pick it up in the numbers, you sort of begin to see it as a sort of like the barest of breezes if you're trying to sort of talk about tailwinds. And I do think it's one of those things that could gain traction. There's a lot of benefits for investors in it relative to tax efficiency. So not a big driver today. I think of it as not necessarily something that is going to lead to a -- I'd like to be here telling you it's going to lead to some sort of fundamental change in the growth trajectory. I think it is something that just really supports the long-term trends that we've seen. And if we see it begin to begin to have a real measurable effect, and we'll begin to talk about it and break it out. But we're not seeing it really as an independent thing yet, but we are seeing it as one of the things that gives us confidence in the long term.

Timothy Gokey:

Yeah. I'll let Edmund add on to this, but retirement is not a huge direct part of our business. We do serve all of the retirement record keepers in their client onboarding. And then we serve a lot of the 401(k) market in our mutual fund trade processing. So we have a couple of our smaller businesses that directly serve. And then obviously, it's a big factor for all of our wealth management clients. It's a big portion of wealth management. So we don't see a -- I'm not sure that we're going to be sitting here a year from now saying we have a significant change in growth because of this, but it is something that is going to put more money directly into investing, help our clients, help their ability to invest, and I think will be generally a tailwind for a couple of our smaller businesses.

Peter Heckmann:

Great. That’s helpful. Appreciate it.

Darrin Peller:

Hey, guys. I wanted to touch based on, we always have this seasonal pickup in the second half for bookings for closed sales that we have to like, we have to prepare for, which is honestly sort of to be expected. I think you guys were around 20 to 20% or maybe 21%, 22% of your budgeted bookings in this quarter, which is, again, seasonally normal. So maybe just make sure we get a little more color on what the actual drivers are of your conviction on the pipeline and what parts of the business they're coming from for the second half of the year to meet those targets that you guys have for the full year. And just as a part of that, I mean, how much conviction do you have now? And are you seeing any of those numbers flow through to the wealth side coming out of, again, I know the UBS contract will be up and running and -- but it's not going to be very profitable. So it's really relying on other contracts and other revenues to complement that platform. Are you seeing any evidence of that yet? Thanks, guys.

Edmund Reese:

And Tim, I'll add one important point. And Darrin, I know you know this, the closed sales that Tim has just been discussing here, the in-year closed sales have aren't as impactful on our full year recurring revenue. It's the revenue backlog of what we've already closed, which is now 12% of recurring revenue, that's the big driver of our growth. So I think everything Tim said is correct, but the revenue backlog is what gives us the confidence in our ability to be able to hit the guidance this year.

Timothy Gokey:

Yeah. I think that comes back to the -- anecdotally, when I think about the specific conversations that I'm involved in and enthusiasm as people see those components and see them live. And then numerically, it really comes back to the pipeline and comparing that year-over-year, which there is a substantial increase. So I think this is more of a topic that we don't have the news on the actual sales, but we have the news on the pipeline and there'll be a ongoing topic (ph).

Darrin Peller:

Guys, just one quick follow-up is on the position side. Obviously, position growth and equity in mutual fund is really out of your control. It's a market dynamic. But there's -- clearly, there's some correlation to what people have in their savings accounts and what they can do in stocks or anything else in that matter in terms of investing. And so I guess just looking forward maybe into '24 and beyond and I know it's early, but if you do see a change in the patterns of position growth rates, I mean, is this company do you feel that the drivers outside of that are strong enough to sustain the medium-term type targets you've been showing? It seems like there's a lot of wood in the fire that provide for sources of growth, but I'd just love to hear your thoughts. Thanks.

Edmund Reese:

Yeah. And again, I'll just add to Tim's point, position growth -- we have a very diversified business. Position growth drives 20% of our overall recurring revenue. So I'll point that out. But I just reiterating a point that Tim made, you won't be surprised. We look six months out and have confidence in that information, and we come and share that with you. You won't be surprised, we won't be surprised and we have the flexibility in our model make adjustments and ensure that we're still online with our growth objectives and guidance that we give if we see anything like that.

Operator:

Our next question today will come from James Faucette of Morgan Stanley. Please go ahead.

Timothy Gokey:

Yeah. Sure. And first of all, James, welcome to -- welcome to the call. Great to have you on.

Timothy Gokey:

And I do think, look, there have been lots of lessons learned in the work with UBS. I think in the future, we would break things like this into smaller pieces and do them a little bit differently. So that's definitely a learning. But moreover, we have built a lot of muscle as we have gone through this in terms of our project management technology tracking, the level of our ability now to look at -- we've converted all to agile. Where we are in the agile sprint. The number of story points left, the velocity and the story points. When you get into the testing, what are the expected defects, what are the defects on the defects when they're retested. How do you model all that out from a capacity standpoint. And we've built a whole platform around that, which we're now using rolling out to the rest of the company. And so it's been a pretty incredible maturation as well as just becoming much, much more mature on leveraging AWS. A lot of this new technology for UBS is all based in the cloud. And our maturation around that and around the development productivity that we're seeing is something that I'm very, very excited about. So we've talked about how this work is really driving the technology transformation of Broadridge to be the true SaaS company in the future. And I think that piece is really playing out well. So thank you for the question.

Timothy Gokey:

Yeah. Absolutely. So tailored shareholder reports, as a reminder to everyone, what for the annual and semiannual reports that people get around fund communications, it's two communications a year instead of getting either a link to or a notice of a very long report that's difficult to read. People will receive, investors will receive a two to three page summary, just like some prospectus years ago. And we think this is very positive for investors all the testing shows that it is much, much clearer for investors to see, is more cost effective for funds in the long-term report is much more digestible to be e-delivered and we're big fans of e-delivery. So a lot of positives all around. For us, as we said on the last call, there is the slight flying that we get paid right now for these notices. I think we said $30 million some and that will go away. In the meantime, as we talk to our fund clients, this change, while it sounds simple, create some real complexities for them. The reports are -- the mandate is the reports come to investors not with a sort of generalized expense table that pertains to many different share classes, but it is tailored specifically to the share class that, that investor has. And so in talking to our fund clients, we talked to one fund complex who today does 200 different reports. In the future, they're going to need to do 1,200 different reports. So the scale of the work on them in terms of even though the reports are short, creating them in a very tailored way specific to each investor, there's a lot of complexity there. And that's all around data management. Converting that data and composing it digitally and being able to send that. That's something that's a real strength of ours. And so we think that there is an opportunity for us to really help the industry. We've had a couple of webinars, one with Ignite, one with Nixa among the best attended webinars for those groups over the past year because there's a lot of interest in the fund industry about how do they meet this mandate, which is, on one hand is sort of -- it sounds like it makes sense from an investor standpoint, but view the one having to actually deliver it, it's tough. And so we are definitely working with fund clients. We definitely think we can help be part of that solution.

Operator:

Our next question is from Puneet Jain of JPMorgan. Please go ahead.

Timothy Gokey:

Puneet, it's Tim, and I'll let Edmund add on this. It is, what we have is very specific testing where we're able to measure right now, how many positions are there in these funds, which allows us to say when we and how does that compare to where it was last year, and that's where we get the growth numbers for. We don't have specific data on macro versus tailwinds. What we do know is things like the positions in managed accounts. We're growing at double-digit rate the positions on non-managed accounts. We're growing more mid-single digits. So we can see that differentiation, you could do some math on that. So that's where -- when we talk about the tailwind, we can incrementally measure that, and that’s may be a point or 2. And then broadly, it's driven by the macro with these additions, but I’m going to see if Edmund can – cover on that.

Puneet Jain:

Got it. And it was good to know that the pipeline is strong, but are you seeing any changes in client behavior over the last few quarters in terms of maybe delays in decision making or flow deals through the pipeline? And any changes in client preferences for outsourcing versus in sourcing, given some macro pressures that they might be facing right now?

Puneet Jain:

Got it. Thank you.

Timothy Gokey:

Thank you. This is Tim. I'll just close things off. I want to thank everyone for joining us this morning. I hope that what came through is how pleased we were with our second quarter performance and our outlook for the full year, that our growth drivers remain healthy. Our business is resilient and that with our investment cycle increasingly behind us, our free cash flow is strengthening. So thank you very much. We look forward to continuing the conversation next quarter.

Edings Thibault:

Thank you, Cole. Good morning, everybody and welcome to Broadridge’s first quarter fiscal year 2023 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, Edmund Reese. 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 their comparable GAAP measures can be found in the earnings release and presentation. Additionally, on September 26, we filed an 8-K announcing changes to our segment reporting regarding the impact of foreign exchange rates on our business. This change is the final step in aligning our foreign currency reporting with industry standards and is reflected in our first quarter report. From this point forward, our earnings materials were referenced recurring revenue growth percentages on a constant currency basis, both for our results and our forward-looking guidance. Please reference our filings and investor materials for the corresponding reconciliations. With that out of the way, let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you, Tim and good morning everyone. I am pleased to be here to discuss the results from another strong quarter, where both top line growth and earnings were modestly ahead of our expectations. Though a seasonally small quarter, our first quarter results represent a strong start to the year and continued conversion of our sales backlog to revenue, our outlook for continued robust demand trends and the operating leverage, coupled with our disciplined expense management and the challenging macroeconomic environment gives us the confidence to reaffirm our fiscal ‘23 guidance. As you can see from the financial summary on Slide 6, recurring revenues rose to $806 million, up 9% on a constant currency basis, all organic. Adjusted operating income decreased 15%, driven by lower event-driven revenue and carryover impact of investments we made last year. AOI margins of 11.7% were also impacted by the continued drag from higher distribution revenues and adjusted EPS was $0.84. Finally, and as Tim noted, we delivered closed sales of $29 million. Our first quarter results benefited from strong position growth across both equities and funds and continued strength from BTCS. I’ll also note that while higher interest rates offset operating income, the interest rate impact to Broadridge is offset by higher float income in our ICS segment. Let’s get into the details of these results, starting with recurring revenue on Slide 7. Recurring revenues grew to $806 million in Q1 ‘23 or 9% coming in at the top end of our full year guidance range of 6% to 9%. Our recurring revenue growth was all organic, again, keeping us on track to exceed our 5% to 7% 3-year growth objective. Let’s now turn to Slide 8 to look at the growth across our ICS and GTO segments. We continue to see strong growth in both of our segments. ICS recurring revenue grew to $443 million or 9% with double-digit growth across three of our product lines. Regulatory revenues rose 4% and were driven by strong fund position growth. Proxy revenue growth was impacted by the timing of certain annual meetings which can have a disproportionate impact in what is seasonally our smallest quarter for proxies. More importantly, equity position growth of 9% remains strong and in line with our expectations as I’ll detail in a moment. Data-driven fund solutions grew 13%, driven by new client wins across our mutual fund trade processing and our data and analytics business as well as the impact of higher interest rates on our float income. Our issuer business increased by 16% as we continue to see growth in our disclosure products. And finally, our customer communications business grew by 11% and driven by continued demand for print and high single-digit digital growth. Turning to GTO. Recurring revenues grew to $363 million or 10% driven by continued strength in capital markets, including BTCS, and revenue from sales and wealth management. Capital Markets revenue grew 14%, propelled by strong growth from BTCS, new sales and higher fixed income trading volumes. BTCS revenue growth benefited from the removal of the deferred revenue haircut, excluding that impact. BTCS revenues grew at a high single-digit rate. Wealth and Investment Management grew by 5%, driven by revenue from new sales. Looking forward to Q2, we expect continued strong revenue growth from sales in Wealth Management to be offset by growing over an uptick in fiscal ‘22 license revenues from large client renewals. Now let’s turn to Slide 9 for a closer look at volume trends. As you can see by our results, investor participation in financial markets has continued to increase despite the market volatility. Q1 position growth was strong across both equities and funds. Equity position growth was 9% on the back of double-digit growth in managed accounts and mid-single-digit growth at self-directed accounts. Our testing of position growth continues to prove reliable as Q1 was in line with our July testing. We have now extended our testing into the seasonally critical second half of the year, and those results are giving us increased confidence in our forecast from mid to high single-digit growth for the full year. Mutual fund position growth has also been consistently strong, reaching 11% driven by growth in passive funds. And turning the trade volumes on the bottom of the slide, trade volumes grew 6% on a blended basis in Q1, driven by a 5th consecutive quarter of double-digit growth in fixed income volumes. Equity volumes were flat as higher trading by institutional investors more than offset the lower activity at our retail wealth management clients. Let’s now move to Slide 10, where we summarize the drivers of recurring revenue growth. Recurring revenue growth was all organic. Organic growth was balanced between net new business contributing 5 points and internal growth, primarily volume and expanding our relationships with existing clients also contributing 5 points. Our recurring revenue retention rate remained at 98%. Foreign exchange impacted recurring revenue by 2%, with the bulk of that impact coming in our GTO business, as you can see on the table at the bottom of the slide. I’ll finish the discussion on revenue with a view of total revenue on Slide 11. Total revenue grew 8% in Q1 to $1.3 billion. Recurring revenue was the largest contributor, driving 6 points of growth. Low to no margin distribution revenue increased by 13%, consistent with our outlook for low double-digit growth and it contributed 4 points to total revenue. We continue to see higher volumes in our customer communications business as well as the impact of another postal rate increase in July. Elevated growth in distribution revenue and the mix of distribution revenue from customer communications continues to have a dilutive impact on our reported adjusted operating income margin. which I’ll discuss in more detail shortly. Event-driven revenues were above our 7-year quarterly average and reached $63 million, $14 million lower than an unusually high Q1 ‘22. We continue to expect full year event-driven revenue to be in the $240 million to $260 million range, in line with recent years. Changes in FX lowered reported revenues by 1 point. Turning now to margins on Slide 12. Adjusted operating income margin was down 310 basis points from prior year to 11.7% in Q1. The positive impact of strong incremental margin on recurring revenue growth was offset by three items

David Togut:

Thank you. Good morning. Given the divergence between the strong revenue growth of 8% and the 15% decline in operating income, could you dig into your investment spending plans for this year, particularly as they affect both the income statement and the cash flow statement and the pacing of those plans. So we get a better sense of kind of the margin and quarterly earnings cadence throughout the year.

Edmund Reese:

David, thank you for the question. I want to reiterate a few points to add on to what Tim just said. First, if I think specifically about Q1, as Tim said, it was modestly better than our expectations. As you think about the divergence between revenue and the adjusted operating income decline. The key drivers there, as I noted in my earlier script, was the year-over-year growth in event-driven revenue. We had a very strong quarter, higher than our 7-year average at $63 million, but we’re coming off an unusually high Q1 ‘22. That’s the first item. And the second item was the carryover of the investments, which we will continue to do as we think about driving revenue growth in each of our businesses, the carryover of those investments into fiscal ‘23. As you look out for the rest of the year, first – the key point that I want to make is that – as you know, over 75% of our earnings have historically come in the second half of the year. The first half is a much smaller portion of our overall earnings, that we are an annual business, the noise in between the quarters, I do not think – we certainly run the company as an annual company. We think about our earnings overall. That said, I do expect margin expansion into second, third and fourth quarters. And I will reiterate the 50 basis points of margin expansion that we have as part of our guidance. We are coming off a very tough economic environment in the last 2 years and drove 60 basis points of margin expansion. So, I continue to be very confident in our ability to hit the margin expansion and to deliver earnings growth in the 7% to 11% range.

David Togut:

Appreciate that. Just as a quick follow-up. Edmund, you talked about the client platform investments, and that’s really the number one incoming investor question I get on Broadridge, which is expected returns on the large investments in the wealth management tech business. Can you shed any additional light on the pipeline? Any line of sight you have into other large signings beyond UBS a few years ago?

Tim Gokey:

Yes. Look, we continue to see the wealth platform as very much as a long-term positive for Broadridge. It’s doing three things for us. First of all, it’s definitely deepening our relationship with UBS, who we view as a long-term global winner. They have been a long-term partner. It says a lot about the work that we are doing together that at this point in the work the relationship is deeper than ever. That’s not always the case. It’s really setting us up to be a leading provider in the $16 billion wealth tech market, which obviously is why we are doing this. Wealth tech is a rapidly growing space. I saw some recent research in which 70% of wealth management firms are planning to increase their technology spend in the next 2 years. Others are investing, but we believe we have some real advantages. And it’s key part of our transformation as a company to being a modern SaaS provider. All this work is in the cloud. The key components like the workstation, API gateway integration layer are foundational to our overall tech roadmap. So, that’s we are excited about the progress that we are reporting today. And David, we really are seeing this as client discussions move from talking to showing. And when you are able to show real live software, it makes us very much of a difference in the conversation. I am just – I am thinking of a client conversation we are involved with now where the clients asked us to set up a sandbox with their data to have them be able to play with the applications, and we are able to do that in a matter of weeks. And that makes a big difference in the conversations. That’s why we are seeing the 25% increase in pipeline. And so as we look forward here, I think the markers of success are going to be going live with UBS, seeing sustained growth over time in our wealth management business. Now, these sales will start to convert to revenue not in this year. So, we are not talking about this year, we are talking about beginning next year and then also, the progress in our overall technology roadmap. I think those are some of the markers that investors should look for, and we are confident we are going to get good returns here.

Operator:

And our next question will come from Puneet Jain with JPMorgan. Please go ahead.

Tim Gokey:

Yes. Puneet, it’s Tim. Thanks for that question and it is an interesting one. I think that we are seeing a strong appetite for continued digitization and for moving platforms forward. I think we are also seeing a real healthy balance between internal builds versus mutualization. I think that as the world moves to more agile, people are thinking less about large-scale multiyear transformational projects and more about how they can step into things in ways that take – are quicker to come on and add value in a way that they can see. And I think we are seeing that both in North America and in Europe. When you look at our mix of sales last year, which was a record. It didn’t have any of those large transformational deals in it. So, I think we are – and I think that’s what we are seeing now is some nice chunky deals. But we are seeing not large-scale transformational ones. I think the exception to that a little bit is in customer communications where there are still significant players that have in-house platforms that where they are trying to think about that. And those – some of those could be larger. But on the technology side, it tends to be a sequence of really nice deals, and we like the velocity of that versus the bigger ones.

Puneet Jain:

Got it. And how is your appetite to do large deals changed, especially the deals that require costs sitting on your balance sheet? How has your appetite changed as a result of rising rate environment? Should we expect any changes in number or types of deals you pursue as a result of that?

Puneet Jain:

Got it. Thank you.

Darrin Peller:

Hey guys. Listen, maybe we start off just with the growth in the regulatory side and the position growth trends. I guess first of all, I was a little confused, maybe I missed it in the beginning of the call to see the revenue growth rate on the regulatory side at 4% versus position growth, which was I think it was 9% for equity or 11% for mutual fund. It looks pretty decent on the side on that trend line. And I would love to hear your latest thoughts on the sustainability of position growth. I know it’s always hard to tell for sure. But given what we are seeing with retail investors and some of the changing trends. Just curious your thoughts medium-term on that for us. Thanks guys.

Edmund Reese:

Just tactically on the first part of your question, in terms of the position growth at 9% in the regulatory have a lower percentage, the way I think about position growth, Derek, is – Darrin, is same-store sales. If you went to proxy in Q1 last year and you went Q1 this year, then you are in that position growth number. If you went Q1 last year, but Q2 this year, you are not in the quarterly position number you would be in the full year position growth number. And that’s what matters to us because from a revenue standpoint, it doesn’t matter which quarter you are coming in, we are going to have the benefit from that. So, that’s the difference between the position growth and the revenue that we see.

Tim Gokey:

Yes. I do – and remember, distribution, we have elevated distribution revenue last year. Again, that impacted the margins by nearly 50 basis points last year. The same thing we expect this year here with double-digit growth in distribution. I think what you will see is exactly what you just said. First, the initiatives that we initiated at the end of last quarter, we have executed on those, so we will see benefit from that. And then the scale, the natural operating leverage in our business as we go through the quarter and get into our seasonally heavier quarters with more revenue coming on, those things are coming on with incremental margins, and we see the expansion in the overall adjusted operating income margin as we move forward through the three quarters.

Operator:

And our next question will come from Patrick O’Shaughnessy with Raymond James. Please go ahead.

Tim Gokey:

Sure, Patrick. It’s a mix of both. I would say it is more on the component side. There are some firms that aren’t of the same size and scale of someone like the UBS that are looking at full solutions. And we would imagine those, again, stepping in more in a sequential kind of way than in the past. But then there are also larger firms looking at the components. And I think if you are to look across the entire pipeline, it would be much more weighted to the component side.

Tim Gokey:

And I think – and if I can just add on to that, which is I think one of our real learnings over the couple of years, the years we have been building this is, as we have built this in a very open way with all API-driven. And the original vision, as you recall, was really to create based on our back office, very open data layer being able to then take modules on top of that that would be built either by us, by our client or by other third-parties and be able to have that work seamlessly together. And so that vision is really more and more appropriate for what people want today. And so the ability for us to – whether it’s the back office or whether it’s the integration layer out to help people tie together what they are doing and then take some of our applications on top of that is, I think a real opportunity.

Edmund Reese:

Yes. I mean we continue to have a very consistent capital allocation policy, where we are balancing return to – return of capital to shareholders with our investments for growth, with continuing to maintain an investment-grade credit rating. So, as I think about the near-term with leverage rates that are higher than where we have historically been, we obviously stay very close to the rating agencies and have an objective to bring that debt down to a more sustainable leverage ratio, I would say, in the near-term, we are focused on that. But as free cash flow conversion increases going into fiscal ‘24, I think it gives us more capacity to return capital to shareholders to think about other investments, whether internal or external on the – back in line with what our historical practice has been smaller types of acquisitions, I think that’s going to be the focus for us with the free cash flow conversion.

Operator:

And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Tim Gokey:

Yes. It is Tim, I just want to thank everyone for joining today. I want to just reiterate how pleased we are with the strong results for the first quarter, strong outlook for the remaining of the year, the fact we are making good progress on our key investments that our business is resilient in an uncertain environment. And really just most important, our confidence in long-term growth, strong cash flows and strong returns for our shareholders. So, thank you very much. We look forward to continuing the conversation and seeing you next quarter.

Edings Thibault:

Thank you. Good morning, and welcome to Broadridge's fourth quarter fiscal year 2022 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, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. 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. 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 their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you, Tim, and good morning, everyone. I'm really pleased to be here to discuss the results from yet another strong quarter and strong year. I'll also provide you with some additional insights into our guidance for fiscal '23, which will position Broadridge to deliver at or above the higher end of our three-year financial objectives. As you can see from the financial summary on Slide 9, Broadridge's full year results came in at or ahead of both our fiscal year '22 guidance and our three-year objectives across all metrics. Recurring revenue rose to $3.7 billion, up 16% year-over-year. Organic growth was 9%. Adjusted operating income margin expanded 60 basis points, outpacing our annual margin expansion objective despite the drag from increased low to no margin distribution revenue and adjusted EPS grew 14% to $6.46. Finally, and as Tim noted earlier, we delivered record closed sales of $282 million, a strong year across all metrics. Turning to the fourth quarter. Recurring revenue grew 15% to $1. 2 billion, driven by organic growth of 12%. Adjusted operating income grew 25% and AOI margins expanded 250 basis points as we lap Q4 '21 elevated investment spend, and adjusted EPS increased 21% to $2.65. Again, operating income growth was partially offset by higher interest expense related to the acquisition of Itiviti. Our fourth quarter results benefited from continued position growth, strong execution across our product lines and the ongoing strong performance of Itiviti. Let's get into the details of these results, starting with recurring revenue on Slide 10. Recurring revenue grew by 15% to $1.2 billion in Q4 '22. Organic growth was 12%, driven by strong volume growth in new sales. Acquisitions contributed 3 points of growth in the quarter as we passed the one year anniversary of the Itiviti acquisition in May. Our 16% recurring revenue growth for fiscal '22 marks three consecutive years of double-digit recurring revenue growth. With organic growth at 8% in fiscal '21 and 9% in fiscal '22, well above our 5% to 7% three-year growth objective, we are well on our way to exceeding our three-year top line growth objectives. Now let's turn to Slide 11 to look at the growth across our ICS and GTO segments. We saw double-digit recurring revenue growth in both of our segments. In Q4, ICS recurring revenues grew 14%, all organic, to $807 million, including double-digit growth across all four product lines. Regulatory revenues rose 13% to $424 million on strong equity and fund position growth. Data-driven fund solutions revenue grew 11% to $103 million, driven by strong growth in our data and analytics solutions and our mutual fund trade processing unit. Our issuer business increased by 18% to $125 million as we maintain share in our virtual shareholder meetings platform and continue to grow our other annual meeting and disclosure products. Finally, our customer communications business had a very strong quarter, growing by 15% to $155 million, driven by a surge in volumes from onboarding new clients and double-digit growth in our higher-margin digital offerings. Customer communications is now delivering solid top line growth. That complements its strong earnings growth as it executes on its print to digital strategy. For the year, ICS grew at 11%, with all of our businesses at or above our organic recurring revenue growth objectives. Turning to GTO on Slide 12. Recurring revenues grew by 18% in Q4 to $382 million, driven by continued strong performance from Itiviti, higher capital markets fixed income trading volumes and an increase in wealth management license revenue. Organic growth was 9% for the quarter and 5% for the year. Capital markets revenues grew by 28% to $240 million, powered by Itiviti, revenue from closed sales and higher fixed income trading volumes. Organic growth in capital markets was 12% for the fourth quarter and 5% for the full year. And let me also take a moment to emphasize the strong performance in Itiviti. Itiviti, now BTCS, contributed 7 points of growth to Broadridge's recurring revenue, right on track with the expectation that we set when giving fiscal year '22 guidance and ahead of our profit expectations. Tim walked you through the progress that we've made in the year since the acquisition. So I continue to feel good about our integration, the revenue synergies and strong financial performance in BTCS and the strategy for the business going forward. Wealth and investment management revenues grew by 4% to $142 million, driven by growth from new sales and license revenue, partially offset by the impact of lower trading volumes at our wealth management clients. Full year organic growth was 5%. Now let's turn to Slide 13 for a closer look at the volume trends in ICS and GTO. Position growth remained strong in the fourth quarter across both equities and funds. Equity growth was 17% in the seasonally large fourth quarter. Our testing of position data continued to prove reliable as we finish the full year in line with our late April testing. F or the full year, equity position growth was 18%. Mutual fund growth also remained steady at 10% in the fourth quarter and full year growth was 14%. Turning to trade volumes on the bottom of the slide. Trade volumes grew 8% in Q4, driven by double-digit growth in fixed income volumes as investors sought to stay ahead of rising inflation in the more hawkish Fed. Equity volumes also increased as higher trading by institutional investors more than offset the lower activity at our retail wealth management clients. For the year, internal trade growth was 1%. Let's now move to Slide 14, where we summarize the drivers of recurring revenue growth. Recurring revenues grew 15%, powered by 12% organic growth and a 3-point contribution from acquisitions, primarily reflecting Itiviti revenue through mid-May. Internal growth, including strong position growth and fixed income trading, drove 8 points of growth and revenue from new sales contributed 6 points of growth. Our retention rate remained at 98%. I'll finish the discussion on revenue with a view of total revenue on Slide 15. Total revenue grew 12% in Q4 to $1.7 billion. Recurring revenue was the largest contributor, driving 10 points of growth. Low to no margin distribution revenue increased by 12% and contributed 3 points to total revenue growth, driven by a combination of higher volumes in our customer communications business and higher postage rates. That growth had a dilutive effect on our reported adjusted operating income margins that I'll highlight in a moment. EBIT-driven revenues were $70 million in Q4 '22, $2 million lower than last year, as lower contest activity was partially offset by continued mutual fund proxy activity. Looking ahead to fiscal '23, we are not forecasting any major mutual fund proxy events and we expect event-driven revenues to be in the $240 million to $260 million range in line with recent years. Turning now to margins on Slide 16. Adjusted operating income margin for Q4 was 25.3%, a 250 basis points improvement over Q4 '21, driven by strong recurring revenue growth and lapping the increased investment in our digital and technology platforms. For the full year, Broadridge delivered 60 basis points of margin expansion, exceeding our objective of 50 basis points despite elevated growth in low to no margin distribution revenue, which diluted our reported full year adjusted operating income margin by 70 basis points. As I have mentioned previously, we saw a modest impact from higher inflation, both in attracting and retaining talent and in material costs to offset that inflation impact and to prepare for a more uncertain economic environment. We took a series of targeted cost actions in Q4 '22. First, given our new hybrid work model, we continue to rightsize our real estate footprint and took a $23 million onetime charge related to those incremental actions. We have now closed or reduced 49 offices or 14% of our total square feet since the beginning of the pandemic in fiscal year '21. Second, we initiated additional business alignment initiatives that resulted in a reduction in both existing and open headcount. As a result of these cost initiatives, we expect to realize $70 million in annualized savings, which, along with the operating leverage inherent in our business model, will allow us to mitigate inflation, continue to invest in our long-term growth investments and meet our earnings growth objectives. Following the decision we announced earlier this year, we are closing our offices in Russia and will relocate associates who want to move. We incurred $1.4 million in expense related to that effort in the fourth quarter and expect another $25 million to $30 million over the course of fiscal '23 to wind down our business in that market. Both the onetime real estate costs and the Russian wind-down expenses have been excluded from our calculation of adjusted operating income and adjusted EPS. Let's move ahead to closed sales on Slide 17. We ended our fiscal year with another strong selling effort, closing $112 million in closed sales for the quarter. For the full year, sales grew by 21% to $282 million, ahead of our guidance range and marking yet another year of record closed sales. Importantly, these sales were balanced across ICS and GTO products, and we also saw a significant contribution from BTCS. Strong closed sales drove a further increase in our recurring revenue backlog, which reached $440 million or 12% of fiscal '22 recurring revenue. Importantly, our backlog gives us strong visibility into the revenue from closed sales that will power fiscal year '23 recurring revenue growth. I'll turn now to capital allocation on Slide 18. We are a growth company, and our capital allocation model remains focused on balancing investment for long-term growth and capital return to benefit our shareholders. Broadridge generated $370 million in free cash flow in fiscal '22 after investing $447 million in free cash flow in fiscal platform accounted for the most significant part of this investment. As we previously indicated, we are in a peak period of investment across multiple client platforms, including our wealth platform, where we are on track to reach code complete in fiscal '23. We also expect client platform investment to be lower in fiscal '23, with free cash flow conversion returning to more historical levels in fiscal year '24. We also remain committed to funding a dividend that grows in line with earnings having returned a net of $25 3 million to shareholders in fiscal year '22. We are pleased that our Board has approved a 13% annual dividend increase to $2.90 per share in fiscal '23, in line with our targeted dividend payout ratio of 45% of adjusted earnings. Finally, we repaid $95 million of debt as we continue to prioritize debt repayment over share repurchases until we reach a leverage ratio that is in line with our objective to maintain an investment-grade credit rating. I'll close my prepared remarks this morning with some detail on our fiscal '23 guidance, which is on Slide 19. Our guidance calls for mid- to high single-digit recurring revenue growth, continued margin expansion, solid adjusted EPS growth and another year of strong closed sales. Let's take each point in turn, starting with recurring revenues. We expect fiscal year '23 recurring revenue growth of 6% to 9%, all organic, with balanced growth across both ICS and GTO. The biggest driver of our growth is expected to beat new sales as we work to onboard our $440 million backlog. We also expect mid- to high single-digit position growth and flat trading volumes. And as always, the recurring revenue guidance reflects a constant currency view. In addition to recurring revenue, we expect low double-digit growth in distribution revenues, driven by solid volume growth and additional postage rate increases. As I indicated earlier, we expect event-driven revenues to be in the $240 million to $260 million range down from $270 million in fiscal '22. Factoring recurring, event-driven and distribution revenues, we expect total revenue constant currency growth to be in the 6% to 10% range. Second, we expect to expand our adjusted operating margin in fiscal '23 by approximately 50 basis points, driven by the scale in our business, the ongoing mix shift to digital and deficiency gains, including our recent cost initiatives. These drivers should enable us to offset inflation-related increase and the dilution from double-digit growth and low to no margin distribution revenues. Third, we expect adjusted EPS growth of 7% to 11%. Embedded in our adjusted EPS outlook is the impact of higher interest rates, which will drive a $35 million to $40 million increase in interest expense and the impact of the stronger dollar, which will lower our adjusted earnings growth by just over 1%. Keep in mind that while higher interest rates are impacting our interest expense line, the impact on Broadridge as a whole is largely neutral as our $1.6 billion in variable debt outstanding is essentially matched by cash balances held in our mutual fund trade processing and stock transfer businesses. So any increase in interest expense is offset by an equivalent increase in float revenue in ICS. We are also projecting an overall tax rate of 21% and a modest increase in diluted shares outstanding. Closing our discussion of EPS we expect to complete the integration of Itiviti and incur expenses related to winding down our operations in Russia. These expenses are not included in our calculation of adjusted EPS guidance. Turning now to our final guidance point, closed sales. We expect another strong year in sales, with the fiscal '23 guidance range of $270 million to $310 million including balanced sales between ICS and GTO. So to sum up, our fiscal '23 guidance emphasizes the strength and resilience of our financial model and our ability to drive sustainable recurring revenue growth through any economic environment, fund growth investments while expanding margins and delivering steady and consistent adjusted EPS growth, all while maintaining an investment-grade balance sheet and a balanced capital allocation policy. Before I move on from guidance, let me briefly discuss our Q1 outlook. Historically, Broadridge has generated 10% to 17% of our earnings in the first quarter. In fiscal 2023, we expect our Q1 earnings to be at the low end of that historical range, driven by lower event-driven revenues and the carryover impact of higher fiscal '22 expenses. And one administrative note for fiscal '23 and moving forward, beginning with our first quarter results, we will be completing the final stage of our recasted FX reporting. Given the increased size and scale of our international business and global operations, it is a appropriate to incorporate FX changes more fully into our reporting. You will recall that last year, we implemented the first phase of this transition by updating the fixed exchange rate for our segment revenues and for recurring revenue, which reduced the difference between the fixed rate and the actual rate that was recorded in our FX revenue line. We will now be translating changes in FX into our segment and recurring revenue reporting, allowing us to eliminate the FX revenue line entirely. As a result, you'll see the impact of changes in FX directly in our recurring revenue line rather than as a change in the FX revenue line. While this change will modestly reduce our reported recurring revenue, it will have little impact on our reported recurring revenue growth rate and no impact on our reported total revenue or profitability metrics. As we did last year, we intend to publish our historical revenue results at a recasted actual rate ahead of our first quarter earnings so that you have a chance to adjust your models. So where does that leave us? Let me wrap up by putting our fiscal '23 guidance in the context of our three-year financial objectives on Slide 20. Our guidance for fiscal '23 has Broadridge well positioned to deliver above the three-year growth objectives for organic recurring revenue and recurring revenue, in line or ahead of our margin objectives and with adjusted EPS growth at the higher end of our three-year growth objective range. Of course, we need to execute in an increasingly uncertain environment in fiscal year '23. By doing so, we will have delivered again on another set of three-year growth objectives. Just as we did in fiscal '14 to '17 and fiscal '17 to '20. That performance underscores the strength and consistency of our business model. Our strategy of growing our governance and capital market franchises and building a wealth management franchise as well as the long-term trends driving our growth. With that, let's take your questions. Operator?

David Togut:

I appreciate the call outs on the fiscal '23 guidance, Edmund. Can you talk to your expectations, though for Itiviti, which is clearly growing solid double digit and has margin well above your corporate average. And any expectation we should be incorporating from the UBS contract?

Tim Gokey:

Yes, Dave, from a modeling perspective, it's really incorporated in the guidance that Edmund gave. But just stepping back from it a little bit, obviously, we're pleased with the integration. What we were really pleased by is the confirmation around our strategic thesis with our clients and the conversations that we've been having with them about how we fit into their road map. And really as we look at our -- the way our technology architecture, the way our product roadmap overlaps with what our client needs as well as the real commitment to service that both Itiviti and Broadridge have and how that is resonating, so we really are seeing market share gains, and that's delivering the financial benefits that we talked about. And just to expand a little bit of the outlook I gave when I was talking is as you think about that as you think about that short-, medium- and long-term goals in terms of how we see this unfolding, we think there is a real opportunity over the next few years to take share in the front office. There is a real need out there for a next-generation solution, and people are really looking to us as the right partner for that. And we saw that with multiple competitive wins in this last year, which drove more than $3 million in sales, which we see continuing to grow. In medium term, we think there is opportunity around geographic and asset class expansion. And we're seeing the pipeline grow in North America. We saw some good sales in North America. So we're really having the opportunity to bring Itiviti to North America where it traditionally hasn't been as strong. We're getting introduced by Itiviti in Europe to their clients, and there's also a lot of opportunity in exchange-rated derivatives. And then longer term, that ability to really create a true front-to-back solution -- and some clients -- some of our clients are very excited about that because there's a lot of inefficiency today where the data in the front office and the back office don't match, and it creates a lot of internal inefficiency and brakes. And ability to bring that true back-office data all the way to the front, can really increase traders' effectiveness and ability for them to be effective in their business. So we are incredibly excited about this. Everything that we thought about it has been happening. And we're very excited about the long term. Now your second part of your question was on UBS, which I'm sure others will have that same question. And specifically related to '23, there's nothing in our guidance about for this. We're really expecting the revenue to begin to be recognized after our '23 fiscal year as we talked about sort of in summer of calendar '23, which will be in our fiscal '24 calendar year. And I'll leave it at that for right now. But if others have questions, I have a lot to say about the wealth platform and how excited we are with it.

Edmund Reese:

Yes. I mean, David, where I'd start there is we have seen volatility over the past two years and we've continued to see Broadridge continue to expand adjusted operating income margins. Over the last three years, it's been over 50 basis points. You know that we set as an objective 50 basis points, and we did 60 in fiscal '22, despite the inflation impact, despite the distribution impact that we've had and 60 basis points in fiscal '21 as well. Inherent in our business model is operating leverage that we get from bringing on new revenue onto our fixed infrastructure without seeing additional costs that we get from moving from -- as we continue to become more of a digital business and then the efficiencies that we see in the business as well, from things like moving to the cloud and in our technology expense. That, I think, allows us to continue to expand margins each year and create capacity for investment. Now like many other companies going into an uncertain economic environment, I thought it was prudent for us to take -- to be proactive and take actions to drive down the cost and create more capacity for us. And so we have started those actions as we went into our fiscal '23 planning process. They're underway, which is why I felt confident in giving a number today in terms of the annualized savings associated with that. That is going to allow us to mitigate the inflation impact, continue to create capacity for investment, which is our objective to have ongoing investment in our revenue initiatives and continue to deliver these kind of -- the earnings that's in line with our objectives and with the guidance that we gave. So ongoing investments are going to be a part of our business model. And I think we have the operating leverage in our business and the proactive actions that allow us to continue that.

Peter Heckmann:

I wanted to ask customer reimbursables are growing quite a bit faster than I would have expected given some of the secular decline in paper and going to electronic, it was about 11% last year, about 10% to 15% this year. How would you break down the contribution from the increase in postage? And then kind of that core growth rate, would you attribute that to just additional customer communications wins?

Peter Heckmann:

Customer reimbursables.

Edmund Reese:

Yes, I'll just add to what you just said because your comments were spot on, Tim. On an ongoing business as usual basis, I'd expect the distribution revenue to be in sort of mid-single-digit growth levels. But because of what the strength that we've had in our customer communications business with strong wins there, we have seen an uptick in and that moves us to these low double-digit rates plus the postage increase that Tim has seen. And as a result of that, you're seeing top line growth, by the way, in our customer communications business in line with the strong earnings that we've put in there. I think the important point on that is that both of those components, the customer communications distribution plus the postage, is that no margin -- very low to no margins for us and that doesn't have whether the growth rates are higher -- when the growth rates are higher because of that it's not having a big impact on our overall earnings. It is having an impact on our reported margins, but we are still able to be able to drive the margin expansion despite that. I think that's the key thing to keep in mind as you think about the distribution revenue.

Peter Heckmann:

And then just thinking about M&A, Broadridge's has been an active acquirer over the years. But should we expect that the M&A activity might be a little less frequent and maybe smaller deals for the next two or three quarters as you get down towards your target leverage ratio?

Operator:

The next question comes from Puneet Jain from JPMorgan. Please go ahead.

Tim Gokey:

Yes, it is a -- I don't know if I would say it was necessarily stronger than the year before because we had exceptional position growth in the prior year. But when you look across the business, and obviously, we had really strong performance in customer communications on top of everything else this year. So it was a really good strong quarter for ICS. And the interesting thing, Puneet, that I want to make sure we call people's attention to is the revenue from new sales that we saw in ICS as well. So we do a lot of talk about position growth. And in the past, there was a time when ICS was largely just about position growth. But when you look at the revenue from new sales, it's a very significant portion of the growth this year, which is something that we think can be a long-term trend as we've really done so much innovation and new product launch there that is a much bigger component of the whole growth mix.

Puneet Jain:

And then for VSM within issuer solutions, how should we think about penetration rate for that market? You've been offering that for a couple of years. How -- is there a way to think about like you are at X percent penetrated of the addressable market or of total number of issuers that are out there within the VSM solutions?

Operator:

Our next question comes from Patrick O'Shaughnessy from Raymond James. Please go ahead.

Tim Gokey:

Yes, sure, Patrick. There is a -- there's a sort of a revenue here cut that takes place as part of sort of the accounting of software businesses. And so when you look at the revenue that there was previously, there's a bit of a sort of downtick built in, in the first year, which we grew over and more. We'll get some of that back in this coming year. And so we'll have a nice continued growth this coming year that will be sort of above that high single-digit trend that Edmund talked about, which we see as a long-term trend. And so really, we have to measure it relative to our objectives, which was sort of on a like-to-like basis, it was double digit this year. And so we feel very good about that as well as the sales goals, which were -- when you think about $30-plus million on a $256 million business, that's a really nice percentage of sales relative to the base. And then the earnings was quite a bit above our expectations as well. So across all three of those metrics, it performed well. And then just the outlook feels really good, too, in terms of meeting our acquisition case and more.

Edmund Reese:

Well, the short important point on it is that it really offsets and makes our overall rate impact neutral or slightly positive as I think about the interest expense line. And then the prepared remarks, I talked about interest expense for the $1.6 billion in variable debt that we have, having about a $35 million to $40 million impact. Our treasury teams and our business teams worked very hard to be able to recognize the rate increases that we see in the asset side as well as mutual funds. So you can expect the impact to be roughly the same amount on the asset off balance sheet side of the ledger. So it's about a neutral impact as we think about those two impacts, both on the interest expense side and on the balances.

David Togut:

Just a quick follow-up. You gave some kind of guide rails, Edmund, around Q1 FY '23 EPS as a percentage of total annual EPS kind of characterizing it as toward the lower end of the 10% to 17% range historically. Can you put some guide rails around your revenue growth expectations as well? We're getting some incoming questions on that.

Operator:

This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Operator:

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

Edings Thibault:

Thank you, Kate. Good morning and welcome to Broadridge’s third quarter fiscal year 2022 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, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. 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 -- in the slides and a more complete description on our annual report on Form 10-K. 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 their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you, Tim, and good morning, everyone. I'm pleased to be here discussing another quarter of strong performance, which highlights the strength and the stability of our financial model and the long-term trends that are driving our growth. Broadridge delivered top line growth above our fiscal year '22 guidance range, driven by revenue from new sales, strong volumes and continued contributions from Itiviti. We continue to expect recurring revenue growth to be at the high end of our 12% to 15% growth range. And that, coupled with our continued ability to create operating leverage, even in this inflationary environment, gives us confidence to increase our adjusted EPS guidance to 13% to 15% growth. As a result of our strong third quarter performance, together with our expectations for a strong fourth quarter, Broadridge remains on track to deliver another year of double-digit revenue growth, higher margins and double-digit adjusted EPS growth. Turning to slide 7, you can see that strong performance. In Q3, Broadridge's recurring revenues grew 16% to $1 billion. Adjusted operating income increased 10% to $313 million, and AOI margins were flat at 20.4%, including the drag from low to no margin distribution revenues. And adjusted EPS increased 10% to $1.93. Our Q3 results included higher-than-expected equity position growth and also benefited from the timing of Itiviti revenue and tax discretes. I'll also reiterate that we will continue to see operating income growth, partially offset by higher interest expense related to the acquisition of Itiviti until we grow over the incremental interest expense in fiscal Q1 20'23. Let's get into the details of those results, starting with recurring revenue on slide 8. Recurring revenue grew from $873 million in Q3 2021 to $1 billion in Q3 2022, an increase of 16%, exceeding our fiscal '22 guidance range. Organic growth accounted for seven points of the 16% increase, driven by a balance of onboarding new sales and volume growth. Acquisitions, primarily Itiviti drove nine points of growth. Now, let's turn to slide nine to look at the growth across our ICS and GTO segments. We continue to see strong growth in both of our segments. ICS recurring revenues grew 9% all organic to $630 million, driven by strong growth in our regulatory business and balanced mid-single-digit growth across all other product lines. Regulatory revenues rose 13% to $322 million, driven by strong growth in equity positions and mutual fund interims. Data-driven fund solutions revenue grew 6% to $91 million, resulting from higher assets under administration in our mutual fund trade processing unit. Our issuer business increased by 5% to $46 million as we continue to see growth in our disclosure products. That business also benefited from high retention rates for our virtual shareholder meeting platform as the number of meetings are on pace to modestly exceed fiscal year 2021. Finally, we continue to benefit from strong demand in our customer communications business as revenues rose 6% to $172 million. Turning to GTO, recurring revenues grew by 29% to $381 million. Organic growth was 2%. Capital market revenues grew by 56% to $247 million. Activity, now branded BTCS, was the largest contributor to this growth, adding $79 million of revenue. Q3, our activity revenue includes a benefit from the timing of license revenue, but more importantly, activity continues to benefit from strong demand, including market share gains in Europe and Asia. On an organic basis, capital market revenues grew by 6%, driven by new sales and higher fixed income trading volumes. Wealth and investment management revenues decreased by 2% to $134 million, in line with our expectations. Lower equity trading volumes resulting from lapping the elevated retail volumes we saw last year at the height of the mean stock phenomenon lowered growth by four points. Looking forward, we expect both wealth and capital markets growth to pick up in the fourth quarter as we continue to onboard new sales with full year organic growth in our targeted 5% to 7% range, both franchises. Now, let's turn to slide 10 for a closer look at volume trends. We are now in the peak period for annual meetings and proxies and we continue to see strong volume growth driven by increasing investor participation. Equity positions continued to strengthen throughout the quarter and reached 17% in Q3. Through the end of April, we have received record data for 97% of the proxies that are expected for the year and this data gives us high confidence in our Q4 estimate. For the full year, we expect equity position growth of approximately 18%. We are encouraged by this long-term tailwind and its contribution to driving growth in our business. Growth in mutual fund and ETF volumes was also strong at 10% in Q3, despite choppy markets. We continue to expect low double-digit growth for the full year. Turning to the bottom of the slide, trading volumes fell by 6% on a blended basis as expected, driven by lower equity trading volumes in wealth, which more than offset an increase in fixed income trading and capital markets. We continue to expect full year trading volume to be essentially flat for the year. Let's now move to slide 11, where we summarize the drivers of recurring revenue growth. Recurring revenues rose 16%, powered by 7% organic growth and a nine-point contribution from Mitivity . Organic growth was balanced between net new business and internal growth. Revenue from closed sales and our continued high retention of recurring revenue from existing client contracts drove 3 points. And internal growth contributed 3 points to recurring revenue driven largely by position growth, which more than offset the decline in equity trading volumes. Our 9 points of acquisition growth were driven by Itiviti, which contributed $79 million, as I noted earlier. And keep in mind, we expect the benefit from acquisitions has declined significantly in the fourth quarter as we lap the one-year anniversary of the close of the Itiviti acquisition in mid-May. At that point, Itiviti will begin to contribute to our organic growth. I'll finish the discussion on revenue with a view of total revenue on slide 12. Total revenue grew 10% in Q3. Recurring revenue was the largest contributor, driving 10 points of growth. Low to no margin distribution revenue increased by 6% and contributed 2 points to total revenue growth. The biggest driver of that growth came from higher mail volumes in our customer communications business as well as higher postage rates, which offset a decline in event-driven activity. I will reiterate that both elevated distribution revenue and the increased mix of distribution revenue from customer communications suppresses our reported margin. We expect continued elevated growth in distribution revenue in the fourth quarter. Over the long-term, we expect that the share of distribution revenue as a percentage of total revenue will decline. Event-driven revenues were slightly above our seven-year quarterly average and reached $59 million, diluting total revenue growth by 1-point. For modeling purposes, we continue to believe that the best assumption is our $55 million seven-year quarterly average versus a strong Q4 2021. Now the margins on slide 13. Adjusted operating income margin in Q3 was flat at 20.4% as our strong growth in recurring revenue was offset by elevated growth and low margin distribution revenue and our continued investment in our digital and technology platforms. As a reminder, the increased distribution revenue we have seen throughout the year, including the postage rate increase, will negatively impact our reported full year adjusted operating income margin by 40 to 50 basis points with no impact on adjusted EPS. Like others, we continue to see an impact from higher inflation, both in attracting and retaining talent and in materials cost. To-date, this impact has been modest, and we are confident that we can continue to offset most of these costs. Let me also add that we have been increasing our level of investments over the last several quarters with a focus on revenue-generating initiatives, client retention and strengthening our technology infrastructure. I'll reiterate that we have the flexibility to dial up and dial down our investments. That period of elevated investment began in Q2, 2021 and continued in the Q3, 2022. As we enter the fourth quarter, we are now fully lapping the period of higher investments, and we expect to see increased margin expansion. As a result, we are reiterating our AOI margin guidance of approximately 18.5%. Let's move ahead to closed sales on slide 14. We reported third quarter closed sales of $58 million, bringing our year-to-date total to $170 million, which as Tim said earlier, is more than 40% above last year. Our strong sales performance continued to be propelled by smaller sales. In fact, sales of less than 2 million, accounted for 90% of our sales in the third quarter. To me, that's an indicator of strong sales traction and highlights the value of our increasing focus on driving componentized solutions, especially in GTO. Looking ahead to the all-important fourth quarter, we have a very healthy pipeline, and we are well positioned to achieve our closed sales guidance of $240 million to $280 million. And finally, let's turn to cash flow and capital allocation on slide 15. For the quarter, Broadridge generated $55 million in free cash flow, bringing our year-to-date total to negative $68 million. Year-to-date, we have invested $54 million in CapEx and software and $350 million in our platforms. As we indicated last quarter, we continue to be in a peak period of investment across multiple client platform investments, including our wealth platform. We expect lower investment, as we complete the wealth management platform build and begin to recognize revenue from the UBS contract in mid-calendar 2023. As we move past our current investment phase, we expect that our free cash flow conversion will revert to historical levels. More broadly, we remain committed to a balanced capital allocation policy that prioritizes internal investments, value-enhancing M&A and a strong and growing dividend. We have returned a net of $168 million to shareholders in fiscal year 2022, primarily in the form of our dividend. And we remain focused on paying down debt and maintaining an investment-grade credit rating, all while delivering steady and consistent earnings growth. I'll close my prepared remarks with commentary on our updated guidance on slide 16 and some final thoughts on our third quarter results. We are maintaining our revenue and margin guidance and increasing our adjusted EPS guidance. Specifically, we expect to deliver recurring revenue growth at the high end of 12% to 15% guidance range. We maintain our adjusted operating income margin guidance of approximately 18.5%. We are raising our adjusted EPS guidance to 13% to 15%, modestly higher than our original 11% to 15% range, reflecting better-than-expected performance in the third quarter and our continued ability to create operating leverage, while delivering steady and consistent earnings growth, and we are reiterating our closed sales guidance of $240 million to $280 million. With that, let me reiterate my key messages. First, Broadridge delivered strong third quarter results across both the top and bottom line. Second, we are positioned to deliver strong fourth quarter results and more importantly, another strong fiscal year. Our updated guidance calls for the high end of 12% to 15% recurring revenue growth, higher margins and 13% to 15% adjusted EPS growth and not to mention record sales. Third and last, we continue to balance strong short-term results with long-term growth investments, and we are well positioned going into fiscal year 2023 to deliver at the higher end of our three-year growth objectives. And with that, let's take your questions. I'll turn it back over to Kate.

Unidentified Analyst:

Hi. This is Millie on behalf of David Togut. Congrats on the strong quarter and the 42% year-to-date closed sales. Just, can you please give us more color on the mix of different contributing factors to that 42% increase?

Edmund Reese:

I think you admitted all. The only thing I'd add to that is, Millie, as you know, closed sales is more of a longer-term metric. What we are -- we continue to be focused on is our revenue backlog. And as you know, the last time we reported on that number, it was 12% of recurring revenue, and that gives us great visibility into the recurring revenue growth as well. So that's the only piece I'd add to what you have there, Tim.

Unidentified Analyst:

All right. Thank you so much.

Michael Young:

Hey, good morning. Thank you for taking the question. I actually wanted to follow up on kind of the sales commentary, maybe get a little bit deeper, more granular. I appreciate the detail on kind of the size of the sales. But just generally, kind of as you zoom out, what's kind of your key driver of new sales? Is it new product or expanding relationships? Is it kind of a backlog post-pandemic? Just if you could kind of walk us through what's kind of driving it in both segments would be helpful.

Edmund Reese:

The only thing I'd add to that because, again, you were thorough there, Tim, is as we said in our prepared remarks here, Michael, the fact that most of the sales are smaller sales, there are core less than $2 million in sales. It really gives us confidence in the value proposition across the entire product set. Tim talked about existing clients. We see strong existing products as well that are selling in our customer communications business. We've expanded the relationships from just print relationships into digital and have seen strong sales there as well. So again, I think it's broad-based and across our overall product portfolio.

Tim Gokey:

Sure, Michael. There's clearly a lot of increased uncertainty in the market and driven by higher inflation, the Russian invasion, rising rates, those had very little impact on our Q3 results. We just talked about the strong sales. We saw the strong record growth. Trading activity was modestly lower, but that was really more as we lapped last year's high volatility. We have a lot of visibility into Q4 at this point. Given the way the records close before the actual sending of communications, and we see strong continued record growth in Q4. So it's really being driven by the long-term trends that we've talked about in terms of market participation, digitization technology. As we look beyond that, the -- we do have some visibility into the first half of next year. And we do expect a return to more normalized levels. Our testing right now would be mid-single digits, but it's hard to say because it always continues to increase as you get closer to the event, and we're pretty far out right now. So it's -- I do think the growth will be lower than this year, and that's sort of the planning scenario that we're working on. And then we're seeing inflationary pressures like others, but the strong revenue growth we're seeing, the efficiencies we're enabling means that we think we can offset that and still deliver sort of the margin expansion that we typically talk about.

Operator:

The next question is from Patrick O'Shaughnessy of Raymond James. Please go ahead.

Tim Gokey:

Yes, Patrick, I will -- I'll start on that and let Edmund add on to it. It is -- as we think about how the world is evolving and could we be in a more inflationary environment over time. Obviously, we have a large portion of our revenue -- of our total revenue that is pass-throughs. And so take that out, if we focus on fee revenue. The regulated part of that is about 25%. And as you know, those fees are fixed, but there's good underlying growth in those revenues with operating leverage. But about 75% are things that we renegotiate. They have CPI. And so I think there can be quarter-to-quarter even within year, impacts where you get the timing of that off. But overtime, we think that's something where these are solutions that are absolutely critical to our clients. They have high switching costs. And we have good long-term relations with our clients and where we end up being fair each other in terms of the value provided.

Edmund Reese:

Sure. Let me, make a few comments about that, Patrick, and then, I'll turn it over to Tim to see, if he wants to add anything. And let me just remind you, we had always said that Itiviti was a business that grew at mid-single-digit rates. As we brought it on, we'd be able to move that to high single-digit rates. And we thought that this year, it contributed seven to eight points to our overall recurring growth. And through the first three quarters is contributing nine9 points, so strong, strong performance there. That is primarily a subscription-like revenue model on SaaS on our hosted solutions here. There's a small component of it that's license revenue that the timing of that right license recognition change. We initially thought in a later time period that came into Q3. So that drove a small bump in the overall business. But I think the key thing is that we expect it to continue to perform this year in line with our expectations. And as we go forward, the overall contribution that we thought it would make to our three-year objectives still sits with what we thought at 2.5 to three points of growth.

Patrick O'Shaughnessy:

Great. Thank you very much.

Puneet Jain:

Yeah. Hi. Thanks for taking my question. Tim, are you seeing -- obviously, you are seeing structural tailwinds in the business in -- specifically in the regulatory side. But are you seeing any cyclical pressure from the markets being down in Q1? And more broadly, if you can update us on how the business performs like in a macroeconomic weakness, if there is like a recession or macroeconomic factors continue to remain weak? How would individual businesses, ICS as well as GTO might perform in that environment?

Puneet Jain:

Got you. That's helpful. And then can you also talk about like the UBS platform. I think they announced that, they expect like the full platform to convert in 2023. Can you – but I also understand it seems like you are implementing like the smaller modules until then. So can you talk about like the timing of revenue recognition related to UBS until the full conversion?

Puneet Jain:

Thank you.

Chris Donat:

Good morning. Thanks for taking my questions. Tim, I just wanted to follow up on the comment you made that you just made about more modular sales. And also on Edmund's comment about closed sales with 90% of them being below $2 million. Are you seeing a shift away from the bigger ticket sales, or is this maybe like a temporary phenomenon because of an uncertain environment? It sounds like everything is great with the modular, but I'm just wondering is this more strategy driven on your part or customer-driven to more digestible bites from your clients?

Chris Donat:

Okay. Thanks a lot, Tim. And then one for Edmund, just on the distribution revenue, which sounds like strong in the fiscal third quarter, should be strong in the fourth quarter. As we start thinking about fiscal 2023, I would imagine the trends for postal pricing and volume remain kind of also strong going into fiscal 2023. Is that a little bit of margin headwind as we go into 2023 or too soon to tell, or just something to keep an eye on?

Tim Gokey:

Yes. And Chris, as you know, whenever I sit down with investors, I would say, when you look at our company, pull out the distribution revenue and look at the fee revenue, and that's really the right way to analyze the company in terms of growth and margin and other things. We do have constraints in terms of how we're able to report, so we end up reporting that as revenue, but it's really sort of immaterial to our -- the true economics of the company.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Gokey for closing remarks.

Operator:

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

Edings Thibault:

Thank you Andrea. Good morning and welcome to Broadridge’s second quarter fiscal year 2022 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, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. First, 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. 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 their comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you Tim, and good morning everyone. I’m pleased to be here discussing another quarter of strong performance. As you’ve just heard, Broadridge’s performance remains resilient and our long term growth drivers are quite stable. Organic growth from new sales, strong underlying volume trends and the progress integrating Itiviti helped us deliver very strong top line growth and adjusted EPS growth in line with both our guidance and three-year objectives. Turning to Slide 7, you can see that strong performance. In Q2, Broadridge’s recurring revenues grew 19% to $798 million. Adjusted operating income increased 19% to $141 million and AOI margins were flat at 11.2%, with a drag from low to no margin distribution revenue. Adjusted EPS increased 12% to $0.82. I’ll note that we will continue to see operating income growth partially offset by higher interest expense related to the acquisition of Itiviti until we grow over the incremental interest expense in Q1 2023. Let’s get into the details of those results, starting with recurring revenues on Slide 8. Recurring revenues grew by $673 million in Q2 2021 to $798 million in Q2 2022, an increase of 19%, well above our fiscal ’22 guidance range. Organic growth accounted for nine points of the 19% increase, driven by the conversion of our healthy revenue backlog and volume growth. Itiviti revenues, which were in line with our expectations, drove most of the remaining nine points of growth. Now let’s turn to Slide 9 to look at growth across our ICS and GTO businesses. Both of our business segments had healthy organic revenue growth. Part of that growth was driven by the secular tailwinds in stock and fund position growth, but as I noted, the biggest driver across both was the contribution from new sales. It is clear that the investments that we’ve been making in our technology platforms have reinforced our value propositions, boosted our sales, and are contributing significantly to this growth. ICS recurring revenues grew by 10%, all organic, to $427 million, powered by both new sales and continued strong volumes. Regulatory revenues had the largest contribution to ICS recurring revenue, rising 15% to $166 million driven by strong growth in mutual fund and ETF communications and the continued equity position growth in our U.S. proxy business. Data driven fund solutions revenue grew 3% to $89 million as assets under administration in our mutual fund trade processing unit grew from both new client on-boardings and growth with existing clients. Our issuer business delivered $24 million in revenue, up 14% as we continue to see growth in our disclosure products. Finally, customer communications revenue rose 9% to $148 million. While we’ve been expecting modest top line growth in this business, our unusually high growth in Q2 was driven by new client wins in our print business, which we can use as an entry point to pursue higher margin digital business. Turning to GTO, recurring revenues grew by 30% to $371 million. Organic growth reached 8%. Wealth and investment management revenues increased by 15% to $146 million. This growth was primarily organic, driven by an uptick in license revenue from a large client renewal, continued momentum from on-boarding of new component sales, as well as higher retail trading. Capital market revenues grew to $224 million, an increase of 41% with Itiviti continuing to be the largest contributor. Organic recurring revenues increased 3% as revenue from new sales were offset by lower equity trading volumes. We continue to expect both our capital markets business and wealth franchise to deliver fiscal 2022 growth in line with our three-year objective of 5% to 7% organic growth. Let’s turn to Slide 10 for a closer look at the volume trends. Broadridge continues to benefit from the long term trends that have made investing more accessible. The biggest driver of our internal growth was mutual fund and ETF volumes, which grew 12%, reflecting steady funding flows over the past several quarters. We expect low double digit growth to continue for the second half of the year. Our 20% equity position growth in Q2 was in line with the projection that we provided on our last earnings call. As we approach the spring proxy season, which typically generates over 80% of our equity communications, our latest record position testing shows continued strength with low double-digit growth in the second half of the year. For the full year, we expect to be ahead of our historical averages, delivering low to mid teens growth. As you can see by our results, investor participation in financial markets has continued to increase and our digital platform investments and our proxy business have positioned us to support this growth. We remain encouraged by the long term tailwind and its positive impact on our business. Turning to the bottom of the slide, trading volumes increased 1% as higher fixed income volumes offset the impact of lower equity volumes. Given elevated equity volumes in Q3 2021, we continue to expect lower volumes in the third quarter and full year trading volume growth to be essentially flat for the year. Turning now to Slide 11, where we summarize the drivers of recurring revenue growth, recurring revenues rose 19% propelled by 9% organic growth and a nine-point contribution from Itiviti. Revenue from closed sales was the biggest driver of our organic growth with strong contribution in both ICS and GTO. Internal growth contributed four points to recurring revenue, driven by higher fund and ETF communications in ICS and a significant renewal that drove increased license revenue in GTO. Itiviti was the biggest driver of our acquisition growth, contributing $61 million, while our tuck-in acquisitions made in Q4 2021 and Q1 2022 are also performing in line with expectations. I’ll finish the discussion on revenue with a view of total revenue on Slide 12. Total revenue growth was a healthy 19% in Q2. Recurring revenues was the largest contributor, driving 12 points of growth with elevated distribution revenue driving five points of growth and continued year-over-year contribution from event-driven revenues, which added two points of growth. Low to no margin distribution revenues continued to grow at a double-digit pace and reached 17% year-over-year, which is significantly higher than we expected at the beginning of the year. The growth came from higher customer communications mailings as well as significant increases from higher postage rates. We expect continued high levels of distribution revenue for the full year, and I’ll reiterate that this revenue suppresses our reported margin. Over the long term, we expect that the share of distribution revenue as a percentage of total revenue will decline. Finally, we reported another quarter of strong event-driven revenue on the back of healthy mutual fund proxy activity. We expect event-driven revenue to remain healthy in the second half of the year and believe that our $55 million seven-year quarterly average is the best modeling assumption for Q3 and Q4. Now onto margins on Slide 13. Adjusted operating income margin in Q2 was flat at 11.2% as our strong growth in recurring and event-drive revenue was offset by increases in low margin distribution revenue and growth investments. No margin distribution volumes and pass-through revenue from postage rate increases are higher than what we expected at the beginning of the year. This incremental distribution revenue will negatively impact our adjusted operating income margin by an additional 40 to 50 basis points on the full year versus our original guidance. Like many other companies, we’re seeing a modest impact from higher labor inflation as we seek to add and retain talent, but we remain confident that we can find the efficiencies to offset these costs. Separately, we are also modestly increasing our investments. As in the past, we are taking advantage of stronger than expected position growth and above-trend event-driven revenues as we remain committed to ongoing investments that support our growth. In our ICS business, we have investments to build next-gen capabilities in our digital platforms for fund communications, SRD2, and an upgraded VSM platform, all of which we expect to have a near term impact on our results. In GTO, we continue to invest in our global post trade management system, our DLT-enabled platforms, including our repo and private market hub solutions, and of course executing the front-to-back Itiviti product road map that Tim highlighted earlier. Given the higher distribution revenue and our continued commitment to investment, we are lowering our fiscal year adjusted operating income margin guidance by 50 basis points from approximately 19% to approximately 18.5%. Broadridge has a long track record of steady margin expansion and continuous accretive investment using our high revenue growth and efficiency gains to create capacity, while delivering steady and consistent earnings growth. We expect this to continue in fiscal year 2022. Let’s move to closed sales on Slide 14. We reported second quarter closed sales of $83 million, which brings our year-to-date total to $113 million and keeps us very much on track to achieve another year of record closed sales, in line with our guidance range of $240 million to $280 million. We were encouraged to see strong closed sales across both ICS and GTO, with ICS registering just over half of closed sales for the quarter. As Tim noted, Itiviti was a strong contributor to GTO sales in Q2, which I see as early validation of our investment case. Finally, let’s turn to cash flow and capital allocation on Slide 15. I’ll start with a reminder that Broadridge’s free cash flow generation typically begins the year negative and strengthens as the year goes on. We generated $28 million of free cash flow in the quarter, bringing our year-to-date free cash flow to negative $124 million. We continue to invest heavily in our next-gen platforms, especially our wealth management platform. For the first six months of fiscal year 2022, we’ve invested $29 million in capex and software and $236 million in our platforms. We are at peak investment levels for our wealth platform and that spending will decline as we move to future phases. As Tim said, we remain on track to deliver the wealth management platform and I expect that we’ll begin to recognize revenue in mid calendar year 2023. Looking ahead, we remain committed to evaluating potential tuck-in M&A opportunities that meet our strategic profile. We will also continue returning capital to shareholders, primarily through our dividends as we remain focused on paying down debt and maintaining an investment-grade credit rating. I’ll close my prepared remarks with a quick review of our guidance and some final thoughts on our second quarter results. Starting with recurring revenue, we now expect recurring revenue growth for fiscal 2022 to be at the high end of our 12% to 15% guidance range. As I noted earlier, we are reducing our adjusted operating income margin guidance from approximately 19% to approximately 18.5%, reflecting the impact of higher distribution revenues and continued growth investments. Third, we are reaffirming our expectations for strong adjusted EPS growth in a range of 11% to 15%. Finally, after our strong start to the year, we continue to expect closed sales in the range of $240 million to $280 million. I would also add that we expect third quarter EPS to be flat to marginally lower, driven by tough comparisons to elevated equity volumes and high event-driven revenue, as well as the timing of investments. We expect strong earnings growth in the fourth quarter. With that, let me reiterate today’s key messages. Broadridge’s financial model is strong and resilient. We continue to deliver strong operating results, which drove another quarter of high top line growth and double-digit earnings growth. Looking ahead, we expect continued strong recurring revenue growth, enabling us to continue to balance growth investments with delivering steady and consistent earnings for our shareholders. With that, let’s take your questions. Operator?

David Togut:

Thank you very much, and good morning. Could you walk through some of the headwinds and tailwinds in a little more depth to margins in the second half of FY22, in particular if you could maybe talk through your investment spending plans and the impact of inflation, that would be appreciated.

Edmund Reese:

Thanks Tim. David, good morning. I want to double click on each of those three topics, if you don’t mind. David, as a reminder, our guidance for fiscal 2022 was made with the expectations of normal distribution revenue growth - we thought that we would drive 100 basis points of margin expansion above our three-year objectives of 50 basis points in margin expansion, and now that we see these elevated levels of distribution revenues, double digit in the second quarter, and I think we can expect similar type of growth for the balance of the year, that distribution revenue, particularly when it’s concentrated in our customer communications business, comes with no margin, and we have been alluding to the postal rate increases throughout the past few quarters - that’s starting to come through, and that’s direct pass-through revenue with no margin on it, either. The impact of those two items, the distribution revenue in the customer communications business, the postal rate impact has the impact that Tim just mentioned, 40 to 50 basis points, and that’s what’s reflected in our move from approximately 19% to 18.5%. That’s the key thing. Other than that, we continue to expect approximately 18.5% if you think about 18.1% last year, continued margin expansion in our business while we’re continuing to invest, so I feel very good about that. Let me just double click on this point that Tim made about inflation. The short answer to that is, as Tim said, that we don’t expect a big impact, but double clicking on it a little bit, we have on the revenue side, our contracts have clauses in them that increase price in line with the metrics that you’d expect when you look at inflation, like CPI and PPI. Normally when inflation comes, that means that there’s an uptick in interest expense, and for us, particularly as we go into 2023 and pay down debt and continue to see growth in our matrix business, that’s a positive for us. All of our other costs - the distribution costs, the post that I just mentioned, is pass-through cost, so the key open item for us is the labor cost, and like many other companies, we are seeing an uptick there as we look to add and retain talent, as I talked about. But we feel good that the efficiencies that we get through scale in our business and our continued move to higher margin digital business, that the savings that I am seeing in our technology business will allow us to offset the labor-related inflation costs, still deliver margin expansion, and be able to deliver the double-digit earnings growth that we have been talking about. Finally, I know I’m quite thorough in this answer, but finally, I definitely do want to hit on the investment component of it. This is key. This relationship between revenue growth, between investments and earnings is a key part of our financial model and our strategy for growth. The Q2 results that we just talked about demonstrate that the incremental investments that we’ve been making over the past few quarters is paying dividends. Both balance sheet investments and P&L investments are helping to drive that recurring revenue growth, and I think that level of revenue builds a steady--a base, a foundation for consistent and steady adjusted earnings growth. It might create some margin pressure, but the margin expansion that we’re able to get through the efficiencies in our business makes us feel confident that this is the right approach, delivering on our short term commitments for investors but also continuing to drive medium and long term growth. You’re going to see us continue to be committed to investing to support this future growth, delivering margin expansion and delivering the steady and consistent EPS. I just wanted to double click into each of Tim’s items there.

Tim Gokey:

David, it is Tim. Thank you for you that. We’re staying right where we are for the full year. We have a robust pipeline, lots of good client discussions. As always, the timing of those is uncertainty, and particularly with the larger deals, that could affect how the year falls, but we’re not seeing anything that would really take us out of the range that we originally did. We have succeeded in closing things earlier this year than we often do, and--but we’re staying right with the range that we had.

Operator:

The next question comes from Peter Heckmann of Davidson. Please go ahead.

Tim Gokey:

Yes Peter, hi, it’s Tim. Great to hear from you. Great questions on both of those. When we look at end-to-end confirmation, this addresses a question that people have had over the years about are all the votes really getting through. Obviously we audit those and have 99.9% on that already, but it just really addresses those, and there are a few cases where the chain of nominations falls down, and this allow us to clean those out. We are doing it in concert with an industry group for all Fortune 500 companies, even where we’re not the tabulator, and then when we are the tabulator, we’re able to control the whole end-to-end of the process and we’re doing that for all the companies where we’re the tabulator. From an economics standpoint, it’s really not material. There’s no additional charge to our clients for it, it’s part of the value that we provide to the industry. There is a little bit of cost on our side, and that’s just part of what we do with the key role that we play in the industry, but it’s something that we’re excited about and I think it continues to strengthen what is already a very strong system. In terms of universal proxy, that is going into effect this summer, and again I don’t think you’re going to see material economics really appear in our P&L on that. We are doing the investments to make that available even as we speak - they are basically done, and we think it’s again something that is a long term strengthening of the industry. There are some people that say that this will give more access to activists and could lead to more proposals and contests and things over time. I think it’s way too early to know about that, but that would be the only potential impact if it somehow contributed to extra activism, but I think it’s pretty early to say that.

Tim Gokey:

Yes, it is a really interesting topic because historically, the institutional arrangements were different in North America in sort of creating the opportunity for the role that we play, and there hasn’t been a similar role in other countries and there hasn’t been really strong shareholder rights in other countries. As part of this trend of democratization, you’re really seeing stronger shareholder rights taking place other places. There were some rule changes just a couple years back in Japan that have really increased the importance of proxy voting there, and in our joint venture we’ve gone from several hundred companies to--I know we broke 1000, we might be near 1,500 now, companies that we’re doing that for with the Tokyo Stock Exchange. Really, the biggest move in terms of building a more material business has happened over the past couple of years as the European Union has put forward the shareholder rights directive - shareholder rights directive 2, which tells brokers and custodians that they need to make available to end investors the ability to get the information and vote their shares. As you probably know in Europe historically, it’s been very hard to vote - you had to go and appear at the meeting in person, and there was no obligation to distribute the material, so voting was very restrictive. With that real move towards greater democratization, all those companies across Europe were looking for a solution for how to do that, and we were able to bring our comprehensive suite with all of the different digital channels that we offer - the app, this and that, and bring all of that and win over 300 clients which have been implemented, and now we’re just in the second phase of that. We are excited about the ability to build a more robust governance business in Europe. It’s not going to be the magnitude of what we have in North America, but it’s certainly a great opportunity.

Operator:

The next question comes from Darrin Peller of Wolfe Research. Please go ahead.

Tim Gokey:

Yes Darrin, thanks. Just taking back, as you know but just to refresh everyone, we always had three objectives for this, which was to get near term synergies, which we have grown the earnings in this business really nicely over the past five years, so that’s been a really nice contributor to the bottom line. The second piece was to be the point of consolidation for print. As people begin to move digital, they lose scale in their print operations, and the in-house print, which is almost 50% of the market, really becomes less and less economic. That is really what we’ve begun to see, is more and more in-house print operations throwing in the towel and saying they can’t be efficient anymore, and looking for a third party solution. We’ve really been able to take advantage of that, and then that leads to the third part, which is the digital piece. We’ve been showing strong double-digit growth in digital over the past few years, and growing the print side actually gives us a bigger pool to fish from in terms of creating that digital growth for the future.

Edmund Reese:

I’ll just add that digital growth is obviously at higher margins, Darrin, as we bring that business on, so that’s what we continue to focus on.

Tim Gokey:

Sure. First of all, Darrin, I’d say we’ve had really good sales in our ICS business the past few quarters, and really over the past year, so it’s been--while I think historically some of our sales have been more focused on GTO and the large deals there, we’ve just had really strong performance on the ICS side. As we look forward, I think we see it pretty balanced. Itiviti has been a really nice contributor and will continue to be, so that’s helping the capital markets side of GTO for Itiviti itself, and then also how that’s connecting other capital markets products on the front-to-back there. On the wealth side, we had a really nice sales-slash-renewal this past quarter helping drive some of the results you saw, so we’ve had very nice continued organic growth on the wealth side. We’re not yet seeing sort of the additional large platform sales, and those are long sales and we’ll tell you when they’re coming, but that’s going to continue to be a developing story, but we like where we are on the wealth side.

Operator:

The next question comes from Puneet Jain of JP Morgan. Please go ahead.

Edmund Reese:

Yes, absolutely Puneet, I’ll take this. If you think about the liability side of our balance sheet, we have, as you can see clearly, $4.2 billion in debt - $2.3 billion of that is at fixed rates, so not sensitive to near term interest rates. The remaining $1.9 billion is our revolver in the three-year term loan that we took out at very good rates for the Itiviti deal, but that’s prepayable and will decline over time, given our intention to de-lever and maintain our investment-grade credit rating. On the asset side, off-balance sheet we have about $1.8 billion in assets in our matrix business that are interest-bearing assets, obviously at low rates. That has not been generating revenue for us, but as rates increase, it’s roughly the same size as the liability variable component. Right now, I would say in fiscal 2022, we estimate 100 basis point impact on rates to be negligible to us in fiscal 2022, but as we pay down that debt and have the matrix business continue to grow, I think as we go into fiscal 2023, you can see a neutral to positive impact for us from interest rates.

Edmund Reese:

I’ll maybe start and Tim, you should jump in on this. I’ll maybe start here on the GTO side of the ledger. Clearly we’ve said that the acquisition of Itiviti was going to drive seven to eight points for us throughout the first two quarters - you’ve seen eight points of growth and nine points of growth that it has driven for us, so that’s on the higher end. I expect that to come back more in line with what our expectations have been. For the core organic capital markets in wealth management business, as I said during my prepared remarks, I expect that both of those franchises in the year in our normal 5% to 7% growth range, and so where there’s opportunity, where there’s variability and the thing that’s been driving us up, has been in the ICS business, which has been having extremely strong growth, and that growth obviously has a bit of a tailwind from the volumes we started the year thinking that we would have single digit SRG growth and now we’re saying low to mid teens SRG growth, so that’s having an impact and one of the key items that’s driving us up. But we continue to have this contribution, particularly from the net new business and new sales that we’ve been generating in that business as well, so I would say that the majority of the growth you see coming from that ICS business.

Operator:

The next question comes from Patrick O’Shaughnessy of Raymond James. Please go ahead.

Tim Gokey:

Sure Patrick, thank you for the question. Just for the full audience, what’s going on is that last summer, the New York Stock Exchange asked to have the process of overseeing us move to FINRA, who oversees brokers. The SEC rejected that because FINRA doesn’t really have any connectivity to public company issuers who pay a lot of the bill. The New York Stock Exchange is appealing that ruling - it’s out for comment right now. We have previously commented that we are agnostic as to who has oversight for this, so that’s really it. It’s not clear to us which direction this will go. Really, the longer answer is does this increase the chance of a fee review in some way, and really Patrick, we don’t have, first of all, any news about which direction this is going to go, and we don’t have any news about a review. I will say that if one does happen, we are confident that with all the stakeholders at the table and with real data, that the industry will get to a sound position because we provide real value to the industry, which has only gotten stronger, and we provide that value with a highly functional 24/7 SaaS platform, and people talk about the cost of sending a communication but the platform includes compliance, process management, of course digital communications, reporting, record retention, data security, audit, and consolidated billing across thousands of participants. We’ve worked with the industry to drive out annual cost many times our fees through digitization and other initiatives, and the value of that platform in terms of the efficiency, the participation and compliance it brings is demonstrated by the fact that over half of U.S. publicly listed companies choose to engage us for communications with their directly held investor counts, when they could use anyone. So really strong value, which has just gotten stronger. I know I’m going on here, but I feel passionate about this. Our fees haven’t increased for 25 years, and during that time through digitization and other initiatives, the total cost for the communication to the industry has fallen dramatically, over 40% in the past 10 years, even more with 30e-3. If there were a review, it’s typically a long process. The last one started in 2010 and went into effect in 2014, and it’s complex because there are many competing stakeholders. There are public companies, funds, broker-dealers, and within those the large and the small have different interests, so it’s pretty complex, which is why it takes a long time. Then finally, the most important point is that in the meantime, we’re working with the fund industry and others on innovation and to make the system better and more cost effective for all stakeholders. We implemented 30e-3, we’re rolling out end-to-end vote confirmation, universal proxy, pass-through voting support, ESG, and true digital experiences to drive engagement, and we’re working on future initiatives that we think can again reduce the total industry cost by many multiples of our fees, so we feel good about wherever this ends up, that it will be in a good place.

Tim Gokey:

Yes, I think when you look at the size of the growth, the 14% growth, that’s really because of that is--the nature of that solution is about half the revenue is recognized upfront and then the other half is recognized over time, and so it creates just a little bit of lumpiness in the quarter.

Patrick O’Shaughnessy:

All right, terrific. Thank you.

Chris Donat:

Hi, good morning. Thanks for taking my questions. Tim, I appreciate your answer on the question around the proxy piece. I just wanted your sense, because like you said, there are competing stakeholders here, is there any sense that there’s been a change in where any of the stakeholders stand or any shifting in that dynamic? I view is as something of there’s a balance between a bunch of interests, and I think if you’re a regulator, I would guess that your inclination is, first, do no harm in some ways, so just want to understand if you think there’s been any shift in stakeholder interest or if we’re pretty steady state when you take a long term view of the dynamics here.

Chris Donat:

Got it, thanks very much, Tim. Then for Edmund, I apologize if I missed this, in the release it mentioned higher total discrete tax items for the quarter. Just any color on what was going on in the tax rate?

Chris Donat:

Okay, that makes sense to me. Thanks.

Tim Gokey:

Great, thank you everyone for joining today. Thank you for your interest in Broadridge, for being an investor. As I hope you heard, we are really excited about how our business is doing, we’re excited about the performance we just had in this quarter and about the next half of the year, and about the outlook going forward and making a difference in our industry. We look forward to updating you again in another three months, and thank you again.

Timothy Gokey:

Thanks, Edings. Good morning, and thank you for joining us. I'll begin with an overview of our key messages and some highlights from our strong first quarter. Next, I'll provide an update on execution against our growth strategy across our 3 franchises. Finally, I'll close with some thoughts on how Broadridge is continuing to drive long-term sustainable growth.

Darrin Peller:

Look, I just want to start off on the GTO side of the business for a minute. When I look at the underlying growth trends, excluding the acquisitions, it was more -- I think it was up 1% or flattish and I know there were tough comps on volume. Can you just remind us of how it's going with, first, on the wealth management side and the initiatives with UBS, timing and investments necessary that we should expect there.

Timothy Gokey:

Darrin, it's Tim. Let me give a little bit of background on where we are on the wealth management side. And then I'll let Edmund take you through sort of the broader pipeline and momentum in capital markets.

Timothy Gokey:

Yes, Darrin, thanks for noticing that and bringing it up. It is -- obviously, we had that long story of a large client that was going away, that took longer to go away and sort of created that negative headwind for what seemed like many, many quarters. So glad to have that behind us.

Operator:

The next question will come from Michael Young with Truist Securities.

Timothy Gokey:

Sure. Thank you, Michael. And really excited to talk about Itiviti. It's a strong complement to what we're doing. And as a reminder, its strength in front office and Europe and Asia really complements our strength in back office and North America.

Michael Young:

And maybe kind of following up on that, just on sales opportunities internationally. I know this was potentially a nice foothold with some clients on a more international basis. It seems like that may take a little more time as you focus on integration. But when could we see some benefits from kind of the Itiviti customer book? And then also maybe just a more broad kind of update on what's going on internationally as maybe the pandemic subsides. Are you seeing any more success there?

Operator:

The next question will come from Chris Donat with Piper Sandler.

Edmund Reese:

Chris, you might -- sorry to interrupt. Thanks for the question. You may be referencing the capital markets business and not the wealth management business. What we saw was some big clients signed in fiscal year '20 that drove up license revenue. We were growing over that in fiscal year '21. We sort of have a plan that suggests flat in the first quarter and growing license revenue in the back half of the year that will help the capital markets reach sort of our normal 5% to 7% organic levels.

Timothy Gokey:

Yes. The only thing I'd add, Chris, is, first of all, there's no -- there's nothing seasonal about it. So to the extent there's something you're seeing, it is sort of idiosyncratic. And there were, a couple of years ago on the license side, some significant business in Canada, and that created a little bit of lumpiness and up and then down the next year. But we don't see anything of that magnitude going forward, and I wouldn't think that there's really any systematic seasonality.

Christopher Donat:

Yes. Okay. Yes. Just it was on the -- I appreciate the comments on the capital market. Just on the wealth side, and it's a small piece, but the quarter-on-quarter change, fourth quarter, $136 million in wealth revenue and then it slips to $131 million. I guess I was thinking of that business is highly recurring. But can you just remind us what the revenue drivers are? I thought it was something that -- whatever, not a big percentage change from the June quarter. But anyway, just trying to make sure I understand what's going on.

Timothy Gokey:

And Chris, I would say we can come back on any sequential comparisons. But I think if you step back and look at what is our -- what we're seeing for the full year, we're seeing that nice sort of within our range organic growth for the full year. So I wouldn't take any information out of that sequential quarter number.

Edmund Reese:

I do. I like to point out the comments about the components of the businesses have some seasonality in it. But in my prepared remarks, I made a comment about the first half of the year being typically just under 30% of the full year adjusted EPS. And I think fiscal year '22 is going to continue with that trend.

David Togut:

The 39% equity position growth is probably a record since Broadridge spun out of ADP in 2007. So my question is, what are you assuming for stock record growth for the critical spring proxy season?

Edmund Reese:

Yes, I'll give some color on the -- what we think about moving forward. So as Tim just said, David, mid-single-digit growth over the last 10 years in both equities and fund and ETF positions, to the point that Tim just made, that has elevated, I'd say, beginning with the fiscal '20 Q4 time period and ended at 26% last year, up to the eye-popping numbers at 39% in Q1 '22.

David Togut:

Understood. Just as a quick follow-up. On Darrin's earlier question, a lot of incoming questions on UBS. So when you talk about 18- to 24-month time line to complete the contract fully, how much of that is driven by UBS and their own internal time lines, i.e., decommissioning of their platform versus your delivery on the platform itself?

Operator:

[Operator Instructions] Our next question will come from Peter Heckmann with D.A. Davidson.

Timothy Gokey:

I would say, and I'll let Edmund add on, but we are seeing -- beginning to see a positive benefit from 30e-3. That is -- has been a modest benefit. The 498 piece, I'm less certain about. I think that is still in the -- I guess, the 498B is the piece that is not yet approved. The 498A, I think is -- we're not -- I'm not seeing that come out as a driver significantly one way or the other.

Timothy Gokey:

Yes. And remember, Pete, that -- or I know you know this, but for everyone listening, all that appears within the regulatory line. And there is an ongoing substitution from paper to digital within regulatory. And then when I was talking earlier, I was talking about within the BRCC customer communications line, where that same thing is happening.

Timothy Gokey:

That is a great question, and we are deep in discussion with both clients on that very topic because some of these components are -- maybe ready. And it may be simpler in RBC where they're already on our back office to implement some of the components and get them going. But we really need to work that through with both clients at this stage. It has always been our plan that it would be after UBS, but it's -- I think the order of that is something that is -- continues to evolve.

Patrick O'Shaughnessy:

I was wondering if you could size the potential revenue impact of that pass-through voting initiative from BlackRock. And then as you kind of think about pass-through voting as a topic in general, is the ability to expand that to mutual funds and ETFs and other products over time? Or do you think it's kind of limited to a subset of BlackRock's products?

Patrick O'Shaughnessy:

Got it. And then on your closed sales, can you remind me about the underlying reasons for the seasonality in your closed sales? Is that because your client budgets are, hey, we want to get this deal done before the end of June? Or is it more on your end?

Operator:

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

Edings Thibault:

Thank you, Iley. Good morning, and welcome to Broadridge's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call today are Tim Gokey, our Chief Executive Officer; and our CFO, Edmund Reese. Before I turn the call over to Tim, a few standard reminders. We will be making forward-looking statements regarding Broadridge on today's call 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. 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 on the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim?

Edmund Reese:

Thank you, Tim, and good morning, everyone. As you can see from the financial summary on slide 8, Broadridge delivered strong fiscal '21 results capped off by a strong fourth quarter and demonstrating significant progress towards our three year objectives. Fiscal '21 recurring revenues increased 10% to $3.3 billion driven by strong growth in both ICS and GTO. That strong growth enabled us to make the near, medium and long-term investments in our technology platforms and our digital products, while driving 60 basis points of AOI margin expansion for the year. Higher revenues and higher margins drove 13% adjusted EPS growth to $5.66. In the fourth quarter revenues rose 15% year-over-year to $1.1 billion driven by growth in ICS and the acquisition of Itiviti. Adjusted operating income rose 4% as we continued our ongoing investments and adjusted EPS grew 2% to $2.19. Our results came in at the high end of our latest full year guidance range and above our three year recurring revenue and adjusted EPS growth objectives. And as Tim has highlighted, our sales team closed the year on the high note. It pushed us modestly above our close sales guidance range. So let's get into the details of those results starting with recurring revenue on slide 9. The momentum in our business driven by the trends and increased investor participation in digital solutions continued into the fourth quarter and help Broadridge post another year of 10% recurring revenue growth. Our recurring revenue growth is powered by 8% organic growth which came in well above our 5% to 7% three year growth objectives. The combination of organic growth coupled with two points of growth from our acquisition of Funds Library in F5 360 in fiscal year '20. And then Itiviti in May push our fiscal year '21 recurring revenue growth above our 7% to 9% objective as well. So a strong start to what our three year recurring revenue growth objectives. Now let's look at this quarters recurring revenue growth by business beginning with ICS on slide 10. ICS revenues grew by 17% to $719 million in the fourth quarter all of that growth, organic. The biggest driver of that growth was in our regulatory business which grew 27% to $381 million. Fourth quarter stock record growth was 33%. And mutual fund record growth was 11%, both key drivers of growth in regulatory. We also benefited from strong growth in international. And our investment in the Shareholder Rights Directive II solution is paying back and contributing to recurring revenue growth. For the full year, regulatory revenues rose 20%.Issuer revenue also contributed to growth rising 20% in the fourth quarter to $106 million and 21% growth for the full year. As Tim noted, our continued success in providing virtual shareholder meeting services has helped drive revenue growth of our other Annual Meeting services and document disclosure products. Fund Solutions lap the drag from lower interest income; their recurring revenue grew 7% in the fourth quarter. Full year revenues rose 5% driven by the fiscal year '20 acquisition mentioned earlier, in revenue from net new business. Customer communication revenues were down 1% in the quarter, declines in the low margin print revenue, offset digital growth. For the full year, customer communications revenue growth was slightly positive but more importantly, higher margin digital revenues within customer communications grew by 15%. Turning to GTO on slide 11; GTO recurring revenues rose 10% to $346 million in the quarter driven by 18% growth in our capital markets business and 1% growth in wealth and investment management. Across both capital markets and wealth, solid revenue growth from new business was offset by $7 million of lower license revenue which declines as expected and modestly lower trading volume. Our acquisition of Itiviti closed in mid May and contributed $29 million to revenue growth in the capital markets franchise. For the full year, GTO revenues rose 7% to $1.3 billion driven by four points of organic growth and three points from acquisitions. Organic growth was driven by new sales and internal growth was essentially flat as the benefit of higher full year trading volumes was offset by lower license revenue which declined relative to an unusually high fiscal year '20 level. We expect modest growth in license revenues in fiscal year '22. So Broadridge's recurring revenue growth benefited from strong volume growth, both in ICS and our GTO business segment. So let's turn to slide 12 for a closer look at volume trends. Equity stock record growth rose to a record 26% in fiscal '21, well above the 6% to 8% trend of the past decade. Fourth quarter proxy volumes which accounted for 55% of full year distributions benefited from 33% stock record growth. We also saw strength in mutual fund and ETF regulatory communications driven by strong fund inflows as we lapped last spring's COVID driven withdrawals. Looking ahead to fiscal '22, we continue the model stock record growth growing at a healthy low teens pace, though the seasonally light first half for reverting to more trend line, mid to high single digit growth in a much more meaningful seasonal second half. We're also expecting mid to high single digit fund record growth. Turning to trading volumes on the bottom of the slide. Fourth quarter volumes slipped 1% driven by a combination of tough year-over-year comps and lower overall market volatility. Fourth quarter volumes also declined on a sequential basis as elevated levels in Q3 '21 driven by market volatility subsided. Trading volumes rose 12% for the full year. As we look ahead to fiscal '22, we expect trading volumes to be essentially flat for the year, with modestly higher volumes in the first half of the year, offset by lower volumes in the third quarter. Shifting to a view of growth drivers have recurring revenue on slide 13; organic growth rose to 11% in the fourth quarter driven by a combination of new sales and the seasonal impact of higher proxy volumes. New sales contributed six points to growth with balance contribution from both ICS and GTO. Internal growth of seven points was primarily driven by proxy volumes as is typically the case in our fourth quarter. Acquisitions contributed three points. Almost all of that came from Itiviti with only a modest contribution from our mid June acquisition of AdvisorStream. Client losses subtracted two points of growth in both the fourth quarter and for the full year marking another year of 98% client revenue retention rates. High retention rates reflect the value of the services we offer. Our commitment to client services and our tangible outcome of our service profit chain culture. I'll round out our revenue drivers discussion on slide 14 with a look at total revenue. Total revenues rose a healthy 12% in the fourth quarter. Recurring revenue was the primary contributor to that growth and Broadridge received the further boost from an uptick in event driven revenues, as well as two points of growth from higher distribution revenue. While higher distribution revenues contributed to our overall growth, their share of the full year total revenues declined to 31% down from 32% in fiscal year '20 and 38% five years ago. We expect that the share of low to no margin distribution revenues will continue to decline as we remain focused on growing recurring revenues. FX was a modest positive reflecting the weakening of the US dollar. Looking down the slide, event driven revenues rose $5 million year-over-year in the fourth quarter to $73 million, driven by higher proxy contest activity. For the full year, event driven revenues rebounded from a cyclical low to healthy $237 million. That rebound was broad based across the full range of event driven activities. Higher mutual fund communications contributed to roughly a quarter of the growth as the higher revenues for proxy contest as well as higher revenues from capital markets activity and other communications. Going forward, we're not forecasting to the major fund complex goes the proxy. And while there might be some quarterly cyclicality, we expect full year fiscal '22 event driven revenues to be approximately $220 million in line with the fiscal year '15 to fiscal year '21 long term average. Turning to slide 15; for the full year, adjusted operating income margin expanded 60 basis points to 18.1%, slightly ahead of our latest guidance, and multi year objectives. AOI margin declined to 180 basis points to 22.8% in the fourth quarter on the back of our planned fiscal year '21 investment spend. We have a strong track record and high confidence in our ability to make growth accretive investments, while still expanding margins and delivering near term profit growth in line with our adjusted EPS three year growth objective. Before I moved to our uses of cash and our balance sheet, let me touch on closed sales and our revenue backlog on slide 16. Thanks to a strong fourth quarter, Broadridge recorded another year of strong close sales. With balanced growth across both our ICS and GTO segments, I was especially pleased to see strong growth in our smaller sales. Those under $2 million in annualized values which rose 11%. These small sales represent the bread and butter of our long-term growth and reflect the broad demand we are seeing across our businesses. Our sales performance pushed our overall backlog, a measure of past sales that have not yet been recognized into revenue to $400 million, up from $355 million last year in steady at 12% of recurring revenue. As a CFO, I appreciate the added visibility into our future revenues that our backlog gives me. Moving to capital allocation on the next slide, Broadridge remains committed to a capital allocation policy that balances internal investment, M&A and capital return to shareholders. In fiscal year '21, we generated $557 million of free cash flow, up $58 million from fiscal year '20. Given the size of the market opportunity we see in front of us, we're continuing to prioritize making investments in our business, both internal and external. The biggest use of our cash was a $2.6 billion acquisition of Itiviti, which was completed in the fourth quarter. And late in the fourth quarter we also completed the additional tuck-in acquisition of AdvisorStream. Since the close of the quarter, we've made two more very small tuck-in acquisitions for the assets of Jordan and Jordan in the remaining share of Alpha Omega. We invested almost $300 million and continued platform build outs as we add to our capabilities across wealth management and capital markets, and another $100 million in CapEx and software development. Total capital return to shareholders was $248 million. The 11% increase in our annual dividend approved by our board was in line with our long term 45% payout ratio policy. It will increase capital returns in fiscal year '22. As a result of the Itiviti acquisition, our total debt rose to $3.9 billion, up from $1.8 billion at the end of fiscal year '20. Our leverage ratio at year end was 3.5x. We remain focused on an investment grade credit rating and target a 2.5x leverage ratio by the end of fiscal '23. I'll close my prepared remarks this morning with some comments on our fiscal year '22 guidance which is on slide 18. Our guidance for fiscal '22 calls for low teen recurring revenue growth, healthy margin expansion, and another year of strong adjusted EPS. Let's take each point in turn starting with recurring revenues. We expect to grow recurring revenues by 12% to 15% in fiscal year '22. That includes organic revenue growth of 5% to 7% with growth balance across both ICS and GTO. We're not modeling in any revenue contribution from the UBS contract in fiscal '22. As Tim noted, we expect to complete the rollout of the full wealth management platform suite over the next 18 to 24 months and will begin to recognize revenues at that time. We expect the contribution from acquisitions to add an additional seven to eight points with most of that coming from Itiviti. Our more recent acquisitions of AdvisorStream, J&J and Alpha Omega should contribute less than $10 million combined to fiscal '22 recurring revenues. As always, we do not forecast the impact of any future tuck-in acquisitions that we might make. In addition to recurring revenue, we expect mid single digit distribution revenue growth driven apart by a postal rate increase. And that driven revenue should, as I indicated earlier, be more in line with our fiscal '15 to '21 seven year average level of approximately $220 million. For modeling purposes, between recurring revenue, distribution and event driven revenues, total revenue growth should be in the range of 9% to 13%. We are expecting our adjusted operating income margin of approximately 19%, up from 18.1% in fiscal year '21, driven by a combination of incremental scale, digital, efficiency gains, as well as the addition of the higher margin activity business. Finally, we expect adjusted EPS growth to be in a range of 11% to 15%. Included in our EPS outlook is an expectation that at a tax rate will essentially be flat at approximately 21% and that we'll see a modest increase in our overall share account. On our last guidance point, we expect another year of record close sales. Our outlook calls for close sales in the range of $240 million to $280 million. This guidance emphasize the strength of our financial model and our ability to drive sustainable revenue growth, expand our margins, while maintaining a balanced capital allocation policy in delivering steady and consistent adjusted EPS growth. That concludes my remarks on our fiscal year '22 guidance, but before I turn the call over for your questions, I have one more final administrative note. Beginning with our first quarter results, we will be updating how we report foreign exchange. As you know, we've historically use the fixed exchange rate for our segment revenues and for recurring revenue. The difference between the fixed internal rate and the actual rate are recorded in our FX revenue line which was negative $132 million in fiscal year '21. With the continued growth in our international revenues, especially after the acquisition of Itiviti, the time is right to adjust our reporting. Going forward, we will be changing our internal rate to one that is much closer to the actual rate. This will have the impact of shrinking our reported negative FX revenue to a much smaller number, and lowering our segment or recurring revenue numbers by the same amount. These changes will have no significant impact on our reported recurring revenue growth rate, nor will they have any impact on our reported total revenue or profitability metrics. We intend to publish our historical revenue results at a restated rate ahead of our first quarter earnings so that you have a chance to adjust your models. Again, this is a change that will begin with our first quarter earnings report. It will lower our reported recurring revenue with little of any change to growth rates and will have no impact on total revenue, operating profit for adjusted EPS. With that administrative net out of the way, let's open up the call for your questions. Operator?

DavidTogut:

Thank you. Good morning, for your fiscal '22 guidance, could you discuss some of the potential tailwinds that take you to the high end of the 12% to 15% recurring revenue and 11% to 15% EPS growth range and the headwinds that might land you toward the lower end of that range.

TimGokey:

Yes, just add into, I guess, how Edmund started, which is, as we are looking at the strong year, we are having this year, actually I was initially thinking will we be able to keep that same momentum going. And as we saw the trends coming together in the second half of the year, and putting together a plans for next year just became apparent, the strong underlying momentum in the business. And so we're definitely benefiting from Itiviti, but you peel Itiviti out and the organic growth is underneath there is right in line with our three year metrics. So we feel really good about the guide for this year, and about what it says for our momentum as an overall company.

TimGokey:

Yes, Thanks, David. I didn't mean for that to sound like the shift but it might have sounded to you, I just think that with the volume increases that we've been seeing, that making sure that we have everything in place in, in all of our facilities, with all of our technology to support those really the organic numbers that we're seeing, that was really what we're referring to. And so, really as and you're very familiar, we take a long term view, we invest for the future. That's what we're doing. And but there are some near term tailwinds. And we need to make sure that we provide great service to our clients.

MichaelYoung:

Hey, good morning, thanks for taking the question. I wanted to maybe just start kind of high level things last year were ahead of schedule, I think this year will be, outlook s will be the same so maybe just big picture, Tim, what areas have you been able to invest in maybe more on a strategic basis to accelerate some of those medium term growth dynamics that might sustain this kind of growth rate beyond some of maybe the macro support.

EdmundReese:

And, Tim, I'll just add, we were able to make those investments that you're talking about it continue to expand margins in line with our three year objectives, and do that while continuing to deliver this double digit EPS growth here. So it really is the right time for us to invest for growth now.

TimGokey:

Yes, Michael, thank you. Look, we are really excited also about our sales guide for next year at $240 million to $280 million. I think that really shows how as we continue to add on new solutions, like Itiviti, we see an increased market for us, brought to us in a lot of additional sales resources. And so we do see higher sales for us. In terms of how that will affect the backlog, it is -- when you look at the mix of sales, we had a lot of sales this year that were not strategic sales, they were a lot, and we had a lot of singles this year. And as we bring on the Itiviti sales, those also tend to be a little bit smaller, a little bit faster to implement. So I think sometimes when you see the mix between some of those very large strategic projects, and the singles and doubles, the singles, doubles come online, usually sort of within a year versus within two years. And so I think we may see some fluctuations in backlog. I'm not sure what how to imply what that means for the momentum or business it does. It does flex a little bit based on the product mix. What I will say though, is seeing that backlog grow again, this year, having $400 million of revenue that we know is going to come live over the next two years. It gives us a lot of confidence in the revenue from sales portion of our growth formula. And that is the largest part of our growth formula. And so as CEO and when you think about the environment that we have out there and all the concerns, we have to know that revenue is already been sold. The projects are in flight is happening. It gives a lot of confidence in that and to make some sleep just a little bit better at night.

DarrinPeller:

Hey, thanks guys. I want to start off with the record and the position growth we're seeing being so dramatic and really the infrastructure you guys have said you've expanded and built out to handle the capacity from a physical standpoint. But then if you can also just remind us the difference in the margin profile of digital versus physical, what that's going to be for you guys going forward both from our revenue yield and a margin standpoint. And then just as a quick follow up on that same segment, when you think about your assumptions for next year, I think you said back to the mid to high single digit record growth, you just alluded to that, I think in David's question also being probably conservative. It does seem conservative when you look at the growth rates now. So if you could just expand on that, is that really what you think is the likely outcome? Or is that really just conservatism in your outlook? Thanks.

EdmundReese:

Great. So let me first start with the confidence in the next year. Darrin, we look at, we have some insight into stock record positions for companies that we expect to proxy in the next one to two quarters. And when you look at that testing, which I would say covers the large majority of distributions. And maybe there's some movement between the time that we test and the time that we actually mail but the information has been quite reliable. And when you look at that, you see what we said in my prepared remarks low teen growth through the first half of the year. And mind you that's coming off of 16% growth in Q1 last year and 24% growth in Q2 of last year. So low teen growth coming off of that. And that's helpful. That gives us great insight. But I'll remind you that the first half is our seasonally light period of the year, if you look at '21, or look at '20, the first half of the year was 13% of overall volumes. So what really is more important is the back half of the year. And we are assuming and modeling more normal levels in the second half of the year that we return to historical levels. And you combine that and that's what gets us to the mid to high single digit growth level. So you're not, I don't expect to see 33% and 26% coming out of the fourth and full year numbers that we see. But we have good insight into the next six months or so. And I think what we have modeled positions as well, first of all for fiscal year '22, and gives us confidence in that. As we think about the margins of the business, clearly, overall in our business, what we're able to drive bringing on new customers without a new business without incremental cost to scale in our business, the efficiency gains that we're able to get. I think helps us be able to expand margins, but specifically on print, and digital it was good to see our customer communications business, not just driving the earnings growth that we've seen there. But now to see digital, which is a higher margin business, because there's very low to no margin in the distribution revenue, starting to grow in recurring revenue, which is a higher business for us. So you might see lower revenue in that business, but it comes at a higher margin, and we feel good about the progress we're making on that

DarrinPeller:

That's helpful. Thanks. My very just quick follow up on GTO for a minute. How should we think about the growth of the components of the segment when just looking at the current quarter? I mean, I know or like, I guess, organically excluding the deal looked a little lower than we expected. But know, the underlying trends are obviously strong, the bookings are strong. So if you just touch on that for a minute. I'll turn back to queue.

Operator:

Our next question comes from Chris Donat with Piper Sandler.

TimGokey:

Yes. Glad you asked. We are definitely seeing higher growth rates in the online brokers. However, we are seeing very strong growth across all segments of brokerage firms and the traditional firms are also seeing double digit growth. And given their exercise, the absolute amount of positions is -- how we --actually bigger in that channel, while the percentage might be bigger, and some of the online ones. So it is really -- it is the one of the things also that we think is very interesting. We did a really landmark study of investing patterns and investors based looking at across $7 trillion of assets that we concluded last year, and it really did show how the millennial are here and their proportion of positions and a growth is really an interesting, but nevertheless, we are seeing really strong growth across all segments of brokerage firms.

TimGokey:

Absolutely. So first of all, I say just we viewed this acquisition as a positive because it really validates the importance of retail shareholder engagement. Robinhood has been a big leader in that area and their investment are, I think, will be a wake up to two other firms. I'll come back to that in a second. So just to be very clear, Robinhood is a Broadridge client, but it's not a proxy client currently so we really don't see any impact on our -- direct impact on our business. But what we do see there, Chris is we've been really leading an innovation in proxy communications, creating APIs, I talked about that product rollout and the acceleration of roadmap, creating opportunities for our clients to leverage that event as an opportunity to really engage their retail clients, and for corporations to engage their retail clients. And so we think this is going to create sort of heightened interest and a wide range of communications and engagement topics, all of which we really welcome. I think the thing that we bring is we have this unique role, the center of network linking 10s of millions of investors, corporate issuers, or broker dealers. And that network can be really powerful to help corporations engage their retail shareholders.

PatrickO'Shaughnessy:

Hey, good morning, if I recall correctly, the UBS go live was supposed to be originally completed during this summer. And I think you said today 18 to 24 months is what you're looking at right now. What's driving that extended implementation timeline, versus your prior expectations? And how does that impact opportunities in your ability to win other wealth mandates?

PatrickO'Shaughnessy:

Got it. Appreciate that. And then speaking of RBC, can you speak to the implementation timeline for that install?

Operator:

Our next question comes from Pete Heckmann with D.A. Davidson.

EdmundReese:

Hey, Peter, thanks for joining this morning. So you're right. We said if you look at the last seven years, the average has been about $220 million. If you look at that on a quarterly basis, you're going to see movement a cyclicality each quarter, I think on the slide we shared that the average has been roughly $50 million to $55 million per quarter. And I think that is a good range to think about your modeling on a quarterly basis. I think the key thing about event driven revenue, though, is that as I looked at fiscal year '21, the growth as I said in my prepared remarks was broad base. So it wasn't any one particular contest that drove the growth, it was across a mutual fund proxy, it was across contest that was across capital markets. And I don't think we're looking for any big cont, big one item in fiscal year '22, either. So I think that gives us confidence that we'll return back to the type of average four year numbers that you've seen over the last seven years.

PuneetJain:

Hey, thanks for taking my question. So my question is on margins, can you break down expected margin expansion into ICS and GTO? It seems like there are going to be lot of segments specific dynamics like record growth in ICS. And Itiviti and GTO segment this year.

TimGokey:

I just want -- I was going to add on that almost that last point, which is just we really do think about our margin delivery on an overall basis. And it really can be affected, particularly in any quarter but even in the year across businesses by where investments fall in that year. And but both these businesses have very attractive margin characteristics and margin profiles, but also underlying characteristics as they grow. It creates additional margin. And that is something that really does allow us to continually reinvest in the business, to provide more value to our clients to provide great careers for our associates and long-term growth for our shareholders.

Tim Gokey:

Well, I'd like to thank everyone this morning for participating in our call. But before we conclude, I do want to highlight two directors who recently joined our board. As you know, our board plays an important role in the oversight of Broadridge. And I'm pleased that we have continued to add valuable insight and diverse experiences. Melvin Flowers, brings along and valuable experience in both technology and finance. And Nazareth brings deep experience at the confluence of corporate governance, financial markets, and regulatory matters. Broadridge's ability to continue to attract this kind of talent to our board, I think highlights the important role that we play in governance and financial markets. We're really excited to have Melvin and Annette joining the board. We just had a meeting earlier this week and were able to be with them, at least virtually. So welcome, Annette and Melvin. And with that final note, I just want to thank all of you for your interest in Broadridge. We look forward to updating you again in a few months, and just are really excited about what we talked about this morning and about the opportunity going forward to really continue to make a difference for our industry and for millions of investors. Thank you.

W. Thibault:

Thank you, Andrea. Good morning, everybody, and welcome to Broadridge's Third Quarter Fiscal Year 2021 Earnings Conference Call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com.

Edmund Reese:

So Millie, thanks for the question. Event-driven revenue, as you know, is about 4% of our recurring revenue. It's a bit more cyclical, but it's an important part of our total offering. It's high-quality revenue at -- it's a strong margin in that business. And as you mentioned, Q3 has continued to increase and go back to our historical norms. We've done about -- on average, about $50 million a quarter. You've seen pickup in mutual fund proxy business and contests in capital markets. It's not unusual to see us have an unusually high quarter or an unusually low quarter. But over the long term, I do expect event-driven revenue to pick up and grow in line with stock record growth.

Operator:

The next question comes from Michael Young of Truist.

Edmund Reese:

Yes. Michael, let me jump in there. And Tim, you might have some commentary on the business itself. And we were thinking -- when we were bringing Itiviti on, first, we were looking for very strong assets in the capital market space after deploying most of our M&A to wealth management and governance over the past 3 years. And the thing that looks great from a financial standpoint for Itiviti is the strong growth outlook. The core business by itself is mid-single-digit growth from a revenue standpoint.

Timothy Gokey:

Yes, Michael, just remember at the time that we -- and we announced this, we said we were -- we felt confident that we'd be at the high end of our 3-year guide? So in terms of what the impact would be beyond '22, I think that also gives a bit of a flavor. And just to add on to what Edmund talked about strategically, we are really pleased with the way to strengthen our capital markets franchise and really allows us to drive front to back. That has been really emphasized in some of the client conversations that we've had since the acquisition was announced. We've talked to our top 50 clients and have half of them, one, have a conversation about this. And so it's really gratifying to see that level of interest. But specifically in the vision of front to back, and in the vision of having an alternative in the market with someone like Broadridge that is investing in this business. So we feel really good about that piece on the capital markets, and we also feel good about how it adds to our global scale and reach -- and really deepens our relationships with some of our most important clients. So we're excited about it. And we do think it's going to add to our growth and our ongoing organic growth in terms of the rate, specifically bring us to the top end of the 3-year guidance.

Timothy Gokey:

I would say on the sales side, we are -- it's interesting because we've been this past year, really in the situation where -- I have talked about this before, in terms of originating new opportunities and then working them through the long sort of cycle of business case, requirements and things like that and doing that all remotely. And that's been a very interesting evolution over this past year. I think the productivity has been remarkably good. It is -- we'll see as we get to the end of the year here in terms of timing of some of the larger transactions. But what we're seeing certainly in the -- as people look out is this real pressure for next-generation technology, the digitization that is happening has just accelerated where people want to be, and you'll talk to client after client about who will say, what they expect it to happen over 3 years has happened in 12 months, or over 5 years that happened in 18 months. And so they're really looking to make change. It also means they're very busy. And so it's a matter of getting on their agenda. But we feel very good about our ability to continue to drive our business through net new sales.

Christopher Donat:

I had one question. I just wanted to check in as we're thinking about -- as we refine our 2022 fiscal models. With the UBS Wealth Management platform, can you just remind us on where we stand with that? And once it goes live, how that starts to affect revenues and expenses?

Christopher Donat:

Okay. Understood. And then Edmund, with Itiviti, I'm not sure I caught the comments fully on the impact for fiscal 2022. Well, I guess, first, did you say that the -- and was it $230 million of revenue? And did that include purchase accounting adjustments? And then if we start thinking about fiscal 2023 as the impact of purchase accounting adjustments paid, would we expect maybe -- but optically, that you have higher revenue growth just without the purchase accounting adjustments just so we're thinking...

Operator:

The next question comes from John Rodrigues of D.A. Davidson.

Timothy Gokey:

Yes, John, it's Tim. And we are -- we haven't closed yet. So we'll be -- but we will be digging in. I think on the cross-selling opportunities, there are several. They have a strong position on Continental Europe, a stronger position than we do. And so the ability to bring our products to their clients in Continental Europe and Asia, for that matter, that's sort of opportunity one. Opportunity two, we have a much stronger position in North America. And so the opportunity to help them better penetrate North America is opportunity two. And so those are sort of the geographic opportunities. And then we have the asset class opportunities, and they have a very strong position in exchange-traded derivatives, and that's a more nascent area for us. And so we expect that combined offer to be very interesting. And we have a very strong position in fixed income, and they have a building position in fixed income. And so that's another attractive area. So we think that between the geographic cross-sell and the asset class cross-sell, that there's a really nice degree of revenue synergy built into this. And that, as you know, most of the things that we do, we do really for revenue growth. We're not a buy this slow-growing thing and cut costs, and then going to the next one. That's sort of not our model. So we think this will add nicely to our organic growth for a long time to come.

Patrick O'Shaughnessy:

On LTX can you speak to what sort of participation you have at this point from some of the largest fixed income dealers?

Timothy Gokey:

At the moment, I would say we are working a tier below the very largest ones and -- which is a great first mover opportunity for those firms. We're working very closely with them, including Raymond James, as you know. And so we're excited about that. We are in conversations with 2 of the Tier 1 firms, and we'll see how those go. I think what's interesting is when we put -- and as you say, it's dealer-centric, so it really enables them to grow their business, and that is so much about the AI and about enabling them to serve your clients really well.

Patrick O'Shaughnessy:

Yes. Very interesting. And then switching gears to an expense question here. To what extent does your updated fiscal year '21 guidance reflect incremental organic investment relative to your prior outlook? And assuming there is some incremental organic investment, where are you directing those dollars?

Operator:

The next question comes from Puneet Jain of JPMorgan.

Edmund Reese:

Yes. So when you think -- thanks for the question, Puneet. When you think about our GTO business, we show that chart that breaks it up between capital markets and wealth management. And the first thing I'd say is, as we were coming into Q2, remember, we're coming in Q3 off of record trading volume comps, 26% combined equity and fixed income and 28% for equity. And that was primarily -- you saw that benefit come through in the capital markets business, and we said that would be a tough comp. As we came into this quarter, so in the capital markets business, you had sort of a harder comp on trading volume and the license revenue impact that brought it to flattish revenue.

Puneet Jain:

Got you. And while it might be a little early, but do you expect any changes in regulatory focus under the new administration and the Chairman of SEC?

Operator:

The next question comes from Andrew Bauch of Wolfe Research.

Timothy Gokey:

Yes. Andrew, it's a great question, and it's definitely an interesting time. And we're -- just more broadly, we're seeing this, as I talked about in my prepared remarks, just as part of a long-term trend of the democratization of investing. And what we're looking at as we look into the fourth quarter is -- and we do have a fair bit of visibility at this stage into what's going to happen in the fourth quarter because there's a lag between when the records come together and when they go out. So we have testing, but we have good visibility. What I'd say is just -- what we're seeing is very, very broad-based growth. We're seeing it across all different types of issuers. We're seeing it across all different types of broker-dealers, although stronger in online broker-dealers. We're seeing it across industries and we're seeing it across both managed accounts and other accounts, and if not, just focused on meme stock.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Gokey for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Edmund Reese:

Thanks, Tim, and thank you again for the warm welcome to our first earnings call as CFO. During my opening remarks at our December Investor Day, I mentioned my excitement joining a company with such a strong leadership team and growth strategy. Now over 2 full months, and I'm even more excited and more confident in Broadridge's ability to execute our simple but powerful financial model. And our strong second quarter and outlook for the full year are great examples of how that model works.

Operator:

Excuse me. this is an operator. There seems to be an issue with the current speaker's line. Just one moment, please.

Edmund Reese:

Okay. So I apologize for the technical difficulties that we just had. I think I dropped off on Slide 11 of our document. So I'll pick up there. Slide 11 highlights that our growth is primarily driven by our internal efforts. Organic growth has consistently been the largest part of our recurring revenue growth. In Q2, revenues from new sales -- I'm not clear that I'm being heard yet.

Edmund Reese:

Okay. So in Q2, revenue from new sales drove 6 points of growth and remained the biggest driver of our revenue growth across both our GTO and ICS segments.

David Togut:

Tim and Edmund, 24% stock record growth may actually be the highest stock record growth that Broadridge has posted since spinning out of ADP in 2007, and I hear the message about reinvesting the excess growth in products and platforms. But as we think about the 2021 proxy season, if 24% stock record growth is a jumping off point for proxy mailings, will you actually be able to reinvest this excess revenue growth fast enough in the second half to actually keep earnings growth within the 6% to 10% growth guidance?

Timothy Gokey:

Sure, David. And thank you for joining us this morning. I'm going to make a couple of comments and then hand it over to Edmund to also comment.

Edmund Reese:

Thanks, Tim. And I think you're right. David, thanks for the question. We began the investments also in second quarter, and I think we do have the ability to continue to ramp up as we complete the second half of the year. That gives us momentum going into fiscal year '22.

Timothy Gokey:

Great. And then, Dave, with respect to '22, it is certainly very early to comment on that, so we'll be definitely coming back to that later in the year and in the fourth quarter.

Operator:

The next question comes from Peter Heckmann of Davidson.

Timothy Gokey:

Yes, absolutely. And Peter, I think this is a really good opportunity to step back and look at the regulatory landscape, and I'll work my way to the fees question. But just I think, as you look into regulatory landscape, we have a long history of working with administrations on both sides of the aisle to promote really effective and cost-efficient disclosure. That's really the foundation of our market. And with the increasing democratization that we're seeing, there's a real -- the need for effective disclosure is greater than ever before.

Peter Heckmann:

Got you, got you. And then just can you remind us on the rules that have been formalized like 30e-3 and then potentially maybe some insight on 498B, the -- kind of the puts and takes that Broadridge sees over the next 6 quarters?

Michael Young:

Just wanted to ask, you kind of touched on capital return priorities. But in the second half, just wanted to kind of touch on your desire to engage in share repurchase versus maybe looking at acquisitions and kind of what the environment looks like for the acquisitions at this point.

Edmund Reese:

The only thing that I'll add to that, because you have the priorities, right, Tim, is that the reason that we're able to execute on that model, Michael, is because of the free cash flow that we're able to generate. That's historically a capital-light business, generate free cash flows that are at 100% over the past couple of years of adjusted net earnings. It's dipped a little bit as we've invested in our wealth management platform.