Good day, and welcome to the Broadridge first quarter 2023 earnings conference call. All participants will be in a 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, and please note that this event is being recorded. I would now like to turn the conference over to Edings Thibault, Head of Investor Relations. Please go ahead, sir.
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'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. Additionally, on September 26th, 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 will reference recurring revenue growth percentages on a constant currency basis, both for our results and our forward-looking guidance. Please reference our filings and investment materials for the corresponding reconciliations. With that out of the way, let me now turn the call over to Tim Gokey. Tim?
Edings, thank you very much. Good morning, everyone. I'm pleased to be here to discuss our strong start to fiscal 2023. There's a lot to cover, so I'll walk through our strong results for the quarter, provide a business overview, and then share some thoughts on why Broadridge is well-positioned to drive profitable growth over the balance of fiscal 2023 and beyond. Before I start, I think it's helpful to provide some context given the volatile conditions the market and economy are experiencing. Despite market declines, we have seen continued growth in investor positions. Given our forward testing, we have visibility about six months ahead, which puts us well into the busy part of proxy season, and we see continued solid growth in investor positions over that period.
Our conversations with our large broker-dealer and asset manager clients also continue to be positive as our clients continue to drive to modernize their technology. With that as a backdrop, let's start with our strong results. Recurring revenues rose 9% on a constant currency basis, with strong growth across both our segments. Adjusted EPS was $0.84, down year-over-year, but modestly ahead of our expectations. All in all, a strong start to the year. Second, as I mentioned, demand for our solutions remains strong. We continue to benefit from increasing investor participation, which is fueling very healthy stock record growth. After a record sales year in fiscal 2022, we're off to a good start to fiscal 2023, keeping us on track to deliver on our closed sales guidance. Third, we continue to drive long-term growth across our three franchises.
In governance, we're enabling increasing shareholder engagement for our fund clients. In capital markets, we're delivering on trading innovation and global simplification. In wealth, we're seeing a growing pipeline for a powerful suite of modular solutions. Fourth, remember that our fiscal year extends six months into calendar 2023. Today, we are reaffirming our guidance for that full period, including 6%-9% constant currency recurring revenue growth, continued margin expansion, and 7%-11% Adjusted EPS growth. That puts us on track to deliver at or above the higher end of our growth objectives for the three-year period ending next June. When we do, it will be the fourth consecutive three-year period, covering 12 years in total, that we've delivered on our recurring revenue and Adjusted EPS objectives.
Fifth and last, we remain well-positioned to deliver continued growth in the years ahead, even as the economy faces growing uncertainty. Providing mission-critical services that power investing in governance positions us to deliver resilient growth through the ups and downs of the financial cycle. Our visibility into position growth and our $430 million backlog gives us confidence in our outlook for this year. Our investments, which are attracting growing interest from clients, position Broadridge to deliver increasing returns and long-term growth well into the future. Now let's turn to slide four for an update on our business. I'll begin with our ICS or governance business, which had another strong quarter. The biggest driver of that growth was new sales, especially in our fund solutions and customer communications businesses.
Position growth remains robust despite market headwinds, rising 9% for equities in the smallest quarter for equity proxies and 11% for funds. This growth is being driven by continued activity in managed accounts on the equity side and by continued strong demand for passive investments on the fund side. Beyond the first quarter, we're now seeing increasing visibility into position growth for the seasonally more meaningful second half of our fiscal year, and the outlook remains very healthy. As you know, we continue to drive innovation and governance, especially around digital solutions. Last year, we rolled out end-to-end vote confirmation for nearly 3,000 public companies. We pioneered pass-through voting for funds, updated our ProxyVote app, and delivered nearly 2,500 virtual shareholder meetings. This year, we're continuing to innovate.
Last month, Charles Schwab announced it is leveraging our network capability to query a sample of retail shareholders to help guide Schwab's voting in select Schwab funds and ETFs. We're seeing similar interest in pass-through voting, including for retail fund shareholders from several of our largest asset management clients. Beyond our regulatory solutions, we saw growth across our other product lines. Customer communications revenue rose 11%, driven by both print and digital. One digital contributor was the launch of our omni-channel Wealth InFocus solution with Cetera. Today, wealth clients may receive as many as 120 communications a year from their wealth manager. Wealth InFocus consolidates the critical information across various client and regulatory communications. Creating a single, simpler communication simplifies the investor experience while providing advisors with new communications opportunities, all at lower cost.
Following our early rollout, nearly 90% of participants prefer the new solution. It's an exciting example of how our digital capabilities are creating increased engagement at lower cost. Before I leave our governance business, I want to update you on a new SEC regulation on tailored shareholder reports for funds and ETFs that was announced last week. Many of you recall we first highlighted this regulation when it was initially proposed in August 2020, and we've been providing occasional updates since. The SEC voted 5-0 last week to implement a measure that replaces the existing long-form annual and semi-annual reports with a shorter two-three-page summary document. The SEC is aiming to use these shorter reports to provide key information in a more digestible format to keep investors better informed and more engaged at lower cost than long-form reports.
We're still studying the full implications of the new rule, but let me offer some thoughts. There is no question that the shorter reports will create a better investor experience overall, and especially for digital delivery. They will also create a path for even further digitization, which, as you know, is currently about 80%. Long-term, that's positive for funds and for Broadridge. On the other hand, our fund clients are concerned about the cost and complexity of the new rule because they'll have to compose both long-form and short-form reports. We estimate the impact on Broadridge, assuming no offset from new services, would be a $30 million reduction in recurring revenue phasing in over our fiscal 2025 and 2026.
Just as we did with Rule 30e-3, which also had its complexities, we will work with our clients to create a cost-effective industry solution which will be good for investors and good for funds. Moving to capital markets, revenues rose 14% constant currency, driven by strong growth from Broadridge Trading and Connectivity Solutions and from new sales. BTCS continues to perform well with strong sales and very positive client conversations about simplifying global trading and longer-term driving front to back. We also saw strong growth in the rest of our capital markets business, powered by new sales and increased fixed income trading. We achieved a key milestone with the implementation of our next gen global post-trade platform across the North American fixed income operations of a major U.S.-based bank. We've already begun the next phase, which will extend to unified global equities and fixed income.
Turning to wealth management, revenues rose 5%, driven by revenue from new sales. I'm pleased to report that our wealth sales pipeline is growing substantially, up 25% year-over-year, as we begin to bring to market completed modular solutions from our new Wealth Platform. We're now demoing live solutions to our clients, which is creating a much deeper level of engagement, and we're seeing real client interest. We're confident that our sales and modular solutions from the new platform are on track to meaningfully contribute to our FY 2023 closed sales with an even bigger impact in FY 2024. These modular solutions are part of the broader Wealth Platform we're creating with UBS as an anchor client, and UBS has been a fantastic partner. We're now making very exciting progress in that broader solution.
We're development complete on 26 of our 29 platform areas, with the remaining three to be complete this month. On the testing side, we're completing the fourth of five integrated testing cycles, with integration testing largely complete by the end of the calendar year. It's great progress that keeps us on track for full rollout. As Edmund will outline, we are now through the peak of our investment in this key program. With that, let me take a step back and put our growth strategy in context. The parts of wealth management technology and operations that we touch are a $16 billion addressable market, and wealth managers face a pressing need to modernize and digitize their operations.
We expect that the wealth management platform and the suite of module solutions we are building will put Broadridge in position to be a leading provider in the growing wealth space for the next decade and beyond. That position, taken together with the benefits we are already seeing for our product and technology capability across Broadridge, should strengthen our ability to build an increasingly strong, profitable, and high return business going forward. I'll close my remarks on slide five. As we move to a more uncertain macroeconomic outlook, Broadridge's resilience becomes an even greater strength. Demand for the critical services we provide has remained strong, giving us confidence in this year. Our forward look into investor participation in the next six months and a $430 million dollar backlog gives us good visibility.
As a result, we are reaffirming our guidance for fiscal 2023 and will deliver at the high end of our three-year objective. Longer term, we're serving a $60 billion market, with growth driven by long-term secular trends. Fintech innovation is forcing banks to digitize, and innovations like Managed Accounts, zero commission trading, Direct Indexing, and Pass-Through Voting are continuing to drive investor participation. As our clients seek to reduce costs, partly in response to macroeconomic trends, their need for Broadridge's low-cost platform solutions increases. Third, we've built a strong and resilient business model, focusing on recurring revenues and sustained growth. Excluding our distribution revenues, fully 93% of our revenues are recurring, covered by multi-year contracts across all three of our franchises. This revenue is supported by our long history of putting our clients first, which has driven a 98% revenue retention rate.
At the same time, growth enables to drive scale efficiencies, propelling our margins and funding additional investments to help drive additional growth going forward. Fourth, as we look beyond fiscal 2023, the investments we have made and are making in our digital capabilities, in our wealth and other technology platforms, and in extending our capital markets business leave us better positioned than ever to drive long-term profitable growth with increasing returns through this cycle and beyond. Finally, to support this long-term growth, we are also driving forward on sustainability. We recently released our latest sustainability report highlighting our commitment to drive sustainable growth, engage our talented, diverse associates, and reduce our and our clients' emissions. I encourage you to go to our site and review our progress. Before I turn the call over to Edmund, let me take a moment to thank our associates.
None of what we do is easy, and none of it would be possible without their focus on clients, on creating the future, and on delivering results today. Thank you. Now I'll turn the call over to Edmund to review our financials. Edmund?
Thank you, Tim, and good morning, everyone. I'm 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. 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 in a challenging macroeconomic environment, gives us the confidence to reaffirm our fiscal 2023 guidance. As you can see from the financial summary on slide six, 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, 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 seven. Recurring revenues grew to $806 million in Q1 2023 or 9%, coming in at the top end of our full year guidance range of 6%-9%.
Our recurring revenue growth was all organic, again, keeping us on track to exceed our 5%-7% three-year growth objective. Let's now turn to slide eight 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 continued to see growth in our disclosure products. Finally, our Customer Communications business grew by 11%, 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 and wealth management to be offset by growth over an uptick in fiscal 2022 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 2023 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 estimate of position growth continues to prove reliable as Q1 was in line with our July estimate.
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. In turning the trade volumes on the bottom of the slide, trade volumes grew 6% on a blended basis in Q1, driven by a fifth 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 five points and internal growth, primarily volume and expanding our relationships with existing clients, also contributing five 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 six points of growth. Low to no-margin distribution revenue increased by 13%, consistent with our outlook for low double-digit growth, and it contributed four 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 seven-year quarterly average and reached $63 million, $14 million lower than an unusually high Q1 2022. We continue to expect full-year event-driven revenue to be in the $240 million-$260 million range, in line with recent years. Changes in FX lowered reported revenues by one 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. First, elevated low to no-margin distribution revenue. For the full year, we expect 45-50 basis points impact on adjusted operating income margin, with no impact on Adjusted EPS. Second, rate inflation on our material expense, which we pass through at a one to two-month lag. Finally, the carryover impact of investments that we began in fiscal 2022. As we enter the second quarter, we expect to see increased margin expansion from the targeted cost initiatives that we initiated in Q4 2022. These actions, along with the operating leverage inherent in our business model, give us confidence that we will meet our earnings growth objectives even in this period of macroeconomic uncertainty. Let's move ahead to closed sales on slide 13. Closed sales of $29 million were essentially flat year-over-year.
We were encouraged to see strong closed sales across both ICS and GTO, with strong contribution from BTCS. As Tim noted, our pipeline remains strong, and we remain confident in our full year closed sales guidance of between $270 million-$310 million. I'll now turn 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 throughout the year. Q1 2023 free cash flow was negative $218 million, down from negative $151 million last year. Total client platform spend for Q1 2023 was $163 million, with the wealth platform accounting for the most significant part of that investment. We expect client platform investment to decline for the balance of fiscal 2023.
For the full year, we expect client platform investment to be lower than our fiscal 2022 peak year of investment. We project fiscal year 2023 free cash flow conversion to be higher than fiscal year 2022, and will return to more historical levels in fiscal year 2024. Given the significance of the wealth platform investment and the importance to our franchise growth, I want to share some additional insight on the impact to Broadridge margins and earnings growth, as well as the expected return on investment. As Tim noted, our progress on the platform is strong, and we continue to expect to go live in mid-calendar 2023. As we previously discussed, we expect to begin to recognize revenue and amortize the investment spend when the platform goes live.
Based on the existing and in-flight client agreements, we project average annualized revenue to be approximately $100 million, with average amortization costs per year of approximately $65 million. The addition of the servicing and infrastructure costs will make the initial platform rollout modestly dilutive to Broadridge AOI margins. We are confident that the operating leverage and ability to prioritize other investments inherent in our business model will allow us to mitigate this dilution and continue to deliver on our earnings growth objectives. Beyond the agreements noted above, and as Tim noted, our pipeline for wealth management sales is strong and growing, giving us confidence that we will bring on $20 million-$30 million in new wealth sales per year at accretive incremental margins.
Together, we expect the combination of existing clients and new sales will drive a return on invested capital that is higher than our cost of capital, and along with the continued performance in our core business, drive Broadridge ROIC to mid- to high-teens within our next three-year performance period. Let's now turn to slide 15 to review our fiscal 2023 guidance, followed by some final thoughts on our first quarter results. We are reaffirming our full year guidance on all of our key financial metrics. We continue to expect 6%-9% recurring revenue growth, approximately 50 basis points of adjusted operating income margin expansion, adjusted EPS growth of 7%-11%, and closed sales of between $270 million and $310 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. As a reminder, our fiscal 2023 guidance extends into the first half of calendar year 2023. Despite a challenging macro environment, we have confidence in our guidance given the visibility into our forward-looking recurring revenue. Our fiscal 2023 recurring revenue growth will be driven by our strong sales backlog, which was $430 million at the end of fiscal 2022, and by our equity and fund position growth, where our latest testing supports mid to high single digit position growth.
As I noted earlier, the inherent operating leverage in our business and the targeted cost initiatives that we initiated at the end of last year will help us meet our earnings objectives. Finally, let me reiterate my key messages. Broadridge delivered strong Q1 financial results. Demand for our services remains strong, and our testing is showing continued equity and fund position growth into the second half of the fiscal year. We expect our capital investment to decline, improved Free Cash Flow conversion in fiscal 2023, and to return to more historical Free Cash Flow conversion levels in fiscal 2024. We have a resilient business and financial model that performs through the economic cycle, and we are confident in reaffirming our fiscal year 2023 guidance. With that, let's take your questions, operator.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. Our first question today will come from David Togut with Evercore ISI. Please go ahead.
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?
Sure. I'll just make a comment here, Dave, and then I will let Edmund Reese take that on in some detail. First of all, good morning. Thank you for the question. I think I just wanna reiterate that our results this quarter were very much in line with our expectations a little bit above. We made investments at the end of last year that we knew would make the expense growth for this quarter a little bit stronger. We don't see any surprise here. We do see a more evenly paced year this year, but I'll let Edmund comment on that.
David, thank you for the question. I wanna reiterate a few points that 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 seven-year average at $63 million, but we're coming off an unusually high Q1 2022. That's the first item. 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 2023.
As you look out for the rest of the year, first, the key point that I wanna 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, you know, I do not think. We certainly run the company as an annual company. We think of 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're coming off a very tough economic environment in the last two years and drove 60 basis points of margin expansion.
So I continue to be, you know, very confident in our ability to hit the margin expansion and to deliver earnings growth in the 7%-11% range.
I just might add on all of that, which is that we're expecting 25% of earnings in the first half.
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, you know, 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, you know, beyond UBS of a few years ago?
That's a great question. Let me make one or two comments, and I'll turn it over to Tim to maybe talk about the pipeline some, 'cause as he said, we have a strong pipeline here. First, I think, you know, the key thing for me, David, is that when we make these types of investments, particularly large platform investments to grow the franchise, they are initially going to come on dilutive to the margins. We have a track record of making these types of investments and using our scale and other levers in our business to be able to ensure that they become accretive and drive towards Broadridge's returns.
That is what gives me confidence that we're making the right investment in this platform, and the progress that we've seen with it going live, and the pipeline that Tim can speak about is giving me confidence, and confidence in it being accretive to Broadridge and driving us back to the types of historical returns that we've had before. Let me turn it over to Tim.
Yeah. Look, we continue to see the wealth platform as a very much as a long-term positive for Broadridge. It is, you know, 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've been a long-term partner. It says a lot about the work that we're 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're 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 two years.
Others are investing, but we believe we have some real advantages. It's a 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. That's what we're excited about the progress that we're reporting today. David Togut, we really are seeing this as client discussions move from talking to showing. you know, when you're able to show real live software, it makes very much of a difference in the conversation.
I'm thinking of a client conversation we're involved in now, where the client has asked us to set up a sandbox with their data to have them be able to play with the applications, and we're able to do that in a matter of weeks. That makes a big difference in the conversations. That's why we're seeing the 25% increase in pipeline. You know, as we look forward here, I think the markers of success are gonna be going live with UBS, seeing sustained growth over time in our wealth management business. These sales will start to convert to revenue not in this year, so we're not talking about this year, we're talking about beginning next year. And then also, t he progress in our overall technology roadmap. I think those are some of the markers that investors should look for, and we're confident we're gonna get good returns here.
Thank you.
Our next question will come from Puneet Jain with JPMorgan. Please go ahead.
Hi. Thanks for taking my question. Can you comment on velocity of deals in the pipeline, specifically for large deals? Are you seeing any kind of pause or delays from clients, given like the macro uncertainty in signing on, new work?
Yeah, Puneet, it's Tim, thanks for that question. 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're 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 multi-year transformational projects and more about how they can step into things in ways that are, you know, quicker to come on and add value in a way that they can see. I think we're seeing that both in North America and in Europe.
When you look at our mix of sales last year, you know, which was a record, it didn't have any of those large transformational deals in it. I think that's what we're seeing now is some nice chunky deals, but we are seeing not the 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 where they're trying to think about that, and those, some of those could be larger. But o n the technology side, it tends to be a sequence of really nice deals, and we like the velocity of that versus the bigger ones.
I'll just add one point to quantify and help emphasize the point that Tim made, Puneet, and that is that, you know, roughly about three-quarters of our deals are less than $2 million deals, and that has been, you know, that's been a trend that we've seen stay consistent over the past couple of years. I think, as Tim just said, we feel good about the velocity, the fact that it shows interest across our different product lines, so nothing has changed there.
Got it. How's your appetite to do large deals changed, especially the deals that require a cost sitting on your balance sheet? How's your appetite changed as a result of rising rates environment? Should we expect any changes in number or types of deal you pursue as a result of that?
Yeah. I think, Puneet, what I would say is, certainly if you think about, you know, the work you're doing with UBS, I think that is something that is truly exceptional. It's to put us into a whole space and not something that we are, you know, thinking about something that is like that. It is, and having built the platform and built the technology, you know, we see additional deals being able to come on with much lower incremental investment.
Got it. Thank you.
Once again, if you would like to ask a question, please press star then one. Our next question will come from Darrin Peller with Wolfe Research. Please go ahead.
Hey, guys. Listen, maybe we start off just with the growth on 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 looked pretty decent on the side, on that trend line. I'd love to hear your latest thoughts on the sustainability of position growth. I know it's always hard to tell for sure, but, you know, given what we're seeing with retail investors and some of the changing trends, just curious your thoughts medium-term on that for us. Thanks, guys.
Just on the variance between position growth and revenue, there's just some timing in there. I'll let Edmund expound on that, but that's not, Darrin, I think something that is anything significant inside that. On the bigger question around position growth, you know, it remains robust based on long-term trends and on, you know, recent innovations that we believe are here to stay. It certainly starts with the long-term trend of increasing investor participation and diversification, which as you know, is based on historically falling costs, ongoing innovation, including ETFs, managed accounts, and that's what's driven sort of, you know, the high single-digit growth that we've seen over the last decade.
Obviously, we've seen in the last couple of years innovations around free trading and app-based investing in a new generation of investors, which has caused a real step change in the past two years. We do think that's a change that is here to stay. Now we see the next generation of innovation like direct indexing and pass-through voting to support continued, albeit what we think will be more normalized growth going forward. I think we all have had a question about, as we move into a different investing environment, what would we see with the position growth. As we have increasing visibility into the second half of the fiscal year, we're seeing this very normalized mid to high-single-digit growth.
Tactically, on the first part of your question, in terms of the position growth at nine percent and the regulatory revenues at a lower percentage. The way I think about position growth, Darrin, is same store sales. If you went to proxy in Q1 last year and you went Q1 this year, then you're in that position growth number. If you went Q1 last year, but Q2 this year, you're not in the quarterly position number, you would be in the full year position growth number. That's what matters to us because from a revenue standpoint, it doesn't matter which quarter you're coming in, we're gonna have the benefit from that. That's the difference between the position growth and the revenue that we see.
Okay. That's really helpful. Thanks. Just one quick follow-up on the earlier question on margins and really just free cash as well. Some of the dynamics on distribution obviously is a lower margin, and I guess event-driven revenue timing could have an impact as well. What do you see really changing other than the timing of investments? It's a small seasonal quarter, so it's probably not worth extrapolating too much. What do you see changing that really helps the operating margin from here, when considering that, you know, distribution costs will remain high, but I guess the scale, the operating leverage of some of the business should kick in also. Maybe you could just help us with the buts and takes.
Yeah, I do. Remember, distribution, we had 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'll see benefit from that. 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.
All right. Thanks, guys.
Our next question will come from Patrick O'Shaughnessy with Raymond James. Please go ahead.
Hey, good morning, guys. The wealth management sales pipeline that you've been speaking to, can you give some more color on how much of that pipeline is for the entire comprehensive wealth management tech stack versus some of these component solutions that you're bringing to market?
Sure, Patrick. It is 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 as someone like a UBS that are looking at full solutions. We would imagine those again stepping in more in a sequential kind of way than in the past. There are also larger firms looking at the components. I think if you were to look across the entire pipeline, it would be much more weighted to the component side.
Got you.
And I think, and if I can just add on to that, which is, I think one of our real learnings over the you know few years we've been building this is, you know, as we've built this in a very open way with you know all API driven. The original vision, as you call, was really to create you know 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. That vision is really more and more appropriate for what people want today.
The ability for us to, you know, whether it's the back office or whether it's the integration layer out, to help people tie together what they're doing, and then take some of our applications on top of that is, I think a real opportunity.
Got it. Appreciate that detail. As free cash flow improves over the remainder of fiscal 2023, how are you guys thinking about deploying that cash, whether it's debt reduction, share repurchases, M&A, et cetera?
Yeah, I mean, we continue to have a very consistent capital allocation policy where we're balancing return of capital to shareholders with our investments for growth, with continuing to maintain an investment-grade credit rating. As I think about the near term with leverage rates that are higher than where we've 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're focused on that. As free cash flow conversion increases going into fiscal 2024, I think it gives us more capacity to return capital to shareholders to think about other investments, whether internal or external on the, you know, on the road back in line with what our historical practice has been, smaller types of acquisitions.
You know, I think that's going to be the focus for us with the Free Cash Flow conversion.
Great. Thank you.
This will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.
Yeah. It is, it's 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're 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. Thank you very much. We look forward to continuing the conversation and seeing you next quarter.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.