Broadridge Financial Solutions Inc (BR) 2008 Q1 法說會逐字稿

Good morning.

My name is Carol and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Broadridge Financial Solutions First Quarter Fiscal Year 2008 Earnings Conference Call.

I would like to inform you that this call is being recorded and that all lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a Question and Answer period.

Please try to limit your questions to one per participant.

(OPERATOR INSTRUCTIONS) I will now turn the conference over to Marvin Sims, Vice President of Investor Relations.

Please go ahead, sir.

Carol, thank you.

Good morning everyone and welcome to Broadridge quarterly earnings call and webcast for the first quarter of fiscal 2008.

I'm Marvin Sims, Vice President of Investor Relations.

This morning I'm here with Rich Daly, Chief Executive Officer for Broadridge, and Dan Sheldon, Chief Financial Officer for Broadridge.

I'm sure everyone has had the opportunity to review the news release we issued earlier this morning.

The news release and the slide presentation that will accompany today's earnings call and webcast can be found on the Investor Relations homepage of our website at broadridge.com.

We've also posted to our web site the key revenue metric that we mentioned during our fourth quarter earnings call.

An 8-K was filed this morning.

Before we begin, I'd like to remind everyone that today -- during today's conference call we'll discuss some forward-looking statements that involve risk.

These risks are discussed here on slide one and in our periodic filings with the SEC.

During the review of our financial results, to provide a point-to-point comparison between fiscal '08 and fiscal '07, all pretax and net earnings numbers discussed throughout the presentation are non-GAAP and exclude one-time transition expenses and interest on new debt.

The actual GAAP-reported numbers, in comparison, are also listed.

During the review of our segment results, again for a point-to-point comparison for revenue and operating profits, we'll discuss adjusted numbers that reflect the change in the methodology that occurred in the third quarter of fiscal 2007 for the inter-segment allocation between clearing and outsourcing and the other two segments.

Again, a reconciliation to the GAAP numbers is available in the presentation appendix as well as in the press release.

Now, let's turn to the next slide and review today's agenda.

Rich Daly will start today's meeting with his opening remarks and provide you with a summary of the financial results for the quarter and discuss a few key topics.

Dan Sheldon will then review the financial results in further detail and review cash flow performance.

Rich will then return and review the fiscal 2008 guidance and provide his summary before heading into the Q&A part of the call.

After Q&A, Rich will provide his closing comments.

Now please turn to the next slide for Rich's opening comments and, with that said, I'll now turn the call over to Rich Daly.

Rich?

Thanks, Marvin.

Good morning.

This morning, as part of my opening remarks, I'll discuss the following key topics.

First, the results of our first quarter, next the market conditions during the quarter, and then an update on key topics and initiatives.

Then, after Dan's update, I'll discuss how our first quarter and the market conditions prompted us to raise our guidance to a range of $1.30 to $1.40, versus our original guidance of $1.17 to $1.25.

We believe it's important for you to hear my update on what drove our first quarter financial results and the market conditions they occurred in, as well as Dan's update to have a better context for understanding our increased guidance.

Let me start by saying that I'm very pleased with our results in earnings and I'm encouraged by the market activity that drove us above our planned performance.

It's a strong start to fiscal year 2008, although the first quarter is generally only planned about 14% of our full year earnings.

We were even able to grow over the two client losses we previously disclosed.

We continue to drive positive margin expansion, greatly impacted by trading volume revenue falling to the bottom line and benefits from one-time items.

The primary components of our over-plan performance for the quarter were internal growth, with significant growth in trading volume of 37%.

Also contributing were one-time items, and even event-driven activity was slightly above our plan.

However, I want to point out that some of this over-plan performance was partially related to the delayed timing and ramping up our investment spend and the public-company-infrastructure spend.

I'll talk more about investments later during my update on key topics and initiatives.

Relative to our expectation and coming off the summer months, I'm also very pleased with our overall sales.

The first quarter is historically the smallest contributor to our overall plan.

Our sales for the quarter of $30 million are just over 25% of our full-year plan, our recurring sales for the quarter making up 30% and event-driven sales making up the balance.

The net of this is that our recurring sales are in line with plan and event-driven sales are over plan.

Now, we'll always need to keep our financial performance in context with market conditions and that market turns are difficult to predict.

At the time we put together our plan, we were concerned about projecting growth off of a record year of 30% growth and event-driven revenue.

At the time we presented our fiscal 2008 guidance on August 22nd, our concerns were compounded by the summer credit crisis and its potential impact on the market and event-driven activity.

Here we are now, a quarter later, and our first quarter trading volume was up 37%, and even event-driven results are slightly over plan.

At Broadridge, we will always be concerned about forecasting the upside or downside of market activity during any short-term period.

We're confident we can control our businesses.

We recognize we're not in control of the markets we serve.

Let's move to key topics and initiatives, starting with client retention.

The best way I know to retain our existing revenue and grow new revenue is to provide the ultimate client-centric experience.

We need to avoid being commoditized.

So as our client's markets evolve, we must expand and reinvent our offering to create better and stronger value propositions.

Every one of our P&L owners, and therefore the entire organization, now have clear requirements that they understand their client's strategy and how we fit into that strategy today and, more so, in the future.

Now, I'll talk about investments and a small acquisition.

In the quarter, we completed a small acquisition for less than $6 million, plus an earn-out, by acquiring Finaplix.

This acquisition provides us with some additional wealth management capabilities.

We've also included in our fiscal '08 plan about $10 million in incremental investments to search out and begin development of new products that will drive revenue growth in future years.

We expect this expense to be part of our ongoing run rate.

We have stringent approval criteria before any funds are dispersed.

This has caused us to be behind our planned fiscal '08 spending levels, but we believe this will ultimately ensure that we invest these funds in the best opportunities with clear goals and clear accountability.

Now for a quick update on the regulatory front.

First, notice and access.

We've successfully rolled out notice and access.

Issuers have saved real money and the functionality we built works as planned.

However, long-term issuer participation rates will be difficult to project.

This is due to the unknown status of the ten-day vote for directors and other corporate governance proposals that, if incorporated into the proxy rules, will make notice and access less attractive to issuers.

All of these results to date have been presented to the SEC.

Next, XBRL.

We continue to work with the SEC on developing the taxonomies for the notice and proxy statement.

We are proud to step up to this leadership opportunity created by this new SEC initiative.

Next, a brief update on suppression incentive fees.

Brokers and their trade association have been questioned on the appropriateness of charging suppression fees in certain situations.

We participated with SIFMA, the brokerage -- and the brokerage community in analyzing these fees and in helping the New York Stock Exchange and the SEC develop the reimbursement fee schedule.

We remain confident in both the value proposition and its direct tie-in to the requirements of the rule.

Other regulatory activities remain high.

However, this is consistent with our experience over the last two decades.

With that said, I'll now turn the call over to Dan, and when he's finished, I'll be back to review our fiscal '08 guidance and provide my closing comments before we head into the Q&A.

Thanks, Rich.

I'm on slide 4.

Our financial results for the quarter, our revenues grew 3%, and without distribution fees, grew 7%.

Of the 3%, think of that as half the growth coming from the segments and the rest coming from our one-time contract termination fees, as well as a benefit from FX.

Contributions, by the way, from sales and losses to revenue were in line with our expectations.

And with respect to internal growth, was better than our expectations by $16 million and was driven primarily by increased trade volumes and our Securities Processing and Clearing and Outsourcing segments, and interims, statements, and event-driven mutual fund proxy activity in our Investor Communications segment.

I'd also point out that event-driven sales are part of our internal growth, and they don't necessarily repeat each year.

Losses, by the way, were in line with our expectations, including the two large client losses, which impacted revenues by approximately $16 million.

Turning over to EPS, before transition one-time expenses and interest on new debt, it's up 48% and primarily driven by pretax earnings.

So let me focus for a minute then on pretaxed earnings.

They grew almost 50% this quarter.

Our over- planned internal growth of $16 million I just mentioned had an EBIT contribution of over 60%, which more than made up for our two large client losses with respect to EBIT.

We also benefited from the termination fees I mentioned and FX.

I'd also point out that our expense levels are below, as Rich mentioned, our planned rate, due to a slower-than-anticipated ramp up of corporate structure and incremental investments in the business.

And we also benefited from our royalty expense dropping off to the tune of $11 million.

A couple of other points I'd make on this page.

Our estimated tax rate is 39%, versus our guidance of 40%.

We have analyzed our FIN 48 requirements and implementation had little impact on our effective tax rate.

Our debt now is $533 million, as we paid down an additional $85 million, and since the spend have paid down $155 million.

And, as Rich mentioned, our sales for the quarter were strong, were above last year, and again approximately 25% of our full-year target.

As I mentioned last quarter, that the rate at which sales convert to revenue in any fiscal year is about 50%, with the carryover of the remaining 50% going into the next fiscal year.

Let me be a little bit more specific with respect to event and recurring.

Event-driven sales usually fall to revenue within the fiscal year that they're sold.

And with respect to the recurring sales, which primarily happen in our Securities Processing and in our Clearing and Outsourcing, they fall to the current year to about 20%, with the carryover remaining of 80% into the next fiscal year.

Hopefully that will help you with some of the modeling that you're all trying to do.

Let's turn to pages 5 and 6 for the discussion of the segments.

On slide 5, we'll start off with investor communications.

Revenues were down 3%, or if you take out the distribution fees, flat and slightly above our plan.

The loss of the previously disclosed large client decreased revenues by 3%.

Our event-driven revenues were flat, but the distribution fees related to these revenues were down year-over-year due to the mix between presorted bulk and first class.

Our recurring internal growth drove revenues up by 3% and higher than our expectations for both interims and for some of the mutual fund, but lower for our equities.

With respect to our margins, they were up 210 basis points.

The distribution fee mix change added 180 basis points, which I'll come back to in a second, and the product mix, as we would expect, added about 30 basis points.

Now back to respect with the distribution fee contribution of 180 basis points.

We had this period more bulk presorted jobs in this quarter versus a year ago in Q1 we had more first class jobs.

And if you remember what we've talked about before, we make profits on the bulk presorted activity which we share with the issuers and others.

And there is no profit on first class.

So this is how you can have a decrease in total revenues for distribution fees, yet have an improved margin as far as contributions to EBIT.

With respect to notice and access, Rich already brought up where we're at.

I'll tell it had minimal impact to our results.

Our distribution fees dropped by approximately $2 million and generated fees of less than $1 million.

And, as predicted, there was no significant negative impact to our earnings.

By the way, though, Q1 is by no means indicative of the year, as proxies in this period, in Q1, represent only 10% of our full-year proxy revenues.

With respect to Securities Processing, revenues are up 10%, which are above our plan, and the increased revenues were primarily driven by internal growth related to trade volume, and for equities was driven by just a few clients.

As you can see by our sub-bullets, trade volumes, in both equities and fixed income, are up significantly.

The way to think about internal growth in this segment is that, for every 1% change in trade volumes, this will translate into a range of $300,000 to $700,000 in incremental annual revenue.

And depending upon the products and the client mix, that's where you get into the range of the $300,000 to $700,000.

This quarter we were on the higher end of that range.

Now, with respect to the 2.5 million trades per day, over the last three quarters, which was our last third quarter and fourth quarter and including this first quarter, trades, as adjusted for sales and losses, to give us the true picture of internal growth, has been relatively flat at that rate of 2.5 million trades per day.

Last year, you'll remember, we showed over 25% growth in trades over the prior year for the fiscal year, primarily all coming from the internal growth.

The impact to Q1 this year was a large increase in trades and therefore the revenues.

In Q2, there will be an increase as well.

However, if trades don't increase beyond the 2.5 million before new sales and losses, then the second half of our year will remain virtually flat.

With respect to revenue from new sales, the contribution was 3% and we gained an additional 3% of growth from non-trade activity around professional services fees.

These fees, by the way, fluctuate period to period, as they are specific to client projects.

And, as previously disclosed, the loss of TD Waterhouse cost us 6 percentage points.

Now, when we look at margins, they're up 620 basis points.

When you think about internal growth from trade volumes, it always usually virtually falls to the bottom line.

By the way, our data center savings this quarter added 120 basis points, which will continue throughout the fiscal year.

Finally, although no impact to our margins in Q1, I'd like to make you aware that we capitalized both integration and implementation expenses related to new business and then amortized these costs over the contract life.

Our FY08 plan contemplates about $5 million in incremental expense being added back to our cost structure in quarters two through four, as some of our of R&D personnel come off a large project where these costs were capitalized.

And currently we don't see anything in this fiscal year as a replacement project for those personnel.

This is normal in our business, and we don't hire and fire experienced R&D personnel just due to timing of projects.

With that said, let's turn to slide 6.

With respect to Clearing and Outsourcing, revenues were up 13% and in line with our expectations.

Sales are the major growth driver and contributed 14%, which is split 60% between Clearing and 40% for Outsourcing.

Although we lost TD as an Outsourcing client, we gained two additional clients this quarter.

Losses were primarily related to the TD Waterhouse.

And internal growth contributed 9% and was pretty much driven by net interest and clearing fees.

With respect to margin improvements up to greater than $1 million, they are absolutely in line with our expectations, as we continue to leverage our infrastructure and drive towards breakeven this year.

On to Other, which is not really a segment but is our Other category, revenues all relate to one-time cancellation fees.

With respect to net expense of approximately $8 million, this is the combination of our interest expense of $8 million, our one-time transition expenses of $2 million, and these are offset by the one-time items that we mentioned above in revenue and the difference between allocations to our segments and actual expenses.

With that said, let me go a little bit deeper into this area.

Some of our corporate expenses are allocated to the segments.

We mentioned before that our incremental corporate expenses, as well as investments, would approximate on an annual basis to fall off of our royalty charge of approximately $35 million.

We still expect this to be the case.

However, as Rich mentioned, our Q1 other expense run rate is below our planned levels, due to slower-than-expected ramp up in corporate expenses and investments.

Our plans anticipate that each of the future quarters will be approximately $6 to $8 million higher than Q1's expense rate.

All of the incremental spend is comprehended in our FY08 guidance, and again this is in line with our original expectations communicated back in August.

With respect to FX, we continue to see the weakening of the U.S.

dollar, and again this year contributed favorably to our results.

As we mentioned before, on a full-year basis, foreign revenues represent about 10% of our consolidated revenues.

I'd like to move on to slide 7, our cash flow performance, as well as a discussion of how we look at cash flows.

Many of you have asked us to talk about how we think about cash flows and how we define free cash flow and our cash performance for the quarter during the calls.

The way we manage and analyze our cash flows is as follows.

As you'd expect, we add back to net income depreciation and amortization, including other, and stock-based compensation expense.

We also aggregate our changes in working capital and analyze the changes which are usually changes in accounts receivable and accrued liabilities related to those receivables.

The pluses or minuses each quarter, or year, are primarily due to timing of collections and payments of liabilities, versus any real working capital requirements.

I still estimate that our real working needs to approximate whatever we have in revenue growth in any specific year.

We then go on to specifically identify the changes in long-term assets and liabilities, as these changes are driven by implementation, deferred expenses, and any deferred revenue related to the contracts.

The amortization offset is the other depreciation and amortization I mentioned above.

With respect to the Clearing and Outsourcing receivables and payables, as well as any deposits with clearing organizations and segregated cash due to regulatory requirements, these are listed within the cash flow provided by operation activities.

We separate out our Clearing business from our net-cash-provided-by-operation activities.

And we do this for the following reasons.

We want to know the free cash flows available for our use to invest or finance in the non-Clearing and Outsourcing businesses.

And, as we all know, the Clearing and )utsourcing business is itself a self-financing operation and any funding needed by the organization to finance margin debit is generated from customer- payable credits or third-party lending from our revolver.

We then go on to subtract our capital expenditures and intangibles to arrive at our definition of free cash flows.

And, as we've mentioned before, our depreciation and amortization related to capital intangibles is basically an offset in any year.

As you can see from the chart, Broadridge generated strong cash flows this quarter.

I'd also point out that, given seasonality in our business, over 70% of our profits are usually generated in the last two quarters of our fiscal year and therefore our fourth and first quarters have the greatest cash flows.

As I mentioned before, our long-term debt at the end of Q1 is now down to $533 million.

At this point, I'll turn the meeting back over to Rich Daly, who will discuss our increase in financial guidance, as well as the uses of our free cash flow.

Thanks, Dan.

As I mentioned during my opening remarks, the strong start to our current fiscal year has prompted us to raise our guidance.

We're increasing our revenue guidance to a range of 1% to 4%, and our diluted EPS guidance, before one-times, for fiscal '08 from a range of $1.17 to $1.25 to a new range of $1.30 to $1.40.

In our new guidance, we are reflecting the benefits from the first quarter.

The low end of the guidance assumes a slight fall-off in trade volumes and less event-driven revenue for the remainder of the year.

The high end assumes slightly better trade volumes and modest event-driven revenue increases for the remainder of the year.

Our guidance does not contemplate any major downturn in the markets we serve that could result in a significant drop in market activity.

With respect to free cash going forward, we'll continue to use our strong cash flows to pay down debt, pay a dividend, acquire products and businesses, and at least for fiscal '08, we're not contemplating any share buybacks.

Let's summarize before we go into Q&A.

We had a very solid start to the fiscal year, with strong quarterly earnings driven by internal growth and continued event-driven activity.

As a result of this strong start, we've increased our financial guidance.

Markets are difficult to predict and activity in markets will create both upside as well as downside.

Broadridge is in control of its business but not of the markets.

Our strong cash flows enable us to pay down debt to $533 million.

We're executing our growth strategy and we'll drive our service profit chain culture to provide the ultimate client-centric experience in our industry.

This will ensure we are aligned strategically with our clients.

And, finally, we'll continue to invest appropriately in our business for future growth that will drive greater shareholder value.

Now, I'll turn the call back over to Carol to open it up for Q&A.

Carol?

Thank you, sir.

(OPERATOR INSTRUCTIONS) Our first questin will come from the line of Ian Zaffino with Oppenheimer.

Hi.

Thank you.

Very good quarter.

Question would be on the Clearing and Outsourcing business, you narrowed the loss very nicely.

How much of that is actually attributable to progress in that business in and of itself, or really the synergies that you're getting from other parts of your business as you've melded in the C&O business into the rest of the Company?

This is Dan.

Great question.

And by the way, it's coming from the business itself.

You're talking, I believe, about how we look at the fact that we used to have these cross charges and has any of that cross charges changed anything.

Well, we now state the numbers we give you.

We've wiped all of that out.

So you're seeing a real period-over-period -- the exact same kind of charge last year as this year coming from the SPS business.

So, therefore, every piece of leverage coming there, that $1 million improvement, is all coming -- being generated by the business itself.

Okay.

And then also how are you going to continue to, or I guess let me preface that and say margins have improved very nicely this quarter, how are you going to continue to do that going forward?

I mean type of initiatives are you looking at?

If you could talk to that, that would be great.

Thanks.

And are you speaking again to the Clearing and Outsourcing business?

I'm talking about corporate-wide.

What are the two -- two of the biggest initiatives or whatever and what would be the biggest areas of margin improvement?

Well, this is Rich.

In all of our businesses, it's a scale play.

So, by having very efficient infrastructures, the more volume we can put through that infrastructure, we will almost always be able to create margin improvement.

We always manage expenses very, very tightly and we expect to do that going forward.

So it's generating more sales activity across our existing products, is what generates the best margin improvements for us.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our next question will come from the line of Stefan Mykytiuk of Pike Place Capital.

Hi.

Good morning.

Just I guess the first thing is I was glad to see there were no articles on E*TRADE this morning in the Journal.

So --

So were we.

Can you just elaborate, Rich, what's the status of the Board study of long-term compensation for management and any kind of view of when that will get wrapped up so you guys can kind of be tied side to side with us shareholders?

Sure.

The -- as I previously stated, we were very, very pleased with the diversity and the strength of the Board we were able to put together.

A new spin-off, though, the Company has actually spun before the Board is legally in place.

So one of the first things the Board did was identify their own outside comp consultant, which they've done.

They've engaged him to understand where Broadridge is relative to its peers.

We have an extensive CD&A, as you'll see in the Notice and Proxy Statement.

But my understanding is, is that the Board's work continues.

I am not part of the comp committee, as one would expect me not to be, but we believe that they'll have more data, certainly by the end of the calendar year.

And that's pretty much what I can tell you at this point.

Okay.

And then kind of keeping along the line of Board-level discussions, you mentioned in your comments stock buybacks not contemplated for the fiscal year.

Do you think -- it looks like you're on track to pay down this debt and get to your leveraged targets.

Beyond that, is that something that you think would be a priority for free cash flow?

Buybacks, that is.

The priority for cash flow is to create value.

So where we are right now is paying down debt certainly is a priority and we're looking to get to that stated goal of one-to-one debt to EBITDA.

We are committed to pay a dividend and we are committed to use our cash flows to improve the business, whether that be through the tuck-in of product acquisitions or business acquisitions.

We absolutely will consider, as we go forward, whether or not doing buybacks will create greater value than the other options we have.

At this point in time, we don't anticipate that to come into play in the current fiscal year though.

Okay.

And then, just going one step further with that then, acquisitions, I mean, are there larger acquisitions out there that you've identified that you think are very attractive or -- and it's just not the right price or the seller is not willing to sell yet or is it -- is there any -- are there not really acquisition opportunities at this time?

We originally used the term tuck-ins for acquisitions.

And we use the definition there of the $30 million to $35 million range.

Because of our strong cash flows being slightly better than what we anticipated, we haven't changed our position on the type of transactions due, meaning the tuck-in philosophy is something that it would be in space that we would be confident we would be very good at, it would be executing within our sweet spot of transaction processing, and it would be executing in our sweet spot to a client base that knows and respects us and will likely consider us for additional services.

Because of the strong cash flows, though, we are willing to look at a definition of tuck-in being larger than the $30 million to $35 million.

Let me make this clear, though, we're not going out there specifically looking to do a deal for the sake of doing a deal.

It would have to be something that meets what I'll call our tuck-in criteria, and I'm probably better said tuck-in means something we would be confident that we have the skill set and the ability to execute well on.

Okay.

All right.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our next question will come from the line of Tien-Tsin Huang with JPMorgan.

Thanks.

Congrat's on the results as well.

Question about, I guess, Securities Processing.

Relative to our model, theSecurities business drove nearly all of the upside and pretty surprised by the margins, specifically the implied incremental margin, because the profit increased by the same amount as the revenue increased.

So, curious, sort of sounds like volume -- incremental margins around the trade volume is very high.

Anything else that drove sort of that outcome that we should consider?

Sounds like contract termination fees are not in the segment.

Let me first comment, this is Rich, let me first comment on the Securities Processing piece.

That business is virtually entirely computer-based and therefore any additional activity that we process in that business will have very high margins.

And we've experienced this type of contribution from better-than-planned volumes throughout our history.

I'll let Dan comment, as he did during his update, on some other pieces that impacted us.

Thanks, Rich.

Just to be clear on that, you're absolutely correct, Tien, that you do not -- we do not include any termination or really any kind of one-times in our segments, because we think that distorts the picture.

So those will always be in the other.

Now coming back to when you're thinking about the trade processing, once you get beyond about 5, 6% growth in what we call trade processing, you've covered your fixed costs, or any increase of those fixed costs in the business.

So, to that point, anything above that pretty much does fall to our bottom line.

And in any given year we can always have what we call concessions that might run a little bit higher than the prior year or a little bit less than the prior year, but right now going forward anything that we call the incremental piece above 5 or 6% should pretty much fall to the bottom line.

Got you.

So I guess as we -- yes, so I'm just thinking, on a go-forward basis, as we model out, obviously we have -- we know about the client laws, as we assume some kind of growth rate on the organic, it feels like we should be assuming, like you said, something closer to, like, 80, 90% incremental margin.

Am I wrong in thinking that way, in terms of allowing the incremental revenue growth to just drop through to the bottom line?

Well, what I say again is, we always -- let's just say -- I'll just give you an example.

Say that we were going to grow 10%, the internal growth for the trade volumes.

Just as an example.

Right.

That first 5% really is eaten up in what we call any of our -- what we'll call incremental costs to our fixed costs, like merit increases, other kinds of expenses like that.

Then the remaining really falls to the bottom line.

So I still look at it somewhere between a 50 and 75% in an aggregate.

Got you.

But once I've gotten over my, what I call my fixed cost piece of incremental, then I really -- it all drops to the bottom line.

So I would still put in the 50 to 75%.

I wouldn't let it all drop.

Okay, very good.

And then --

Tien, this is Rich.

And for those of you on the call who heard us during the road show or early presentations, when I described the Securities Processing business, I've historically said the cost of that first transaction that goes with the system is really ugly.

The cost of the last transactions going through our systems, it's difficult to find cost.

So it's a large infrastructure, significant systems and infrastructure cost up front, but very, very, very scaleable.

Yes.

That's the beauty of scale.

Two other quick ones, questions,.

Maybe, Dan, if you can comment on stock comps going forward, what should we expect?

And then maybe you can also, Rich, comment on the pipeline for Clearing and Outsourcing, how that's shaping up and if there's any change in the broader demand environment?

Okay, I'll handle the first part, Rich, which was how we think about stock comp.

What we've really said out there is that we have an expense rate of about the $25 million, and the way that that would increase over time is it's highly gauged to our stock price.

And I think you understand what I mean there.

So, if our stock price went up or down by 10%, that is very much a factor in whether that stock comp would move up or down.

It's not a factor -- the 25 is not impacted by we're going to add more people necessarily to it, or that we're giving more shares to people, it is really -- the derivative that drives that is the value of the stock, when you have to figure out the value that you have to put through as far as expense.

Does that help you there?

Got you.

Yes.

I'm sorry.

Could you repeat the second part of that question?

Just maybe if you could broadly comment on pipeline for clearing and outsourcing business and if there's been any change in the demand environment given the economic backdrop?

Sure.

I didn't cover this in my comments, so I'm grateful for you to ask the question.

I had stated in the past that we were pleased with our pipeline and we absolutely do remain pleased with the pipeline.

And we have put more effort into identifying new activity for pipeline as we go forward and I'm pleased with those efforts as well.

So, overall, on sales, that's why I used the term very pleased, because between the actual results in the pipeline, we're feeling good right now about where we are with sales.

Very good.

Thanks for the detail.

(OPERATOR INSTRUCTIONS) At this time, I'm showing that we have no further questions.

I will now turn the call back for closing remarks to Mr.

Daly.

Thank you.

Well, I want to end by saying that we, first of all, appreciate your participation, but, most importantly, I want to say that I'm feeling good about Broadridge and about our future.

I'm confident we're on the right path and we'll continue to be leaders in our markets.

Again, I want to thank everyone for participating.

Dan, Marvin, and I look forward to speaking with all of you, whether it be throughout the next quarter or at the next quarter.

Thanks again and choose to have a great day.

This concludes today's Broadridge Financial Solutions, Inc.

first quarter fiscal 2008 earnings conference call.

Thank you for your participation.

You may now disconnect.