Edmund Reese
Chief Financial Officer at Broadridge Financial Solutions
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 we'll 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% three-year growth objective.
Let's turn now to Slide 8 to look at the growth across our ICS and GTO segments. We continued 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 nine 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 seven consecutive quarters, and a modest decline in equity volume growth, given 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.
Although, the low-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 three 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 five years, we have closed on average 46% of our full-year sales in the fourth quarter. So, meeting our full year closed 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 recognize revenue during the first quarter of fiscal 2024. And as Tim said, we've made progress on finalizing a roll-out 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 returned 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 2.5 times 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 three 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 are with the systematically important banks as our internal policies prioritize safety of capital. So again, we have very small exposure to these institutions.
With that final note, I will reclose [Phonetic] 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, or our 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 times 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 three-year growth objectives for the fourth consecutive time.
And with that, let's take your questions. Back to you, operator.
