Good morning, and welcome to the Broadridge Second Quarter 2022 Earnings Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Edings Thibault, Head of Investor Relations. Please go ahead.
Thank you, Andrea. Good morning, and welcome to Broadridge's Second Quarter Fiscal Year 2022 Earnings Call. Our Earnings Release and the slides of the company 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 reconciliation 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.
Thanks, Edings. I'm excited to be here this morning to talk about our strong results, record sales, and our outlook for another really good year. I'll start with highlights for the quarter. First, Broadridge reported another quarter of strong results. Recurring revenues rose 19%, adjusted operating income rose 19%, and after the interest cost of Itiviti, Adjusted EPS rose 12%. More importantly, we are entering the seasonally larger second half of our year with strong momentum. Second, our growth is diversified across multiple sources and is backed by strong underlying market trends. Our strong organic growth is being driven first and foremost by revenue from new sales across both ICS and GTO as we continue to convert our backlog into revenues. We're also benefiting from the long-term tailwind provided by healthy position growth in our governance business, as well as the continued successful integration of Itiviti.
Third, we continue to execute on our growth strategy across our Governance, Capital Markets, and Wealth & Investment Management franchises. Our strong closed sales underscore how our investments are paying off and how our value proposition continues to resonate in the market. Finally, after a strong start to the year, we expect to deliver at the high end of our 12%-15% recurring revenue growth guidance. We're also reaffirming our Adjusted EPS guidance of 11%-15%, positioning us for another year of steady and consistent Adjusted EPS growth while funding additional investment. After a strong FY 2021, and with our guidance for FY 2022, we remain well-positioned to deliver at the higher end of our three-year recurring revenue and Adjusted EPS objectives. Execution against our long-term growth plan has been a key driver of results over the first half of fiscal 2022.
Let's turn to slide four for an update, starting with governance. Our governance business is performing really well. ICS recurring revenues rose 10% to $427 million in the quarter, with the biggest driver being revenue from new sales across all four product lines. The franchise also continues to benefit from strong underlying position growth, including 20% equity stock Record Growth in a seasonally small quarter for proxies and another quarter of strong ETF and mutual fund position growth. Position growth remains broad-based across both equities as well as funds and ETFs. For example, while equity position growth was strongest in energy and financials, every industry sector reported growth of more than 10%, and we're also seeing almost identical growth across both managed accounts and individually directed accounts.
On the fund side, we saw position growth across both active and passive funds, with growth across equity, fixed income, and alternative asset classes. These trends remained resilient in January despite the decline in equity markets. Our weekly testing has actually showed some modest strengthening in position growth since the beginning of the year. Overall, our data shows more Americans are investing in our Capital Markets across different types of accounts and an increasingly diverse range of asset classes and securities. Moreover, they're staying invested in the face of market turbulence. For Broadridge, this is an opportunity to continuously raise the bar to serve more accounts and drive enhanced digital capabilities to ensure that investors, both new and existing, get the critical communications they need to make better investing decisions and to participate in the governance of those investments.
We are also investing to further enhance the proxy voting system by implementing end-to-end vote confirmation for thousands of public companies. Over the past year, we've worked closely with an industry group led by the Society for Corporate Governance, the Council of Institutional Investors and others to enhance the vote reconciliation process. This spring, we'll be rolling out these enhancements to reassure investors that every vote is counted as cast for all Fortune 500 companies, as well as all of the more than 2,500 public companies for whom Broadridge tabulates proxy votes. This is an investment that will further improve an already highly accurate process, and it's a great example of how we work at the center of the governance network in partnership with issuers and funds to strengthen the system as a whole.
Before I turn to Capital Markets, I'm pleased to report that our customer communications business saw 9% growth in recurring revenues in the quarter. This business has been a strong contributor to earnings growth in recent years, and it's positive to see it adding to our top line as well. Interestingly, we're seeing strong demand for print solutions, with several new clients coming on board. These new wins give us more opportunities to upsell digital solutions. Moving to Capital Markets, recurring revenues rose 41% to $224 million, driven primarily by the addition of Itiviti. When we announced the Itiviti acquisition last spring, we highlighted both near and medium-term benefits. 10 months later, I'm pleased to note that we're delivering on those benefits.
In the near term, the team delivered strong second-quarter sales, including several integrated solutions where our Itiviti products are helping to drive sales of a broader solution. This gives us incremental confidence in our market share thesis in the front office and in our ability to leverage Itiviti's capabilities and geographic reach to contribute to our overall growth. Just as importantly, after extensive positive client discussions, we have started to move forward on a fully modular suite of solutions covering the entire trade life cycle by signing our first client for a middle-office solution. Over the next 18 months, we will be rolling out a series of phased integrations to bring together our front, middle and back-office solutions by sharing regulatory reporting data and normalizing other data sources across the trade life cycle.
It's exciting to be in the execution phase and on the road to making our front-to-back vision a reality. In Wealth & Investment Management, revenues rose 15% to $146 million. We remain on track to deliver the Broadridge Wealth Platform to UBS. Over the coming weeks, we expect to reach an important milestone with the rollout of our front office advisor workstation to more than 17,000 advisors and others across UBS. The workstation combines Broadridge, UBS, and third-party applications that enable an advisor to manage their practice, give advice, and initiate transactions under a single sign on with an intuitive UI with shared context and enhanced look and feel. A beta version of the workstation was rolled out earlier this year, and the response has been overwhelmingly positive.
More than 95% of advisors offered the workstation have adopted it even when the current workstation is still available to them. When you consider how resistant to change most of us are, you appreciate what a great endorsement that is. Last, Broadridge delivered strong closed sales across all three franchises. Second quarter closed sales were $83 million and the first half was $113 million, up 48% from last year. With both ICS and GTO contributing it's certainly a strong sign that the Broadridge value proposition is resonating in the market. More importantly, it's a strong start toward what we expect to be another year of record closed sales, setting the stage for continued growth. I'll sum up my business review by saying that Broadridge is performing well across all three of our franchises with strong execution, driving strong financial results.
Let's turn to slide five to wrap up. First and foremost, Broadridge is performing well, that growth being propelled by sales and long-term growth drivers. We're executing on our strategy, extending our governance capabilities to enable ever more accurate voting, growing our Capital Markets business with a blueprint to create front-to-back capabilities across the trade life cycle, and rolling out a major component of our wealth platform. The biggest driver of organic growth over the past several quarters, in a period of strong position growth, has continued to be new sales. Those sales and a consistently high 98% revenue retention rate are the direct result of the investments we have made over the past years in strengthening our existing solutions, adding new capabilities through targeted M&A and organic investments, as well as strengthening our technology.
It should come as no surprise that we're going to take advantage of our strong performance to increase our investment this fiscal year as we balance our commitment to delivering low teens Adjusted EPS growth with attractive investment for the future. In all, fiscal 2022 is shaping up to be another Broadridge kind of year. We're delivering strong top-line results powered by new sales, continued position growth and strategic M&A. We're doing the hard work to execute on our multi-year growth plan to Extend Governance, Grow Capital Markets, and Build Wealth & Investment Management. We're using stronger event-driven revenues and the higher recurring revenue growth to fund additional investment, all while delivering strong 11%-15% Adjusted EPS growth.
As we look around us at a market that's growing and crucially concerned about inflationary pressures, Fed moves and geopolitical risk. We believe that clear formula, coupled with our long-term focus, both of which have served us so well for many years, will continue to resonate with our clients, associates, and shareholders. Let me sum up with this message. Midway through fiscal 2022, Broadridge's business is strong. We're on track to deliver another year of strong recurring revenue growth and 11%-15% Adjusted EPS growth. We remain well-positioned to deliver at the higher end of our three-year growth objectives, and we're well-positioned for long-term sustainable growth. Before I hand the call over to Edmund, I want to thank our associates for their continued engagement and their focus on our clients. Our purpose is strong, and we are making a difference.
We're proud of the 8% improvement in our associate engagement score last year. In January, we received the result of our most recent survey, and I'm very pleased to say that engagement is just as high this year, which is not the case across many companies. To those associates who are listening to this call, thank you for staying focused on our clients and our company. That focus is playing an important role in the strong growth numbers we reported today. Despite the challenges of the pandemic, you have kept financial markets working, are driving Broadridge forward, and are making a difference in the financial lives of millions. Now let me turn the call over to Edmund for a review of our financials. Edmund?
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 seven, 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 eight. Recurring revenues grew from $673 million in Q2 2021 to $798 million in Q2 2022, an increase of 19%, well above our fiscal 2022 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 is driven by the secular tailwinds in stock and fund position growth. As I noted, the biggest driver across both is 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 onboardings 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 & 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 onboarding of new component sales, as well as higher retail trading. Capital Markets 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%-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 fund inflows 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, the margins on slide 13. Adjusted operating income margin in Q2 was flat at 11.2% as our strong growth in recurring and event-driven revenue was offset by increases in Low Margin Distribution revenue and Growth Investments.
Non-margin distribution volumes and passthrough 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 on our digital platforms for fund communications, SRD II, 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 roadmap that Tim highlighted earlier. Given a higher distribution revenue. In 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, activity 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 dividend, 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%-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 the range of 11%-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 will 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?
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In the interest of time, we ask that you please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble the roster. Our first question comes from David Togut of Evercore ISI. Please go ahead.
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 FY 2022? In particular, if you could maybe talk through your investment spending plans and the impact of inflation, that would be appreciated.
David, hi, it's Tim. Good morning. I just want to say on this, and I'll turn to Edmund Reese to add, but we feel really good about where we are here for the year and for the second half. There are really three things going on, of which I really think that one matters. The first is distribution. This is really almost literally a technical adjustment that Edmund Reese will take you through.
We believe the impact for the full year will be between 40-50 basis points. Really when you look at the adjustment we're making to our guidance, it's all about distribution. We're just taking out the distribution piece of that. The second part is inflation and labor. You know, there's a little bit of an impact here, but it's not really material for us in 2022. It's something that is well within our sort of normal contingencies. It's not really a factor for us. The third part is investment. With better revenue, more event-driven revenue, we might have expected margin to increase modestly, and that's the delta that we're reinvesting. You know, we really like these investments. They are giving us the opportunity to accelerate our roadmap.
As Edmund said, we're enhancing our digital capabilities, strengthening VSM, expanding SRD, driving the front to back. We think our Q2 results demonstrate that those investments are having impact and helping us sustain revenue growth. And, David, as you know, you know, more than anyone, that investment's a critical part of our long-term growth strategy. We have a commitment to balancing those investments while delivering consistent growth, margin expansion, and 8%-12% Adjusted EPS growth over the long run. Those are sort of the pluses and minuses I see. I'm gonna just ask Edmund-
Yeah.
To add on anything to that.
Thanks, Tim. And David, good morning. I wanna double-click into each of those three topics, if you don't mind. Just, 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. 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. We've been sort of 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 and the customer communications business, the postal rate impact has the impact that Tim just mentioned, 40-50 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. 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.
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 and ex-interest expense. 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. That and all of our other costs, the distribution costs, the post, like post that I just mentioned is pass-through costs. The key sort of open item for us is the labor costs. Like many other companies, we are seeing an uptick there as we look to add and retain talent, as I talked about.
We feel good that the efficiencies that we get through scale in our business, that 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've been talking about. Finally, you know, I know I'm quite thorough in this answer, but finally, I definitely do wanna 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. I think that level of revenue builds a steady base, a foundation for consistent and steady adjusted earnings growth. They 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 gonna see us continue to be committed to investing to support this future growth, delivering margin expansion and delivering this steady and consistent EPS. I just wanted to double-click into each of Tim's items there.
Thanks. Just as a quick follow-up, could you walk through the new business pipeline? The first half, clearly very strong with bookings up 48% year to date, but you still have 60% of your closed sales target to do in the back half of FY 2022.
Yeah, David, it is Tim. Thank you for that. We see, you know, 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 uncertain, and particularly with the larger deals, you know, that could affect how the year falls. 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. We're staying right with the range that we had.
Thank you.
The next question comes from Peter Heckmann of Davidson. Please go ahead.
Hey, good morning, everyone. Thanks for taking my call. A couple items on the governance front. Can you talk about on the end-to-end vote confirm side, rolling that out to 2,500 issuers in the States? Can you talk about the economics, you know, if there's a change in economics to Broadridge there? And then, related question, for the U.S., proxy business is, the universal proxy card and, you know, how you see that as potentially, acting as a headwind, tailwind, when that goes into effect?
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 you know, a question that people have had over the years about are all the votes really getting through? Obviously, we audit those and have you know, 99.9% on that already. It just really addresses those. There are you know, a few cases where the chain of nominations falls down, and this allows 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.
Where 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 economic standpoint, it's really not material. It's, there's no additional charge to our clients for it. It is 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, you know, with the key role that we play in the industry. Something that we're excited about and I think really help continues to strengthen what is already a very strong system.
Got it.
In terms of universal proxy, that is going into effect this summer. Again, I don't think you're gonna see material economics really appear in our P&L on that. We're doing the investments to make that available even as we speak. They're basically done. We think it's again something that is, you know, a long-term strength in the industry. There are some people that say that this will give more access to activists and could lead to, you know, more proposals and contests and things over time. I think it's way too early to know about that. That would be the only potential impact if it somehow contributed to extra activism. But, you know, I think it's pretty early to say that.
Got it, got it. And then just one follow-up on regulatory. You've got a couple announcements on international developments. You know, I know Broadridge has been a pretty large and active player in the U.S. and Canada. I know they had some toeholds or footholds in a couple other countries. You know, how do you think about the international opportunity for governance?
Yeah. It is, you know, it's a really interesting topic because historically, the institutional arrangements were different in North America and started creating an 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 are some rule changes just a couple of years back in Japan that have really increased the importance of proxy voting there. In our joint venture, we've gone from, you know, several hundred companies to. I know we broke a thousand.
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 II, 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. There's no obligation to distribute the material, so voting was very restricted.
With that real move towards greater democratization, all of 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, the this, the that, and bring all of that, and win over 300 clients, which have been implemented. 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 gonna be the magnitude of what we have in North America, but it is certainly a great opportunity.
Got it. All right. Thank you.
The next question comes from Darrin Peller of Wolfe Research. Please go ahead.
Hey, thanks, guys. You know, the customer communications business, you talked about it having shown acceleration with that expected to continue, which has obviously been an area that's been a headwind for some time for you guys. Can you touch on the dynamics there? I think you mentioned more printing even than electronic, but what exactly is happening, and why is it sustainable? It's great to see, obviously. I know it's also having an impact on distribution and margins. But, nonetheless, I guess a headwind turning into a tailwind's a nice thing. So, any color on that?
Yeah, Darrin, thanks. Just taking a step back, as you know, but just to refresh everyone, we always had three objectives for this, which is to get near-term synergies, which, you know, 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 to 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. And, t hat is really what we've begun to see, more and more in-house print operations, you know, throwing in the towel and saying, you know, they can't be efficient anymore and looking for a third-party solution.
Right.
We've really been able to take advantage of that. 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. You know, growing the print side actually gives us a bigger pool to fish from in terms of creating that digital growth for the future.
Right.
I'll just add.
Sorry. Go ahead.
That digital growth is obviously at higher margins right there as we bring that business on. That's what we continue to focus on.
Yeah. No, that's great to see. And it sounds sustainable. Listen, one other follow-up would be the mix between closed sales between your, let's just call it the higher level segments for a moment, whether it's GTO or ICS first, and what trends you're seeing between the two areas. Where are the biggest driver of closed sales now and is expected to be? Then just further into that, how much of that is going into wealth? It sounded like you've had some good progress with UBS, take hold. And so, i'm curious, you know, if we can break that down a little bit, it'd be great. Thanks again, guys.
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. It's been. Well, I think historically, some of our sales have been more focused on GTO and sort of 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. You know, Itiviti has been a really nice contributor and will continue to be. That's helping, you know, the capital market side of GTO, you know, for Itiviti itself, and then also how that's connecting other Capital Markets products on the front to back there.
On the wealth side, you know, we had really nice sales slash renewal this past quarter, helping drive some of the results you saw. We've had, you know, very nice continued organic growth on the wealth side. We're not yet seeing sort of the additional sort of large platform sales. You know, those are long sales, and we'll tell you when they're coming, but you know, that's gonna continue to be a developing story. But we like where we are on the wealth side.
Thanks, guys.
The next question comes from Puneet Jain of JPMorgan. Please go ahead.
Hey, thanks for taking my question. Can you review potential impact of interest rate increase on your financials? I know you talked about it could be positive to Matrix business. Can you talk about what it means for interest expense and interest rates overall for you?
Yeah, absolutely, Puneet. I'll take this. So 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. That's pre-payable and will decline over time given our intention to delever it 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, you know, we estimate 100 basis points impact on rates to be negligible to us in fiscal 2022. 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.
Got you. On the revenue guidance increase for the recurring revenue at the high end, which segment is driving that increase, more? I know both are firing on all cylinders, but where is that increase, coming from, ICS versus GTO?
If you think about it, I'll maybe start here on the GTO side of the ledger. Tim, you should jump in on this. Clearly, we have. We've said that the acquisition of Itiviti was gonna 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. 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 and wealth management business, as I said during my prepared remarks, I expect the both of those franchises to end the year in our normal 5%-7% growth range.
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. 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-teen SRG growth. That's having an impact on one of the key items that's driving us up. We continue to have this contribution, particularly from the net new business, the new sales that we've been generating in that business as well. I would say that the majority of the growth you see coming from that ICS business.
Okay. Thank you.
The next question comes from Patrick O'Shaughnessy of Raymond James. Please go ahead.
Hey, good morning. Tim, do you have any insight into why the SEC is revisiting its decision to keep the New York Stock Exchange in charge of regulated communication pricing? How do you see things playing out on this front?
Sure. Patrick, thank you for the question. Just for the full audience, you know, this, you know, what's going on is that, last summer, the New York Stock Exchange asked to have the process of overseeing us moved 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. That's really it. It's not clear to us which direction this will go.
Really, you know, the longer answer is, does this increase the chance of a fee review in some way? Really, Patrick, you know, we don't have, first of all, any news about which direction this is gonna go, and we don't have any news about a review. But 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, you know, real value to the industry, which has only gotten stronger. We provide that value with a highly functional 24/ 7 SaaS platform.
People talk to companies about the cost of sending a communication, but the platform includes compliance, proxy 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. 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 accounts when they could use anyone. 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.
During that time, through digitization and other initiatives, the total cost for communication with 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, you know, the large and the small have different interests. It's pretty complex, which is why it takes a long time. 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, passive voting support ESG, improved digital experiences to drive engagement. We're working on future initiatives that we think can again reduce the total industry cost by many multiples of our fees. We feel good about, you know, wherever this ends up, that it will be in a good place.
Understood. I appreciate that. Switching gears to the GTO segment. You mentioned a large client renewal in Wealth & Investment Management. As we think about or we look at the revenue number this quarter, $146.4 million, is a good chunk of that going to be kind of in one-time in nature because of that renewal?
Yeah. I think when you look at the size of the growth, the 14% growth, that's really because of the nature of that solution. There's about half the revenue recognized up front, and then the other half is recognized over time. So it creates just a little bit of lumpiness in the quarter.
Over the long term, this license revenue in that business is a small component of the overall revenue, and you know, we have a number of sales throughout. You know, quarter to quarter, you might see some fluctuations, but I think the revenue stream itself is on the smaller end relative to the whole business and on an annual basis, quite stable.
All right. Terrific. Thank you.
The next question comes from Chris Donat of Piper Sandler. Please go ahead.
Hi. Good morning. Thanks for taking my questions. Tim, I appreciate your answer. On the question around the proxy fees. I just wanted your sense, 'cause 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 it as something of 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. Just wanna understand if you think there's been any shift in stakeholder interests or if we're pretty steady state when you take a long-term view of the dynamics here.
You know, I'm not sure that I see any shift. I think all the stakeholders want the system to be sound, to work, to create great client experiences, and they all want it to cost as little as possible. That's, you know, what everyone wants, and whether it's the public companies or the fund industry. The fund industry, of course, is, you know, facing a lot of pressures on its own. You know, for some time, they've been advocating for lower fees.
I think we're you know, we feel like we're in good dialogue with all the different parts of the industry and really making the case that if we work together, we can reduce the total cost and that when you look at the total cost, our fees are a relatively small proportion of the total cost, and that the best way to reduce costs to the industry is to work together on further digitization and on attacking some of the you know, very high costs around the composition of all these documents and automate that more. We think there are good opportunities to reduce total cost, and we look forward to working with the industry to make that happen.
Got it. Thanks very much, Tim. For Edmund, I apologize if I missed this. In the release, it mentioned a higher total discrete tax items for the quarter. Just any color on what was going on in the tax rate.
Yeah. The key headline, Chris, I'd want you to take away is that on the full year, we continue to have a stable, effective tax rate equal to or slightly better than last year and still at the guidance that I gave at the beginning, roughly about 21% is what you can expect. Quarter to quarter, you'll see some fluctuations, primarily driven by two items. If they're discrete benefits or one-time items, which is what we have in the second quarter, and the continued tax benefit that we have from equity compensation. Quarter-over-quarter, there's a benefit driven by those two items. I think the key point is on the full year, still at that 21% level.
Okay. That makes sense to me. Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Tim Gokey for any closing remarks.
Great. Thank you everyone for joining today. Thank you for your interest in Broadridge for being an investor. 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.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.