Broadridge Financial Solutions Inc (BR) 2008 Q2 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 second 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 speakers' 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.

Thank you, Carol.

Good morning, everyone.

Welcome to the Broadridge quarterly earnings call and webcast for the second quarter of fiscal year 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 earnings 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 home page of our website at broadridge.com.

Before we begin, I would like to remind everyone that during today's conference call, we'll discuss some forward-looking statements that involve risks and these risks are discussed here on slide one and in our periodic filings with the SEC.

During a review of our financial results to provide the appropriate point-to-point comparison between fiscal '08 and fiscal '07, all pretax and net earning 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 the appropriate 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 intersegment allocations between the Clearing and Outsourcing segment and the other two segments.

Our 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 a discussion on a few key topics.

Dan Sheldon will then review the financial results in further detail for both the quarter and year-to-date.

Rich will then return and review the fiscal 2008 guidance and provide his summary before we head 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.

With that said, I'll now turn the call over to Rich.

Rich?

Thanks, Marvin, good morning.

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

First the results of our second quarter.

Next, the market conditions during the quarter, and then a quick update on some key metrics and Broadridge's overall momentum.

Then after Dan's update on the quarter, I'll discuss how our second quarter performance and the market conditions are pushing us towards the higher end of our previous EPS guidance of $1.30 to $1.40.

I am now going to give you an overview of Broadridge's financial performance in context with market conditions.

Let me start by saying I'm pleased with our revenue and earnings for the quarter.

We had revenue growth of 8% for the quarter and 5% year-to-date.

We had net earnings growth of 30% for the quarter and 41% year-to-date excluding transition expenses and interest on debt.

We're now half way through fiscal 2008 with a strong start as internal growth driven by market activity has helped us grow over the two significant client losses we previously announced in fiscal 2007 prior to our spinoff.

This quarter our growth was driven more by our investor communications segment.

In this segment, the primary component of our positive performance for the quarter was internal growth of 9%, which was anchored by higher volume levels in most of our products, including event-driven activities.

We continue to benefit from the increase in trading activity that drove the securities processing segment last quarter.

This quarter our trading volume growth of 19% was approximately half of what we experienced in our first quarter.

But given the mix of products this quarter, it only drove to net revenue growth in this segment of 2% versus last quarter, when twice this volume growth and other activities drove revenue growth by 10%.

We continue to drive positive margin expansion, driven by a high percentage of internal revenue growth falling to the bottom line.

Our public company infrastructure expenses and investment spend was still below our planned run rate in this quarter.

You will see going forward both of these expenses will be ramped up to plan levels in the third and fourth quarter.

I'm also pleased with our overall sales results.

Our sales for the quarter of $39 million, up 5% ahead of last year, and year-to-date sales of $68 million are 9% ahead of the prior year.

We're now at about 50% of our overall plan, which, as I discussed last quarter, included the slower summer months.

We continue to be pleased regarding our sales results and our pipeline growth.

Let's move on to talk about the general market conditions that were at hand in our second quarter.

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

The last time we spoke to you about this topic, we identified event-driven activities and trading volumes as the two key variables that are impacted during market volatility up or down.

During our first quarter earnings call, we described how we had trading volumes substantially higher than the prior year's quarter, both of which included two summer months.

These volume trends continue during the second quarter but did not have as significant of a year-over-year quarterly benefit.

Event-driven revenue was up 8% for this quarter compared to the prior year and a high percentage fell to the bottom line.

As you will recall, we weren't planning any event-driven growth at the time we shared of fiscal 2008 plan with you, given the overall record results we had in fiscal 2007 driven by 30% growth in 2007.

Event-driven revenue continues to grow at this time.

We remain confident it will grow overall in years to come.

Planning this on an annual basis is challenging.

We suggest that you don't try to model this on a quarter-by-quarter basis, but we expect over any multi-year planning period event-driven activities will raise our overall growth.

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

Market volatility is normally good for our business.

If this volatility is simply leading to a market correction and not a bear market, then there is a short-term benefit generally with no material, longer term negative impact.

However, if this volatility is leading to a bear market, we'll experience a short-term benefit with potential longer-term negative effects until the market stabilizes and then starts to build to new highs, which it has always historically done.

Before I turn the call over to Dan, I wanted to get beyond the specifics of this quarter and generally discuss how I feel about the momentum Broadridge has at this time.

There are several key variables that each of our P&L owners drive to improve everyday.

At the top of our list is client retention.

I must tell you, I feel great about what our team has done to improve the client experience and overall retention.

We haven't lost a major client since prior to this spin, and although there have been some small losses, our overall retention in all areas feels terrific.

We also look at sales strategies, and beyond the growth numbers I already shared with you, I'd like to highlight one example relating to notice and access.

Broadridge led our industry by rolling out notice and access in a clear and understandable way so that each public company could look at it specifically as it related to do their needs.

That leadership enabled our sales force to have more conversations with more corporate executives than ever before.

This has is led to a strong increase to register issue of sales regardless whether or not they chose to use notice and access.

We, of course, continue to intensify our investment initiatives to identify new solutions that we can leverage through our distribution channel, arguably the best channel in the industry.

Margins continue to improve each product level through our disciplined process management and technology investments.

And finally, and probably most importantly, our client-centric culture where we trust, engage and hold all associates accountable has just been named one of the 30 best companies to work for in New York State.

These key dashboard metrics continue to raise my confidence that we can grow shareholder value over any multi-year period, even though as we look forward through the windshield, it is not clear within the markets we serve whether it will be sunny or stormy for the months ahead.

It is clear we are well positioned to take advantage of good markets and to weather tough markets by retaining the clients we have, getting new clients and distributing more products to all of these clients.

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

Thanks, Rich.

As Rich mentioned this was a good quarter from both revenue growth and EBIT margin expansion perspective.

With that said, I'm going -- I'm on slide four, our financial results, and as I go through the next few pages of reviewing both the quarter and year-to-date results, as well as give you some direction on how we see the second half for the segments, other and our cash flows.

So on slide four our revenue growth, as Rich mentioned, grew 8% for the quarter and 5% year to date.

The quarter results for all of our segments were better than last year and above our expectations with respect to contributions from internal growth.

The internal growth for Q2 of 7% was strong and above Q1.

The Q2 growth was primarily driven by increased investor communications activity and, to a lesser extent, trade volumes.

I'll go into more detail when reviewing the segments.

The contributions from sales, losses and other were in line with our expectations for both the quarter and year-to-date.

With respect to our pretax earnings, net income and earnings per share, excluding the one-time transition expenses and interest for the quarter, and year-to-date grew significantly due to scale in the business, distribution fee mixes and the impact from some one-times, especially revenue from contract cancellation fees.

I'm on now slide five with a couple additional points at the bottom.

We paid down an additional $10 million in long-term debt and $95 million year-to-date, bringing our long-term debt down to $523 million.

Our long-term debt to EBIT ratio should be between one and 1.1 given our full-year forecast and cash flow projections which we'll discuss in a moment.

Our effective tax rate is still estimated at 39%.

And as Rich mentioned, our sales were $38 million for the quarter, $68 million year-to-date and ahead of our plan in prior year, especially around event-driven mutual fund activity.

And, by the way, the distribution for that between recurring and events is at a split of 40/60 respectively.

I'm now moving on to slide six, the segment results from investor communications.

Our total revenues for this quarter were up 6% and year-to-date 2%, and in both periods we had great margin expansion.

With respect to revenue growth in the second quarter was greatly impacted by a 9% internal growth coming from both our recurring revenues and event-driven.

Our net new business for both the quarter and year-to-date is in line with our expectations, and the loss is primarily related to the one large client we previously discussed.

With respect to notice and access, it is true it has little impact on our first half results.

But we are gaining share with respect to new registered proxy business and additional business for notice and access services, which will give us some benefit in the fourth quarter proxy season.

Having said that, let me give you a perspective of the second half with some other items.

We're still expecting to see an improvement in net new business as the anniversary of that large loss is coming to an end at the end of Q3.

We do expect to see continued growth in event-driven activity, especially around mutual fund proxies, given our year-to-date sales.

We're also expecting to see continued recurring revenue internal growth from our interims and our transaction statements.

And finally, as for equity proxy revenues, which represent over 40% of our total revenues in the second half and 60% of our revenues in the fourth quarter, we expect a range of between a negative 4% to flat given that today stock record growth on a year-to-date basis is at a negative four.

As already mentioned, we had a significant margin expansion in both the quarter and year-to-date, aided by the distribution fee mix and some impacts from some one-times.

We still expect a 50 to 80 basis points improvement in margins for the full fiscal year.

I'll now turn to slide seven, looking at securities processing solutions.

Our total revenues were up 2% for the quarter and 6% year-to-date and you remember Q1 we had 10% total revenue growth for this segment.

As Rich mentioned our internal growth from trade volumes have been the primary drivers behind the growth in both quarters.

The equity trades per day continue to average the 2.5 million per day in Q2.

Although there was a great deal of activity in the second quarter, both up and down, the net for the quarter remained at the same 2.5 million.

As we mentioned last quarter, we had reached the 2.5 million average trade per day in the third quarter of last year, so our second half in FY '08 is not forecast to do have much benefit from any trade per day growth.

This is the same, by the way, for our fixed income.

Our net new business, which is sales less losses has been a drag on revenues for both the quarter and year-to-date due to loss of TD, which will also continue throughout the rest of this fiscal year.

Having said that, the margins for the quarter were negatively impact due to the increased investment and one-time expenses.

Margins will continue to decline in the second half due to the revenue, shrinkage from TD, as well as adding back as we mentioned before, approximately $5 million in expense to our run rate, due to the fact that we have a large R&D project that is coming to an end on a client implementation that will begin to impact us at the end of Q3.

I'll now move on to slide eight, which is reach clearing and outsourcing and other.

With respect to the clearing and outsourcing, revenues for the quarter were up 7% and year-to-date 10% and operating losses have improved year-over-year given scale in the business.

Sales for both the quarter and year-to-date contributed 15% to growth and we expect to see double-digit revenue growth from sales in this segment for the second half.

The loss of TD negatively impacted us by 13% and accounted for most of the lost business.

The TD loss, again, will be with us in this segment as well throughout the second half.

Internal growth is up for both the quarter and year-to-date and was primarily driven by clearance fees from increased trade and, to a lesser extent, net interest on balances.

We expect the internal growth in the second half but will be impacted negatively by the drop in interest rates most recently announced.

Given forecasted revenue growth in the second half, we will exit this year with the business on a profitable trend but will be slightly behind our planned break-even.

Let's move on to "Other." Revenues for both the quarter of $5 million and year-to-date almost $8 million, are driven from contract cancellation fees and we don't see much of anything in the second half.

Usually we only see a couple of million a year in cancellation fees, as we don't have much in the way of terminations in any year.

This however, was an exceptional year given the two large losses.

With respect to net other expense for the quarter of $15 million and year-to-date $23 million, 100% of the cancellation fees fall to the bottom line.

With respect to interest expense, there won't be any significant additional pay-down on long-term debt or impact from recent interest rate reductions until Q4.

Transition expenses are $3 million approximately for each of the first two quarters and are expected to be in with the $12 million to $14 million range we earlier discussed.

And corporate and new initiative expenses are at $7 million for the quarter and year-to-date, and as Rich mentioned, will be slightly higher in the second half as we continue to finalize our build-out.

I'll now turn over to slide nine for our cash flow.

Last quarter we reviewed with you why we look at our cash flows with and without the rich clearing and outsourcing segment and that is why we've now displayed all three of close columns for you, both rich, without rich and our grand total.

With respect to clearing, the large change in that assets was related to primarily one transaction that has since cleared.

As mentioned before, this business always uses short-term financing as part of its normal business.

With respect to the other segments, depreciation, amortization and stock-based compensation are in line with our prior years and expectations.

Working capital change is always primarily related to timing on receivables so therefore it could be plus or minus in any given period.

I will make an important note here, that capital expenditures year-to-date of $16 million is closer, expected to be, for the full year at $50 million to $55 million.

And given the investments and projects we have in the pipeline is the reason for that increase.

This year is expected to be slightly higher than previous years.

And again, primarily related to spin-related new facilities, both domestically and internationally.

To wrap this up, free cash flows generated in the last six months, $123 million, and used primarily in the last six months to pay down debt and pay dividends.

We do expect to generate between $90 million and $120 million in free cash flows in the second half, and with that, I'll now turn it back over to Rich Daly.

Thanks, Dan.

Let me start by reiterating that our previous guidance from the first quarter has not changed.

However, as I mentioned during my opening remarks, our second quarter performance and volume trends have led us to believe we're moving towards the higher end of our EPS range.

During our first quarter earnings call, we communicated that we would have earnings per share excluding one-time transition expenses in the $1.30 to $1.40 range.

When we created this guidance, the performance you saw in the second quarter and the benefit from volume trends were contemplated into the higher end of the guidance.

Given the fact that, as Dan said, for the last four quarters our trades per day have been flat at 2.5 million trades, barring any major shift in current volume trends, we don't expect to see the same level of overperformance in the second half of the fiscal year that occurred in the first.

With that said, I'd like to remind everyone of how in our first quarter earnings call we supported how to interpret the low-end and the high-end of our guidance range.

The low end of our guidance range assumed a slight fall-off in trade volumes and less event-driven revenues 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 down-turn in the markets we serve that could result in a significant and immediate drop in market activity.

As you think through our guidance, you should keep in mind that our fourth quarter is our biggest quarter.

Historically, it represents somewhere in the range of 50 to 55% of full-year earnings.

Let me talk a little bit about free cash flow.

Dan went through the numbers.

We will use our free cash flows to add value.

We're going to pay down debt.

We're going to pay a dividend.

We'll look to acquire products and businesses.

And again, at least for fiscal '08, we're not contemplating any share buy-backs.

Let me summarize quickly before we go into Q & A.

We had another solid quarter and continue to have a nice start to the fiscal year year with strong quarterly earnings driven by internal growth and continued event driven activity.

As a result of the strong quarter and current market trends, we believe our EPS will be toward the higher end of our EPS range.

Markets are difficult to predict and activity in the markets will create both up-side as well as downside.

Current market activities present short-term opportunity, but if a bear market occurs it could present some challenges or opportunities beyond the next month or quarter.

Broadridge is in control of our businesses but not the markets we serve.

We remain committed and confident that we can grow our business over any multi-year period.

I am not going to turn the call back over to Carol to to open up for Q&A.

Carol, it's all yours.

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster.

Our first question will come from the line of Tien-Tsin Huang with JPMorgan.

Good morning, nice results.

Couple of questions, first on securities processing, I was hoping to get a little bit more detail on the mix issue that drove less revenue growth in relation to trading volume.

I didn't quite catch that.

Could you run through that, again?

Sure, Tien-Tsin, this is Dan.

If you think about Q1 where we had the 10% growth, think of that more from trade volumes at that point in time of the 38%, drove around $5 million to $6 million and then the remaining increase which was probably another $4 million or $5 million came, if you remember, we talked about T&M which was the time and material and some one-time activity that we were fortunate to come to the end of some jobs on.

Putting that in perspective, if you think about 38% drove about $6 million in Q1 and then you put the same perspective on Q2, that we had 19 driving approximately three, I think it puts it in the right perspective how to think about the volumes.

Got it.

Got it.

The -- and then on the investment side, I'm not sure if I caught this, how much of the $10 million in planned investments for the year did you end up spending in 2Q?

What we -- when we committed to ramp up our investments, first of all, I don't want anyone to believe that we're only spending or investing $10 million in the business.

But we made a conscious decision at the time of the spin to increase that.

We're doing it prudently and in the first half we were not at the full planned rate.

In the second half we expect to be at the full plan rate, maybe even slightly better.

And I'm pleased about that, because ultimately this will generate activity for future years.

This is Dan, again, just helping you out, when we talked about the incremental 10, we think about that much more in the other space, because those are long-term kind of initiatives.

We have also made investments inside our field, including the securities processing for some of the products they were already starting to work on.

So to put it in perspective for you as you are trying to think about your numbers, you should thinking year-over-year even in the second quarter that is slightly up $2 million to $3 million just for that period and that includes some one-times in there so that will not necessarily carry forward.

Got it.

That is helpful.

Lastly, Rich, maybe if you could just -- sounds like the sales in the pipeline is still quite good.

Maybe if you could give us a little more detail on the new sales environment, how does it feel out there relative to the prior quarter.

Do sales cycles feel longer?

We get that question quite often, so I thought I would ask it on the call.

It breaks out, because of the breadth of our products, it really covers the full horizon.

On the large mega outsourcing deals, call it $5 million plus, those will always be long sales cycles, and as I've said often, it is not over until it is over.

We feel very good about the segment that we've identified in our securities processing area and outsourcing, where it is companies that are clearing through others have the capital to be self-clearing and we believe these 100 entities we identified could probably generate about on average $3 million.

We've closed one this quarter.

We have previously closed one, but we think it is a very good value proposition.

In the communication space, as I said, because of our leadership in notice and access, we're getting to meet with more corporate executives and we're going to be ahead of plan.

Right now I'm thinking of about $5 million, maybe a little better, in terms of activities that were driven in registered sales because of the leadership we've demonstrated in notice and access.

But with all that said, the momentum feels very, very good.

Terrific.

Thank you.

Our next question will come from Ian Zaffino with Oppenheimer.

Great, thank you.

Very good quarter.

Just one question here about the M&A outlook and what you're seeing there.

Is anything imminent or what are you looking at as far as spend?

I know you had limited it to $35 million before.

What are you looking at now?

Okay.

First of all we won't comment on any deals until they were over, and there is good reason for it because this, again, it is not over until it is over.

Second of all, the $35 million was our original plan around tuck-ins up to that size and I said during the last quarter and it is worthy of repeating now, that given our strong cash flows and the fact that we paid down debt faster than we originally anticipated, we're looking to consider -- we are looking, if the opportunity -- if the right opportunity is asked, to expand that range.

It certainly is going to be in context with our commitment to remain investment-grade and our commitment to have the right opportunity.

So beyond that, I want to cover one last point which I think will give you the last piece you're missing.

I talked about that distribution channel in my comments today.

We really have a great distribution channel.

We have a C-suite relationship with every firm because of the communications business.

So if there is the right product set out there that we can help drive the market, we're going to look to take advantage of that and we'll look to do that through partnering or acquisitions going forward.

Okay.

And then as far as new business, are there any elephant deals out there that you're looking at?

And how is kind of the fall-out of the sub prime market and how it has left some of the bigger broker dealers in their current state, how has that affected your business or the likelihood of winning additionally business or them outsourcing?

We've -- in my 18 plus years, I've seen it go all ways.

So I'll break it out into two things.

Changes in market creates new dialogs in firms, and sometimes those dialogs are helpful, sometimes they're not.

We clearly can provide our clients a better cost model.

We can clearly provide them a more efficient, more reliable model.

But they still need to be willing to go through a conversion.

The sub prime activity is certainly creating lots of dialogs, and that can work to accelerate a dialog we're in or that can work to delay a dialog we're in.

So I'm going to go back to my standard comment on all of these deals.

It's not over 'til it's over, and we're always in dialogs with someone because we have such a strong value proposition.

Ian, this is Dan.

Part of your question was, how should we think about more of our base being impacted by sub prime?

So let me add a little bit of color to that piece.

When you think about the securities processing business, that's where the sub prime would be primarily impacting on trade volumes.

But to give you a clearer picture that, if you're thinking more of our fixed income which is about a $50 million business in that, and then inside of that, sub prime, all right, is about a $10 million to $15 million kind of product.

So as we've talked with your clients, and believe me we spend a lot of time with our clients, as Rich mentioned, some of them might be looking to get out of it and some may be looking to absolutely enhance through either acquisitions or expanding their business.

But from an impact as we look at it today and from what we've heard, and again we're speaking from what we know, sub prime by itself would not have a material impact to us for any kind of change that's going on in that world.

And just to follow up on that, even in our trading mix, what we've seen is people who shift from mortgage backs over to treasuries.

So we've seen some drop in -- a little bit of drop in activity in one place offset by an increase in activity in another place.

Will there be a negative impact?

There could be.

We're not expecting it to be material, based on what we've seen so far.

Thank you very much.

Our next question will come from the line of Pete Heckmann with Blackthorn.

Morning, gentlemen.

Morning.

I wanted to ask a question as regards your commentary on bear markets and whether or not we're going into a bear market remains to be seen, but clearly the market is correcting quite a bit.

And going back and remembering how that affected some of your peers, more specifically Sun Guard security processing segment in the '00 to '02 areas.

It seems like the trade volumes hit them most dramatically but then also they saw is a slowdown in decision cycles and a pullback in discretionary projects that were around and supplemented the longer-term security processing deals.

Would you say those are the three areas that you have most exposure in a bear market and could you talk about what type of magnitude you would expect trades per day to fall, or maybe just how -- what they did fall in that environment?

First of all, it is very -- each market has its own unique features based on the way our clients and our potential clients react to what they need.

The one thing I will comment on, though, is that as I've said before, the last down market we had, when the bubble burst, we had a model in which trading far more impacted our revenues than it does today.

We've given our clients the benefit of our scale on the upside, which means on the down side, our revenue doesn't drop on a percentage basis related to trade volume, just like as you heard in our growth of trades of 19% this quarter it really drove 2% in revenue increases.

I think that discussions are always good, and I think whatever drives discussions is always good, and the stronger we make our value propositions, the more likely when firms are willing to have a discussion to say, are we doing -- is what we're doing making sense, the stronger our value propositions are, the more likely we are to get someone to engage in a dialog about considering outsourcing who may not have considered it before.

And as far as discretionary spend goes, without question.

We do very little though of what people would consider to be T&M and consulting and so I don't see what we do on the discretionary side as being material.

What you didn't cover was the event-driven activities, and that's the last piece beyond trading that would really be significantly impacted.

And what we historically saw in the past was in our event-driven revenue, particularly in the mutual fund space, people who had decided to do a full proxy, or folks who were considering doing a full proxy, said you know what, we're going to wait a little bit longer, we're not looking to incur the expense at this point in time.

And some M&A activity on the event-driven side we also saw slow up.

And generally it comes back at a much higher rate as the markets stabilize and people find M&A opportunities out there.

I would just add one other piece to that.

Also back in that period of the last down-turn, we were at 70% retail versus 30% institutional in that securities processing space and today when you look at our trade volumes you have to be thinking much more very large institutional making up over 70% of that trade volume.

Okay.

That is a helpful distinction and -- okay, that is also on the event-driven side, that is an area I hadn't been exposed to in previous downturns.

And just one more follow-up on the contract termination fees, did those typically come through at high margin or are there a lot of deconversion costs on your side that tend to offset the benefit?

They are 100% to the bottom line.

Absolutely.

For those kind of contracts, for instance, they were already at the end of the contract terms so there was nothing on the balance sheet and no other costs.

So all that $9 million falls to the bottom line.

Okay.

And so what would that have equated to on an EPS basis?

On an EPS basis that would have been approximately $0.04.

Okay.

In this quarter?

It is the combination of the two.

You had both quarters there.

Okay.

In 1H.

Right.

Great.

Thanks, guys, appreciate it.

Thanks.

Our next question will come from the line of [Mahaf Kapoor] with Credit Suisse.

Yeah, good morning.

Basically I wanted to get a sense from you guys about the clearing business that you talked about, the clearing and outsourcing segment that was slightly behind your plans or you expect to be slightly behind your plans for the year.

Can you give some more color on that and what is falling short versus your plan?

The simple answer is that as rates come down, the spreads that we retain on margin comes down.

So the business is performing in essence on plan with that -- primarily with that one piece.

I see.

And I guess are there any way to offset that based on just your -- offset some of that revenue loss?

Because I guess the rates are going to come down a little bit more.

What are the things you guys are thinking of?

Well, we will be at break-even as we exit the year on that business, and that's our highest sales growth opportunity, and that's -- without the clearing business we wouldn't have the opportunity to go after those 100 firms in that outsourcing segment with an average revenue of $3 million each.

So as I look at our ability to create value going forward, I feel great about our outsourcing capabilities and our clearing business that provides that capability.

May I just put some perspective to that?

The reason we even raise that up is because that business, everyone we had talked to before was going to be at a break-even position.

So the impact from the interest for that business is a few million dollars.

I want to put it in perspective from the overall business and the reason we even raised it, it is certainly not a huge number for the Company but it's an important number because again it is a net interest impact.

Okay.

I guess from a margin standpoint in a -- I guess in a normalized run rate environment, what do you think that this business should be operating at?

Is it a mid-single digit margin business or is it a high -- ?

We expect that to be 10 to 20, but again it's -- we're in the clearing business to leverage our ASP model and to feed more transactions into the ASP model of our SPS segment.

And that's the strategy, and we're pleased at the execution of this strategy to date.

Right.

And we've said, by the way, the way to think about that is you can see the leverage over the last few years of scalability, as we drive that revenue, and we've expected that revenue to grow north of 10% every year given our sales, you can see what we're accomplishing there.

You will see anywhere, depending upon the mix of business, whether it be the outsourcing or the clearing side, of between 20% and greater than 50% contribution to the bottom line for that incremental revenue.

And I think that's the only way you can put it into perspective as you try to build out as we also try to say longer term we'll get to these higher margins.

All right.

Just on the CapEx, what is a more, I guess a run rate level to look at as going forward.

Because this year obviously a little elevated, so what does that number look like at a more normalized environment.

The more normalized -- great question, is to be thinking in the $40 million to $50 million range and, by the way, equally so does what we call the depreciation and amortization.

So about equal to same.

As you think longer term think 2 to 2.5% of our revenue overall goes to CapEx/intangibles.

Great.

Thanks, guys.

Our next question will come from the line of Stefan Mykytiuk with Pike Place Capital.

Hi.

Good morning.

Just back to the registry business.

Could you just give us a sense of how much of investor communications is registry versus the beneficial business?

Sure, the vast majority of the -- of our communications business is beneficial.

That's the contract with all the broker dealers.

Their market on the registered side I estimate to be about $100 million, probably slightly less.

There are 14,000 issuers out there, 7,000 that would really make up the bulk of that revenue, and we have about 1,000, maybe slightly better at this point, of those issuers.

Okay.

So that's the -- you're saying the $100 million is the total market opportunity if you can -- to continue to go after, and it sounds like the notice and access is just giving you another entre to get in front of these people and tell them what you're capable of doing?

That's correct.

We have clearly have been able to demonstrate our leadership here.

Okay.

Terrific.

What was -- more of a knit-picky question.

The SG&A went up quite a bit sequentially.

Was that the beginning of this increased investment and it was also down in the segment reporting that other category on the EBIT line went up quite a bit sequentially.

What caused those?

Right, so let me put it in perspective.

The majority of "Other" does fall into SG&A.

You know how you do it?

The face of the financial statement doesn't -- that other on the face of the financial statement, which is the $9 million and call it $18 million year-to-date is all the interest.

So think about everything else in "Other" as going to SG&A from expense standpoint and you're absolutely right that is the build-up that we were previously talking about.

The number I was actually referring to on "Other" was back on the segment data where it is "Other" -- it's $15.2 million in the -- in the segment, on the EBIT line.

Right.

And that was again 7.8 in the first quarter.

So that is -- that's still the same thing, though, in terms of kind of the investing that's going on for new products and developing, R&D development?

Right.

The way to think about that was in Q1 we hardly had any corporate build-out even, not just investments but corporate build-out, meaning building your corporate headquarters, staff, treasury, tax, audit, et cetera.

That has now built up as we mentioned to the $7 million versus flat in Q1.

And that is hitting that "Other" line.

And then up in the consolidated number you're saying that's in SG&A.

Yes, it is, as well as any one-time terminations -- not one-time terminations, the one-time transition costs are also in that section.

Okay.

Did you break out the transition costs then?

Is that in the -- that was the 3.5 back in the non-GAAP?

That is absolutely correct.

If you go to the non-GAAP, you will see the 3.5 in the year-to-date over 5.

When we get into fiscal '09 then do the one-time transition expenses fall away?

Yes, they do.

They fall away and we'll still have a slight corporate build as we call it in Q1 because it wasn't there.

Okay.

All right.

Thanks very much.

[OPERATOR INSTRUCTIONS] Our next question will come from the line of Deana Mitchell with Macquarie Bank.

Miss Mitchell, your line is open.

Hello?

Your line is open, Miss Mitchell.

Good morning.

Hi, I just have two questions.

You've talked about leverage, and you've had a few questions about bear markets.

I'm just curious as to know as to what flex you have in your cost base in event of a bear market and you do start to see pressure on the revenue line?

Okay.

The good news about the leverage is that we can add volumes and push a good portion of that to the bottom line, certainly in our processing businesses and also to a stronger in our communications business.

But if the markets were to turn, we certainly have a high percentage of fixed costs as well related to that, and so we would not be able to take down our expenses in the same line as the drop in revenue.

Okay.

Thank you.

Second question is just in terms of you mentioned the interest rate sensitivity.

We've obviously seen quite material changes in the cash rate in the U.S.

Can you give us a feel if you have a sensitivity analysis, if for example, a 25 drop required to on your profits?

What I can say to you is this, Deana, is that it is all going to be concentrated with any kind of interest in our clearing business, and I just kind of mentioned to you that the last 125 basis points was going to cost us a few million dollars on an annualized basis, so that is the way to think about it.

Okay.

And the last question is just in terms of you mentioned you've been picking off market share in the registry space.

Is that from the big players like Bernie and Mill in computer share or more from the smaller players which are kind of struggling to keep up-to-date with all of these changes of the IRS and notice and access, et cetera?

I don't have an exact view of that, but my -- everything I sense and hear is that it's evenly distributed over the various providers out there.

Great.

Okay.

Thanks very much for that.

Our next question will come from the line of Vivian Mamelak with U.S.

Steel Pension Fund.

Great.

Thank you, I just want to follow up on that investor communication share gain question.

I'm curious as to mix there, what you're seeing from clients in terms of electronic versus print.

Are they doing both?

A mixture?

What has the trend evolved into with notice and access?

Because of all of the moving variables here, it's tough to say what the trend is right now.

The reason we've been effective in meeting with corporations is we can show them what the new notice and access rules give them options to do, and then by profiling their prior annual meeting and their current needs and their current annual meeting, let them select is this a cost opportunity, do they have tough proposals they need to get through and how would they manage this with a new process which may have lower voting returns, et cetera.

So it's not an across-the-board answer.

What it is, though, is that if you were making this decision, we would be there with clear models showing you for your meeting how you can most effectively run it.

And it's that reason I said even if they haven't chose notice and access, our win rate is up because I think we're clearly demonstrating that we're the best provider in this space.

Okay.

And as a follow-up in terms of investor communication, you also mentioned that there were some small losses.

If you could just comment on that?

I was not talking specifically about investor communication when I was speaking of small losses.

When we spoke to the small losses they were primarily in some of the small start-up clearing kind of firms.

So very small revenue and also very little impact.

Okay.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question will come from the line of Stefan Mykytiuk with Pike Place Capital.

I just want to beat this bear market horse to death here a little bit, but just to clarify, when you talk about a bear market, you're coming from the perspective, as you said, of during the I guess the internet bubble, 70% of your trading volume was coming vis-a-vis retail brokers and now that has flip-flopped, that it is 70% institutional, correct?

In other words, the -- when you say bear -- the fact that the stock market has gone down over the last nine months, some people would call that a bear market but that hasn't hurt your business so far, it has actually kind of helped in terms of trading volume.

So I'm just trying to get to -- this proverbial bear market that would hurt your business is really, you're saying if people just stopped trading equities or pulled their money out of the stock market and went and did something else kind of like they did after the internet bubble and people went to trying to trade houses instead of stocks.

Is that a fair characterization?

I think it is.

The 70% comment flip-flopping is correct.

And for us, our definition would be a sustained reduction of activity across our various products for a multi-month period of time.

Right.

So, in other words, people, lot of money comes out of the stock market, people stop trading stocks or bonds and they sit in a money market and do nothing is kind of the negative scenario.

Is that right?

That would be a fair assumption, yes.

Okay.

I mean, I just want to clarify that because, again a lot of people would say we're in a bear market right now and so far it doesn't seem to be hurting your business.

So I just want to make sure we kind of understand what, what the --

Equating -- equating the negativities of a bear market to us directly is a little more complex because, as you pointed out, the current market, some people may not feel great about, it hasn't impacted us to date.

That's correct.

Fair enough.

Thank you.

I'm showing that we have no further questions at this time.

I will now turn the call back to Mr.

Daly.

Carol, thank you.

Thanks to all of you for participating.

I hope we express that we are feeling good about the long-term future of Broadridge.

I am confident we will continue to be leaders in our markets.

I want to thank everyone for participating.

Dan, Marvin and I again look forward to speaking with you over the next quarter.

Thanks and choose to have a great day.

This concludes today's Broadridge Financial Solutions Incorporated second quarter fiscal year 2008 earnings conference call.

Thank you for your participation.

You may now disconnect.