Edmund Reese
Chief Financial Officer at Broadridge Financial Solutions
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 a 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 six, 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 realized 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 and our ICS segment.
Let's get into the details of Q2 results, starting with recurring revenue on slide seven. 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 eight 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 units.
Our issuer business revenue increased 12% to $27 million, led by growth in our registered shareholders 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 nine 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 four points. In internal growth primarily position growth and trading volumes also contributed four points. Foreign-exchange impacted recurring revenue by two 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 four points of growth. Event-driven revenue was down $27 million from the prior year and was a headwind of two 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 and 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 one 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 to Q2 gives us increased confidence that we will be able to offset inflation and FX impacts and deliver on our margin expansion objectives 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, at 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 platforms spend 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's 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's 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 platforms 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, and we are reaffirming our fiscal year '23 guidance. With that, let's take your questions. Operator?
