Good morning, and welcome to the Broadridge fiscal first quarter 2027 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. To ask a question, you may press star and then one on your touchtone phones. To withdraw your questions, you may press star and two. Please also note, today's event is being recorded. At this time, I would like to turn the floor over to Edings Thibault, Head of Investor Relations. Please go ahead.
Thank you, Jamie. Good morning, everybody, and welcome to Broadridge's fiscal first quarter 2027 earnings conference 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, Ashima Ghei. 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 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 reconciliations to the comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey.
Thank you, Edings, and good morning. It's Election Day in the U.S., which is a fitting time to talk about shareholder engagement and the importance of giving investors a voice. So thank you to everyone who has already voted, and I encourage everyone eligible who hasn't yet voted to do so later today. Turning to Broadridge, our business is performing very well. We are benefiting from a positive market backdrop that's translating into momentum for our financial services clients, continued double-digit growth in positions, and rising demand for our solutions.
That, in turn, is enabling Broadridge to deliver strong financial results while funding investments in attractive new growth markets. Those investments build on our strong existing positions and are translating into tangible momentum, driving new products and client relationships, supporting increased investor engagement, and unlocking productivity. So let's get to those results, starting with the headlines on slide three.
First, Broadridge delivered a strong financial quarter. Recurring revenues rose 11% on a constant currency basis, with double-digit growth across both our governance and GTO segments. Closed sales increased by 10%. Second, those results are being driven by the execution of our strategy to democratize and digitize investing, simplify and innovate trading, and modernize wealth management. Third, we're also putting in place the building blocks for attractive future growth by driving digital engagement, accelerating tokenization, and scaling agentic AI. Fourth, we continued to deliver strong free cash flow conversion and increased capital returns to our shareholders, including repurchasing $200 million of our shares in Q1.
And last, we expect to deliver strong fiscal 2027 financial results, and we're reaffirming our full-year guidance for all metrics. Let's move to the drivers of results, starting on slide four with our governance business, where we continue to drive democratization and digitization.
Governance revenues rose 10% constant currency, driven in part by continued investor participation and very healthy position growth. Total equity position growth remained strong at 16%, led by growth in managed accounts and continued growth in self-directed accounts. Revenue position growth was 11%. Fund position growth accelerated to 16% in the quarter, compared to 6% for the full-year in fiscal 2026. While timing contributed to this quarter's numbers, our testing is signaling a sustained pickup to high -single-digit growth, as Ashima will share in a few minutes. We're also seeing strong interest globally for our proxy solutions. During the quarter, we closed a sale with a leading Scandinavian wealth manager to enable proxy voting for U.S. equities, building on the strong momentum we saw at the end of last fiscal year. And we're making further inroads in Asia Pacific.
Last month, Broadridge signed a memorandum of understanding with the Korea Securities Depository to begin collaborating on modernizing the proxy voting process there. As newer financial markets step up their global competition for global asset flows, they are recognizing the importance of corporate governance, and with it, efficient, digitized, and transparent voting. And no surprise, they see Broadridge as a key partner in that work. Turning next to capital markets, where we are simplifying and innovating trading, we had a very strong quarter with 17% recurring revenue growth, including organic growth of 12%. In the U.S. market, our clients are gearing up for the start of 23x5 trading, which will begin December 6th. At Broadridge, we're fully prepared to enable that transition across our front and back office applications, further demonstrating the power of an industry solution.
In front office, the acquisition of CQG is already strengthening our futures and options offering. During the quarter, we won a mandate for a front office solution for a leading global brokerage platform. Providing an equities, futures, and options suite across both the U.S. and Europe. In the back office, we're expanding our relationship with a major Japanese bank, seeking to take advantage of our unified global post-trade platform. We're also benefiting from strong demand for our corporate actions platform. Moving now to wealth management. Revenues rose 6%. In wealth, we're benefiting from continued growth in Canada, driven in part by the extension of our platform capabilities across our Canadian clients.
In the U.S. market, we continue to see significant interest in our wealth platform capabilities, aided in part by the progress we're making in onboarding several major wealth managers. Finally, I want to call out closed sales.
After a record finish to fiscal 2026 in June, we are pleased to close $36 million in Q1 sales, up 10% on fiscal 2026. More importantly, our pipeline continues to strengthen, and we are nicely on track to deliver our full-year guidance of $290 million - $330 million. In sum, across governance, capital markets, and wealth, we are executing well at our current businesses, each of which has a long runway and substantial opportunity. At the same time, we're seeing powerful new trends that have the potential to change markets over the next three, five, and 10 years. The good news is, the change is positive for Broadridge because it increases the need for investment by our clients, and Broadridge is exceedingly well-positioned to take advantage of the new market opportunities that are being created.
Our successful execution today positions Broadridge as a trusted partner to help our clients adapt to the next phase tomorrow. We're ready. We've been investing in the core themes of digital engagement, tokenization, and agentic AI, in some cases for years, and those efforts are now bearing fruit. Let's turn to slide five to review our progress on these fronts. First, digital engagement. Our Standing Voting Instructions, or SVI capability, is gaining real momentum in the marketplace. Over the last few weeks, both Goldman Sachs and Tesla have launched SVI engagement programs to make it easier than ever for retail shareholders to vote their shares. The success of early campaigns from Exxon and others are opening eyes, and we anticipate further announcements from blue-chip names in the months to come.
Furthermore, in late September, the SEC provided guidance as to how mutual funds can implement their version of an SVI program. The upcoming move to e-default is also increasing digital engagement. We submitted our comments to the SEC in September, reiterating our support for the proposal's core objectives. The proposal creates new requirements and complexities for intermediaries, and we're actively engaging clients on what they need to stay compliant. At the same time, forward-thinking firms are using this shift as a catalyst to drive deeper and more valuable engagement with their clients. As a result, our Wealth InFocus platform continues to gain momentum as clients look forward to what they will need to successfully implement the new rules and deliver tailored digital communications at scale. Turning next to tokenization.
Broadridge is building the infrastructure that helps markets support tokenized assets while preserving the governance and servicing that investors, brokers, clients, and issuers need. First, in tokenized equities, the SEC continues to advance its pro-innovation agenda with its recently released Innovation Exemption. That rule is designed to encourage new marketplaces for tokenized equities. Importantly, the commission explicitly reiterated the importance of shareholder rights, including voting, as a core feature of tokenized equities. The competition across the multiple models of equity tokenization and across the different Level 1 networks points to a more diverse and fragmented environment for issuers and intermediaries to navigate. It's now clear that the introduction of tokenized equities will result in increased complexity for issuers, wealth managers, and investors. Broadridge is stepping in to reduce that complexity by extending our scaled and institutional-grade governance layer to cover all models of tokenized equities.
Leaders in each of the models know they want strong governance as a feature of their offerings, and they are turning to Broadridge to help them deliver. We recently announced an agreement with Kraken Payward to provide governance services, building on our existing relationships with Ondo and Alpaca. Importantly, these new relationships cover both global tokenized equities, which are largely synthetic, as well as the custodial tokenized model that these players are planning to bring to the U.S. market. We are also working with leading market infrastructure providers. As we announced yesterday, Broadridge will provide the core governance layer for the New York Stock Exchange's planned tokenized equity marketplace, and we will support issuers with digital transfer agency services. We are also supporting the DTCC's tokenization efforts across governance and trading infrastructure, and we anticipate further announcements with other market infrastructure providers over time.
In sum, tokenized equities can bring real benefits and also come with new complexities. There is significant growth opportunity for Broadridge as we solve those new needs with a horizontal governance layer that simplifies complexity for issuers, intermediaries, and investors. Outside of equities, we are building the trading infrastructure to support tokenized securities across multiple asset classes. Our Distributed Ledger Repo, DLR platform, now supports cross-border atomic settlement for G7 securities alongside tokenized U.S. treasuries, enabling us to bring our market-leading collateral management capability to our global clients. Based on clients signed and currently in implementation, we expect further significant increases in our DLR volumes over the next six months. Building further on DLR, we launched DLX, an end-to-end platform that goes beyond repos to connect tokenized and traditional markets across multiple asset classes through an integrated operating layer.
The first use case is supporting the DTCC's tokenization initiative, and we are leading a user group of nearly two dozen institutions to help them as they begin to access and use the DTCC's new service. Turning last to AI, where we continue to scale our agentic capabilities. We have now expanded our AI-powered institutional voting solution to include global equities and enhanced workflow to make institutional voting more seamless and independent than ever. Demand remains strong, and we signed another Tier 1 wealth manager to our growing client roster in Q1. Our Global Demand Model is also gaining momentum. Covering more than 130 trillion of global assets, its predictive AI capability is giving our clients unrivaled visibility into future asset flows. We recently signed an agreement with a leading consulting firm, replacing their long-standing in-house model.
We are also delivering real AI efficiencies as Ashima will share, and using that capacity to fund investment and drive EPS growth. Putting it all together, it is an exciting time. Our industry is evolving rapidly, creating significant new opportunity for which no one is better positioned than Broadridge. We have been investing to meet that demand, and we are now seeing the beginning of real traction across multiple areas. Let me close with a quick recap of our key headlines. First, we delivered strong first quarter results, including double-digit growth in both ICS and GTO.
Second, we are putting our cash flow to work to expand our market, grow our dividend, and repurchase shares. Third, we are on track to deliver another year of steady and consistent top and bottom line growth, and we are reaffirming our guidance on all metrics. Last, we are translating our growth investments into tangible results.
We're widening access with better digital engagement. We're building the governance layer for tokenized securities and the operating infrastructure to connect traditional and digital assets. We're delivering new agentic products and workflows while using AI to create internal efficiencies that will fund investment and support earnings growth. Before I turn it over to Ashima, I want to thank the 16,000 Broadridge associates worldwide who turn our strategy into execution. They're delivering exceptional value to our clients, and in turn, for the tens of millions who rely on our industry to invest in their future. I've never been more confident and excited about Broadridge's ability to serve our clients, engage our associates, and create compelling long-term value for shareholders. Ashima?
Thanks, Tim. Good morning. It's great to be here today to share our Q1 results. Before I begin my review, I want to make five key call-outs. First, Broadridge is off to a strong start in fiscal 2027. In our seasonally smallest quarter, recurring revenue grew 11% constant currency, including 9% organic growth. Closed sales also rose 10% to $36 million. Second, underlying growth drivers remain positive, with double-digit equity and fund position growth and continued trade volume growth. Third, we continue to be a buyer of Broadridge shares. We repurchased $200 million in Q1, bringing our total since January to $650 million. Fourth, we are delivering on AI productivity gains. AI savings were $6 million in the first quarter, and we are on track for $25 million for the full-year, enabling us to deliver strong bottom-line results and fund strategic growth initiatives.
Finally, we are reaffirming our full-year outlook, delivering 8%-12% adjusted EPS growth while investing in our future growth. With that, let's go to the numbers on slide seven. Recurring revenues grew 11% on constant currency basis, including 9% organic growth. Adjusted operating income margin was 13.8%, lower year-over-year as we lapped record event-driven revenues in Q1 last year. Adjusted EPS grew 3% to $1.56, above our expectations, driven by timing benefits in our regulatory revenues and a lower effective tax rate. Closed sales were $36 million, up 10% from Q1 last year. Let's move to slide seven to discuss our segment recurring revenue, starting with ICS, our governance segment. ICS recurring revenues rose 10% to $568 million, including a 1-point benefit from acquisitions. Regulatory revenues rose 17% in Q1, driven by 11% growth in equity revenue positions and 16% growth in fund positions.
The timing of certain fund communications resulted in a 3-point benefit to regulatory revenues. Data-driven fund solutions revenues grew 10%. Organic growth was 4%, which included a 2-point headwind from lower interest rates. Issuer revenues grew 4%, driven by strong growth in disclosure solutions, which more than offset a 2-point headwind from lower interest rates. Customer communications revenues rose 3%, with strong growth in digital solutions offset by lower growth in print. The acquisition of Signal contributed 1 point to growth. For the year, we expect ICS recurring revenue to be within our 6%-8% total recurring revenue growth guidance. Interest rates, which have been a modest headwind to growth for the last few quarters, are expected to be neutral in Q2 and then be a modest tailwind to growth in the second half of the fiscal year.
Turning to GTO, revenues grew 13% in Q1, including 10% organic growth. Capital markets revenues grew 17%, driven by organic growth of 12% and a 5-point contribution from the acquisition of CQG. Higher term license revenues contributed 4 points to organic growth. Wealth and investment management revenues rose 6%, all organic, led by strong growth in Canada. Higher term license revenues contributed 3 points to growth. For the year, we continue to expect GTO recurring revenue growth at the higher end of our 6%-8% guidance range, led by growth in capital markets with slower growth in wealth. Let's move to slide eight to review our key volume indicators. We continue to see healthy growth in investor participation across both equities and funds. Equity position growth was 16%, including 11% growth in revenue positions.
Looking ahead, our testing shows mid-teens total position growth in Q2 and low-double-digit growth for the full-year. Q1 fund position growth was 16%, driven in part by the timing mix of certain jobs in the quarter. Putting timing aside, our testing indicates high-single-digit growth for the balance of the year, an acceleration from 6% in fiscal 2026. In GTO, trade volumes rose 7% for the quarter, driven by growth in equity volumes. I'll wrap up my discussion of recurring revenue growth on slide nine. In Q1, recurring revenue growth constant currency was 11%, primarily driven by 9 points of organic growth. Revenue from closed sales contributed 4 points of growth. Our retention rates were 98% for the quarter, and internal growth contributed 7 points of growth. Acquisitions contributed 2 points of growth. Let's close our discussion of revenues with slide 10.
Total revenue increased 5% to $1.7 billion, driven by 7 points of growth from recurring revenue. Lower event-driven revenue offset 3 points of growth to total revenue, as event-driven revenues returned to more normalized levels after a record quarter last year. We expect event-driven revenues to continue to be at our historic average levels of $60 million-$70 million per quarter for the balance of fiscal 2027. Low-margin distribution revenues grew 4%, primarily driven by higher postage rates, and contributed 1 point to total revenue growth. Turning now to margins on slide 11. Adjusted operating income margin was 13.8%, a decrease of 200 basis points from Q1 2026, as operating leverage from our scale business was offset by lower event-driven revenues and higher growth investments.
For the quarter, margin dilution from lower interest rates was offset by an improved mix of distribution revenue, resulting in no material net impact on AOI margins. Let's move on to earnings on slide 12. Q1 adjusted EPS grew 3% to $1.56, with a lower tax rate and lower share count offsetting lower adjusted operating income. First quarter earnings benefited from a lower tax rate of 14%, reflecting the timing of discrete tax items. Looking ahead, we continue to expect our full-year tax rate will be approximately 22%. In addition, Broadridge recorded a $40 million non-cash loss, driven by the decrease in the value of our digital asset holdings. That non-cash loss is reported in other non-operating income and was excluded from our calculation of adjusted EPS.
Given the volatile nature of digital assets, we expect to continue to recognize non-GAAP gains and/or losses as we mark our Canton holdings to market every quarter, just as we did last year when we recognized a $227 million non-cash gain. In addition, we also recorded a $15 million restructuring charge related in part to our AI and productivity initiatives. Let's turn to sales now on slide 13. Broadridge reported closed sales of $36 million, an increase of 10% from the first quarter of fiscal 2026.
Our pipeline remains strong, and we are reaffirming our guidance for full-year closed sales of $290 million - $330 million. Turning to our cash flows on slide 14. Broadridge generated free cash flow of $76 million, up from $13 million a year ago. We remain on track to deliver free cash flow conversion of over 100% in fiscal 2027.
Turning next to capital allocation on slide 15. We continue to take a balanced approach to capital allocation. In Q1, we invested clients onto our wealth and capital markets platform. We also took advantage of the compelling value in Broadridge shares, repurchasing an additional 1.1 million shares for $200 million in the first quarter. That brings our total repurchases to 3.9 million shares since the beginning of the calendar year. We also returned an additional $111 million to our shareholders in Q1 via our dividend. With a leverage ratio of 2x at the end of the quarter, we have a strong balance sheet and are well-positioned to repurchase additional shares and/or pursue strategic tuck-in acquisitions. Let's start to wrap by reviewing our fiscal 2027 guidance on slide 16.
As I said in my call-outs, Broadridge is on track to deliver strong fiscal 2027 results, and we are reaffirming our guidance on all measures. We expect fiscal 2027 recurring revenue growth constant currency of 6%-8%, adjusted operating income margin of approximately 21%, and adjusted EPS growth of 8%-12%. Last, we expect closed sales of $290 million to $330 million. A quick call-out regarding our outlook for the second quarter. We expect Q2 EPS to be approximately 12%-14% of our full-year results, as growth in recurring revenue is offset by more normalized event-driven revenues and tax rate. I'll wrap by summarizing my key points. Broadridge is off to a very good start to the year, delivering strong Q1 results.
The demand and secular trends driving our growth remain very healthy, and the testing shows low-double-digit equity and high-single-digit fund position growth for the year. We're putting our cash flow to work to invest in growth and enhance shareholder returns. Last, we remain very much on track to deliver another strong year of recurring revenue and adjusted EPS growth in fiscal 2027. As we move to Q&A, I just want to remind you that we will be hosting an Investor Day in New York City on December 8th. At the event, which will be open to institutional investors in person and to everyone online, we will be updating all of you on our growth strategies and providing our latest set of financial objectives for fiscal years 2027 to 2029. I hope we'll see many of you there. With that, let's move to Q&A.
At this time, we will begin the question-and-answer session. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. We will pause momentarily to assemble the roster. Our first question today comes from Dan Perlin from RBC Capital Markets. Please go ahead with your question.
Thanks. Good morning, and good results here. I wanted to ask on the tokenization of equities here. Clearly, you have strengthened your position over the last several quarters. I think the question that is a little bit still outstanding is just how does the economics of these future models compare maybe relative to more traditional models that you guys have processed for? Thank you.
Yeah. Dan, thank you very much for that. As you say, we are really excited. We do see tokenization as a significant driver of change across the industry and a significant, somewhere between a long-term tailwind and generational opportunity for Broadridge. As I mentioned in my remarks, there are multiple models of tokenization for equities, multiple Level 1 networks, all of which introduces complexity for brokers and issuers. As you know, we are not here to pick which model will prevail. What we are doing is building a horizontal governance layer across all those models and networks to simplify complexity for our clients. There is no one better positioned to do that because the institutional scale, the regulatory knowledge, and the network that we bring.
The most active players in each model are telling us that they believe governance is important, they want a partner, and they are coming to us. Across the different models, you think about the economics, it depends a little bit on where things end up being held. We think most of these will end up being held with wealth managers, and that looks very much like our existing beneficial model. To the extent that it is issuer-driven, we also are serving 80% of the Fortune 500 at economics that are better than they are on the beneficial side. We think all this translates into opportunity for Broadridge that will grow positions as it gathers steam, and we see those positions being processed at economics equal to or superior to today's model.
That's great. Thank you so much.
Our next question comes from Alex Kramm from UBS. Please go ahead with your question.
Yes. Good morning, everyone. Just actually wanted to come back to the mutual fund position growth. I think that's a positive surprise. I know there were some one-timers in there, but I think the full-year outlook definitely points to acceleration. Any new trends there? Any new clients? Anything to point to why this may be a more structural acceleration here?
Yeah, Alex, first of all, thank you for the question. I'll start and then Ashima will add in. I think we're clearly seeing a pickup there, nice in the first quarter, and there was some timing in there, but as Ashima said, the testing is showing increases over last year. I'm not sure that we are seeing specific drivers. There's been more success, relatively speaking. The long-term trend has been towards passive, but active has done quite well recently as well. We just see a lot of positivity here.
Okay, fair enough. Then another. Go ahead, sorry.
That is it.
Okay, good. Thanks. Then just a very quick follow-up, and this may be a little bit too much in the weeds, but you have not talked about your credit trading platform in a while, LTX. I bring it up because there has been some consolidation here in the space recently with obviously ICE buying MarketAxess and Tradeweb buying Trumid. So, just wondering, that consolidation may allow for maybe more players to surface again. So, just wondering if you are spending more time on that. I know it is small, but also specifically, are you getting, I guess, incoming calls from dealers or the buy side who are wondering what this consolidation means and if there is maybe a new player that needs to evolve here?
Alex, thank you for the question. Just a reminder for everyone else, LTX is our next-generation fixed income trading platform, and it leverages enhanced agentic AI tools to help investors and dealers find liquidity and counterparties to trade more efficiently. It has been a long time coming. We are pleased with the recent progress. Just to bring everyone back on the history, I think the most exciting development was last spring when we announced that five Tier 1 banks, including Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and TD, had signed on as liquidity players. Then over the summer, we launched agentic capabilities to really help our buy-side clients trade. Now, with the consolidation, Alex, that you talked about between Trumid and Tradeweb and ICE and MarketAxess, Trumid really was that sort of third player in the market.
I think it's an interesting question as to whether, with them now becoming part of Tradeweb, as that happens, will institutions be looking for a different third alternative? I do think it creates a time of opportunity. We're certainly talking to our dealer co-investors about that and about the way forward. Obviously, it's very low volumes at this stage, so the task now is to really build those volumes and continue with both the buy side and the sell side. We do think there's a long runway of growth in credit trading, and that there's a gap here. But we'll just have to see where it goes. I will just remind you that it's very much in launch phase. It's immaterial to our results, it's immaterial to our outlook, but I would view it really as a nice option for our shareholders.
Very good. Thank you very much.
Our next question comes from Scott Wurtzel from Wolfe Research. Please go ahead with your question.
Hey, good morning, guys. Thank you for taking my question. Just wondering if you can talk a little bit about the client policy or custom policy engine product a little bit more, and maybe some of the early demand that you're seeing out of that.
Yeah, Scott, thank you very much. This is one that we're really excited about because it's been a longstanding issue in the industry. There's been a lot of stuff talked about in terms of, are the major proxy advisors tipping the scales one way or the other? Completely separate from that, when you look at this from the asset manager perspective, the challenge that they have today is there are lots of data points out there. They have many, many things to vote. The current approach brings together all of that into a pretty comprehensive report. Because of the work to create that comprehensive report, they don't get it until literally, like, about a week before the election.
It leaves them no time to react. It also leaves the issuers very unhappy because they don't have any time to get in touch with asset managers if there's something in there that they don't agree with. We're really turning that model on its head. We're using AI to bring in the data points much, much earlier. We're not producing that report, but what we're doing is letting the asset managers with their policies say what would their vote be. They get that now something like six weeks ahead of time, so they then can have time to say, "Yep, that's fine," or, "This is a controversial one. I want to do more work."
At the same time, those data points, not this year, but beginning next year, will also go to the corporate issuers, so they'll have the opportunity to comment on them right within the application. The asset managers will see that. It really provides a much smoother workflow for the industry. We really like the value proposition. It's taking a different angle on it, and we're seeing a lot of interest from asset managers. As you know, we had, through last proxy season, signed asset managers with just under $1 trillion in assets, and we're seeing continued momentum in that pipeline. We're really pleased with the win we had this first quarter with a very large wealth manager.
Wealth managers here, they do vote for the, often have a sort of a house policy for voting the managed accounts. That will bring a nice set of additional assets, and we expect to have further announcements as we move forward.
Great. That is helpful. Then just as a quick follow-up, just on the internal trading volume growth, I know there was maybe a little bit of a tougher compare from 4Q to 1Q, but anything to call out on the deceleration there, just given some of the kind of consistent double-digit growth that we had seen over the past couple of years?
Not much to call out there, Scott. We were happy with the internal trade growth of 7%. That was supported by higher equity volumes, and we continue to see good growth around that area.
Great. Thank you.
Our next question comes from Patrick O'Shaughnessy from Raymond James. Please go ahead with your question.
Hey. Good morning. What's your current thinking on sharing AI cost savings with your clients, and to what extent are you using that capability to drive new sales activity?
Yeah, Patrick, thank you very much. It's a great question, and I'm going to step back for a second. As we think about AI, there's the revenue opportunity, there's the speed to market opportunity, there's the internal productivity opportunity, and I will touch on those. Let me start with where you are on sharing savings with clients. I think the place that that is most relevant is in our managed services business, where we serve over 70 clients with doing the operations in addition to providing the technology, and we are applying AI there. We've gotten a lot of efficiencies, about 25% so far, with clear line of sight to getting that near 50%.
The conversations today we're having with clients about that is, we're not really talking about managed services, we're talking about AI partnership and talking about, does it make sense for each of those clients to invest independently in AI for operations? That's something we can do on our side, and then give them immediate savings, and then share in the savings as we go forward. So, I think that's one where it's very explicit. I think in some of the technology-based products, it's a little bit less clear as to how that will work out over time. But what we are seeing is the ability to introduce products faster, to onboard clients more quickly, and we like the demand that we're seeing for our AI-driven products. Now, I'd be remiss if I didn't also talk about some of the internal efficiencies that we're getting.
There's the $25 million that we talked about last quarter. I really like the way we're seeing that come in. It's fully built into our run rate. If you look at this quarter, we realized roughly a quarter of that amount, and that's something that will certainly continue as we move forward and look at other areas. As we have now, we'll use that as a mix of delivering earnings to shareholders, but also investing, because there's so much opportunity right now.
All right. Terrific. I appreciate that comprehensive answer. On the regulation e-delivery effort that the SEC is working on, is there a risk, I guess, that that could expand into a review of preference management processing fees that the ICI is pushing for?
Yeah. Patrick, when you looked across the more than 100,000 comments, that was definitely not a theme. Certainly, it's something, look, it's ICI's job to advocate on behalf of their members. We're not hearing that actually from individual funds. We hear it from ICI, but not from individual funds. As we talk to the SEC, this is just not something that's on the horizon. If it were on the horizon, until we collectively see what the penetration is, how quickly brokers move, what the investor uptake is, what the opt-back is, we won't really know where all that settles out for a number of years. So, if there were a review, it would be more appropriate in the future. As you know, we've really argued that thinking about this on a per-communication basis is not really the right way to think about it.
When you look at the activities that we do, from agenda sourcing, keeping track of investor preferences, bringing all that to sending the notices, but taking them back, tabulating voting, providing a unified bill across the industry, it's a 24/7, 365 platform, and it really should be more like a per-position-per-year kind of thing, because none of those activities they get paid for. We only get paid for the communication. So, that's something that we've talked to our industry partners about as things evolve, but I think it's pretty far in the future.
All right. Thank you very much.
Our next question comes from Peter Heckmann from D.A. Davidson. Please go ahead with your question.
Hey, good morning. A lot of my questions have been already addressed. I just wanted to check in on the thoughts on the M&A pipeline and allocating excess cash between share repurchase and M&A. I mean, you've had a couple decent-sized deals so far, or rather, last fiscal year. But how are you thinking about M&A? Is it adding capabilities and adding scale?
I'll let Ashima comment on share repurchase, and I'll jump in on M&A.
Sure. Let me start off, Peter. As you know, we completed a $200 million share repurchase in the first quarter, and that was directly linked to the compelling valuation that we see on our shares. More broadly, we're expecting another strong year, like I said, with free cash flow conversion over 100%. We're sitting at a 2x leverage ratio, so that essentially gives us the capacity to do both repurchase shares and fund attractive M&A, all of that while continuing to fund organic growth and dividend. As we do that, we will continue to look at M&A and making the trade-off, given the compelling value that we have with our shares, but find the right strategic M&A in that regard.
Yeah, I will just add on. This is another chapter in our long history of very balanced capital allocation, starting with an investment-grade credit rating, making internal investments to drive organic growth, paying a strong dividend, pursuing attractive M&A when it is out there, and then using the rest to buy back shares. It has been the same algorithm for a long time. It gives different results at different times, depending on what the conditions are. Over long periods, it has resulted in about half of that final being put to share repurchase versus tuck-in M&A. As Ashima said, we do see our shares right now as a very strong value, which is why we have been leaning into that. As we move through 2027, we expect continued healthy levels of share repurchase.
That said, we do continue to look at tuck-in opportunities, and there are some very attractive ones that are out there. So if the right property presents itself, we have the flexibility to do both. Given the compelling value in our shares, if you see us do something, you will know that we think it is something very special. So, we are feeling good about it. Then last thing, I know, Pete, you know this, but we cannot overlook the dividend. We have always viewed a strong and growing dividend as a pillar of long-term value creation, and we have increased it every year we have been a public company, and almost all years by double digits. So, that is another pillar that we also think about.
Okay. That is fair. Look forward to seeing you next month. Thanks.
Our next question comes from Kyle Peterson from Needham. Please go ahead with your question.
Hi, this is Ross Cole on for Kyle Peterson. I know you touched on this a bit earlier in terms of the AI savings going back to clients through price, but could you maybe touch a little bit more on GTO pricing and what you're seeing in terms of renewal pricing and win rates compared to competitors? Thank you.
Yeah. As we look at GTO, it has been a strong year, strong start to the year, and we really like what we are seeing going forward. When we look, I do not have the GTO number for renewals in front of me, but when we look at across Broadridge, we renewed nearly $800 million last fiscal year. Literally zero losses to AI, zero losses in proxy. When you look at the upsells versus any concessions that would come in, the net renewal numbers are always positive, as in net renewal numbers over 100%. So, we feel good about things.
Our model, though, is not to look at software companies. You will see a lot of them growing by pushing the price lever, and that has not been our business model. Our business model is to have happy clients that want to do the next thing with us.
We always have a healthy discussion at renewal time. It generally results in something positive with some additional services to the client. So, we really like that model, and we really like the way that continues to make us systemically more important for our clients and to continue to deepen the relationship that we have.
Great. Thank you. Then, switching gears a little bit. Just to confirm, with the Q1 margin dropped a couple percentage points first last year, which seems but it also seems to be relatively in line with prior years. Do you see the adjusted operating margin kind of playing out similarly as it has in prior years, where the first two quarters tend to be a little lower before increasing in the final two quarters, probably just due to mix changes, thus getting to that 21% guide? Is that a good way to think about it, kind of like the previous years?
Yeah, Ross, I will take that. The short answer to your question is yes. The longer answer is, yeah, our margins declined about 200 basis points, but that conversion was driven by, like I said in my remarks, the combination of lower event revenues. Remember, these lower event revenues typically carry higher incremental margins. So, it was a combination of that and higher investments that we have been making on platform, tokenization, AI, some of the initiatives we spoke about, which essentially offset the leverage in our recurring revenues. We do expect a similar trend in the second quarter, as we will have pretty much the same story. We will lap elevated levels of event-driven and higher investment spend.
But as we move to the second half of the year, we expect both of these pressures to moderate exactly the way you said it, which will keep us well on track to deliver on full-year margins of 21%.
Yeah, I think.
Great. Yeah.
Just to give a way to think about it, there are some factors, and you will see these repeat in each year, and we will talk about them. Factor one is just the seasonality of our business, in which we get a lot of our revenue in the second half, but there are fixed costs that go throughout the year. So you generally see, across all the years, higher margins in the second half than in the first half. Then you layer on top of that the timing of event-driven revenue, which comes in at a higher margin. So based on the timing, that would affect the margin in a quarter. The last piece is the timing of our investments.
As you know, when we are having a good year, we often use that to reinvest and pull forward our roadmap, and the timing of when we do that can also affect our margin. So, we manage the company on an annual basis, targeting that sort of annual increase in an operating margin, and we always try to tell you about those factors as we go through so that you can try to disentangle that.
Great. Thanks for confirming, and I appreciate the additional color.
Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from James Faucette from Morgan Stanley. Please go ahead with your question.
Thank you so much, and thanks for all the detail. I know we've kind of gone around and we've talked a little bit about timing, but I want to go back to margin expansion. You guys are looking for a little bit of acceleration in expansion here. I apologize for this, but can you just recap for us what we should be paying attention to as kind of the key drivers for the bit of margin expansion acceleration expected for the coming fiscal year?
Absolutely. I'll just reiterate what we just spoke about. If you think about the business, we have a seasonal business. The second half is the much larger portion of our entire revenue. So even in a BAU setup, we do see our margins increasing year-on-year. Second, if you remember, we had a record event-driven fee last year. A lot of it was concentrated in Q1 and Q2. So as we grow over that, and this year we're expecting much more normalized levels of event-driven fee, call it $60 million-$70 million every quarter, and if you compare to the compares that we had last year, you would automatically see the margins continue to increase more in the second half of the year versus the first half of the year.
I will also point out, we have been ramping up our investments in our growth areas, platform, AI, tokenization, et cetera, which we started doing more of in the second half of last year. So again, if you think about the seasonality of that, you will see more of the growth on those investments in the first half of the year before they get to more normalized levels that we saw in the past year. So all of those factors will lead to our margins just increasing as we go through the year.
Got it. Appreciate.
Yeah, James, we are talking about margins, and I gave you the answer, but I do want to remind you, with all this, margins to us are a means to an end. What we are making sure is that we are in a good position to deliver on our full-year EPS guidance of 8%-12%. You might see volatility in event fee as we go through. We will moderate our investments as we always do. The important message I want to leave you with is we will deliver on our 8%-12% earnings guidance.
Got it. I want to ask about an opportunity set. We've had, and really would like to get your perspective on Innovation Exemption. We saw the announcements, but from that they were going to be permitted, but I think a lot of people felt like in a lot of ways there's still restrictions there that could encumber a lot of really innovation being attempted. From your perspective, do you think that we're likely to see meaningful benefit from the Innovation Exemption? Is it happening, not happening? How should we think about the impact on recurring growth? Thanks.
Yeah, I'll take this one. I think with the regulatory change that the SEC is making here, they are collectively beginning to pave the way for a long-term framework in the absence of congressional action. What we liked about the exemptive relief is it's very specific about preserving shareholder rights, including voting and dividends, and so we like that that reinforces our focus on governance and investor communications for tokenized assets. I think the Innovation Exemption specifically allows for these Tokenized Securities Venues. That will be one of the models that are out there, and there are limits on the volumes of that. So I think there'll be some good experimentation there. I'd like to just remind you that that's not the only model out there. There's what people like Kraken and Ondo are doing globally.
They have also announced that they're going to be bringing that to the U.S. with a custodial model. There's what the DTCC is doing, and we're working specifically with them. There's what the New York Stock Exchange is doing, and just the announcement yesterday where we're partnering with the New York Stock Exchange to bring on-chain governance and integrated digital transfer agency services into their infrastructure for tokenized equity, which is separate from the TSV. They're going to have an ATS, so it'll be fully regulated, it'll be under the National Market System.
So, there are lots of different models out there, and we are playing in all of them. I do think, by the way, the fact there are so many models does make it a bit, poses a challenge for issuers in terms of how they bring all those votes back and give an integrated view.
The fact that we are already serving 80% of the Fortune 500 to provide that integrated view for registered and beneficial, we're extending that to all the different permutations of tokenized equities that will really simplify that complexity and provide a great value proposition to corporate issuers. We think all this translates into opportunity. How fast it comes is unclear. What we do think that as it comes, the faster it comes, what it's going to do is drive position growth, because these are bringing additional investors from outside the U.S. here, it's bringing new ways of holding shares. We see more positions economically, as I said earlier, that are equal to or superior to what we're doing today.
It's really just, we talked about position growth and how different waves of innovation have spurred position growth, and we see this as the next wave and really getting onto the next S-curve. We'll see how quickly it develops, but I think it really bodes well for the long-term health of U.S. capital markets and Broadridge.
Great. Appreciate that color and context.
With that, ladies and gentlemen, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.
Well, I just wanted to thank you all for joining us today and just reiterate three key messages from today. We delivered a strong first quarter. It is our smallest quarter, but the strength of that quarter makes us feel incrementally better about the full-year. Second, the investments that we're making in tokenization, in AI, in digital assets are really beginning to play out in terms of results, and we like the returns that we're seeing on those. And finally, third, that we're on track for a good year for fiscal 2027 and beyond. Thank you again for joining us, and we look forward to seeing you at our Investor Day in December.
With that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.