Edmund Reese
Chief Financial Officer at Broadridge Financial Solutions
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 seven, 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 eight. 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 [Phonetic]. 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 three points. And internal growth contributed three points to recurring revenue driven largely by position growth, which more than offset the decline in equity trading volumes. Our nine 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 two 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 one-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.
