Broadridge Financial Solutions Inc (BR) 2008 Q3 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Broadridge Financial Solutions third 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 participant (sic).

(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, and welcome to the Broadridge quarterly earnings call and webcast for the third quarter of fiscal year 2008.

I'm Marvin Sims, Vice President of Investor Relations, and 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 by now 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 the review of our financial results, to provide the appropriate 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 and comparisons are also listed.

During the review of our segment results, again, for the appropriate point-to-point comparison, for year-to-date revenues and operating profits, we'll discuss adjusted numbers that reflect a change in the methodology that occurred in the third quarter of fiscal year 2007 with the interest segment allocation between the Clearing and Outsourcing Segment and the other two segments.

A reconciliation to the GAAP numbers is available on 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 the Q&A, Rich will provide his closing comments.

Now, please turn to the next slide for Rich's opening comments and 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 topics -- first, the financial results for the quarter, then a business overview for each of the business segments, where I'll touch on general performance and some of the relevant key business drivers for each segment.

Then after Dan's financial update on the quarter, I'll discuss the increase in our financial EPS guidance range and the factors behind the improvement.

Let me start by saying that our third quarter financial results are in line with our expectations.

Given our strong year-to-date results and clear view of our fourth and largest quarter for both revenues and profits, we're able to raise our full year guidance range, even in a difficult time for the markets we serve.

Our latest EPS guidance range is $1.35 to $1.45, which is up from our previous range of $1.30 to $1.40.

These are non-GAAP numbers, as they exclude one-time transition expenses of $0.06.

For the quarter, we had revenue growth of 1%.

In the largest segment, Investor Communications Solutions, we were able to grow over the client loss we disclosed last year, and in our Securities Processing Solutions and Clearing segments, we were able to generate solid new business growth, but not enough to grow over the previously disclosed loss of TD Waterhouse from last fiscal year.

Our net earnings for the quarter, despite being down 13%, were in line with our expectations.

Year-to-date net earnings are up 17% which is ahead of our original plan.

Dan will talk more in his financial review about the details and I'll talk more in my segment discussions about how our strategy will drive these key metrics as we move forward.

Our closed sales were 48 million for the quarter and 116 million for the first three quarters.

This more than doubled last year's third quarter amount and is ahead of last year's year-to-date amount by 43%.

The breakout between recurring and non-recurring revenue is 55% and 45% respectively, up 52% for recurring and 48% from non-recurring from last year.

There continues to be negative vibes in the financial markets in terms of assessing the current economic environment, but by any measure, our industry has slowed.

However, historically, Broadridge has been a lagging indicator and we've yet to see any material negative effects.

Our sales pipeline remains very strong, particularly the opportunities in outsourcing.

As I always say, we're not in control of the markets, but we are in control of our business.

I'll address sales in more detail when I talk about the business segments.

Before I start my business segment review, I'd like to address the recent change to our credit rating by Standard and Poor's.

During the last quarter, both S&P and Moody's completed their reviews of Broadridge.

Moody's reaffirmed our investment-grade credit rating and S&P downgraded us to below investment grade with a negative outlook.

We're disappointed that S&P downgraded us and the reason for the downgrade was the appearance of increased risk appetite in our Clearing business.

In early April, we issued a press release describing a $380 million staggered trade transaction with a counter-party rated A-plus by S&P that impacted our second quarter debt levels, and that may have led S&P to believe we were increasing our risk appetite.

Dan will go into more detail on the risk management policies in our Clearing business.

However, we've assured both of our rating agencies we won't do any staggered settlement transactions greater than seven days or for more than 20 million in the future.

We want to be a low-risk broker dealer, both in perception and reality.

Now let's move on to the business segment overview.

I'll start with our largest segment, Investor Communication Solutions.

The ICS segment is over 70% of the revenue and profits of Broadridge.

This is a great business.

The core business isn't only performing well, but is extending its market leadership with its capabilities around Notice and Access.

The ICS business year-to-date has been able to grow over a 4% revenue loss from the previously disclosed client loss and generate revenue growth of 1%.

We continue to drive margin expansion in this segment.

Recurring revenue core of our ICS segment, which is 70% of the full year revenue, continues to see very little impact from any market noise around it, and the only significant lagging indicator we see could be event-driven revenue.

So far this year, mutual fund proxy event-driven revenue is higher than our original plan, despite the increased expectations coming into fiscal year 2008.

M&A and proxy contests are lower than our original plans, despite the lowered expectations we had coming into the fiscal year.

Overall, event-driven revenue is coming in at just about our original plan of flat for the year.

Despite its slight volatility, historically, event-driven revenue over multiple year periods has grown.

We'll continue to gain market share and add new products, all of which have given us a CAGR of greater than 15% over the last five years.

I'm confident that event-driven revenue will grow at a rate higher than our overall Communications segment over any multi-year time frame.

When I look into the near future, event-driven revenue is the most challenging piece of the Communications segment to forecast.

The normal lead time between closing the sale and converting it to revenue can be anywhere from one day to six months, so there's not much pipeline.

Remember, this is the story behind event-driven revenue in almost every market, including rate markets.

ICS sales for the years have been very strong.

This quarter, we landed a large mutual fund proxy event sale.

We added over 200 new registered proxy issuers and we've added Notice and Access services with an annualized sales value of 14 million.

Notice and Access has strengthened our industry leadership position.

Going forward, implementation of any other new and evolving corporate governance trends most likely will require Broadridge's unique [plumbing].

I'll now talk in more detail about Notice and Access.

With proxy season pretty much behind us, we have more visibility into our Notice and Access results and I can provide you with a more meaningful update.

Notice and Access began as a voluntary program effective July 1, 2007.

The SEC then made the internet availability materials for large accelerated filers mandatory effective January 1, 2008.

Issuers still can choose to distribute proxy materials in hard copy to their shareholders.

At first, the early adapters (sic) were the high-tech companies.

Now we're seeing a much broader segment of issuers adopting Notice and Access.

We're estimating a 25% adoption rate for this fiscal year 2008.

I wanted to note that vote participation by retail shareholders is down by over 70%.

This is slightly higher than what we had originally anticipated.

In addition, issuers have taken varied approaches in using Notice and Access.

Some issuers are using Notice and Access for all shareholders and others are using a hybrid approach where, for example, they may use Notice and Access for shareholders owning less than 1,000 shares, but continue to distribute hard copy to larger holders.

Now let's talk about our Securities Processing Solutions segment.

Overall, this business has performed better than we anticipated for the year.

In the first half of fiscal '08, trading activity enabled us to grow over the previously disclosed loss of TD Waterhouse as a client.

Now trading activity has leveled off, but the second half of our year is still in line with our original expectations.

This quarter, trading activity provided a modest revenue contribution, as trades per day increased by 4%.

In Securities Processing Solutions, fixed income and particularly Equity Trade Processing, provide us the best earnings upside from any incremental new client revenue.

Contracts with existing clients provide limited upside and downside based on market activity.

The current market environment provides new client opportunities and some consolidation challenges.

In any event, it will take quite a while before either has any material impact on Broadridge.

Some names -- Bear-JPMorgan, Wachovia-A.G.

Edwards, and CIBC-Oppenheimer will all play out over the next months and years.

And in every case, whether our clients and prospects are merging like the firms I just mentioned, or just looking for increased control, functionality or efficiencies, Broadridge has a very strong value proposition.

There's a lot of leadership change going on in this space as well.

Never in my 30-year career can I remember this much change in senior level leadership.

As cost pressures become more of a reality on Wall Street, we intend to leverage the current environment and create more opportunities for our processing entities.

I do like our long-term prospects.

Our optimism is well founded, based on our ability to successfully implement complex new clients, the most recent being the Royal Bank of Canada last month.

We successfully rolled out our enhanced Retail Processing and new Wealth Management Solutions.

They provide a seamless integration of RBC's global retail and institutional operations onto one consolidated platform.

We now process for RBC in the U.S., Canada, London, Australia and Singapore.

The consolidation of these operations onto a single platform has been for most entities an elusive goal.

There are many retail and institutional firms that merged over a decade ago that still have no plans to merge these complex platforms.

As a result, they still aren't realizing the material efficiencies available to them.

We believe our Enhanced Retail offering, along with our strong intuitional platform, will open up new market opportunities and will allow us to more effectively compete in this market.

Now let's talk about our last segment, Clearing and Outsourcing, which although it represents just 5% of our revenue, is tied to the long-term strategy for our Securities Processing business.

Our Clearing and Outsourcing segment operations are in line with our expectations for the fiscal year, except for the financial impact related to interest rate reductions.

Over the next three years, we're expecting Clearing and Outsourcing to double its size through new revenue growth for Broadridge.

Now I'll spend a few minutes talking about the strategy for our Clearing business and its importance to us as a financial processor.

We're in the clearing business to generate more transactions for our Processing segments, particularly for Securities Processing Solutions and Investor Communications Solutions as well.

Entering the clearing business gave us the ability to create a unique processing model.

We're the only entity that has live clients or self-clearing broker dealers that outsource their clearing functions to us.

That's what we call clearing outsourcing.

We have four clients live on outsourcing.

They are eTrade, both its U.S.

and Canadian business, CIBC, WestLB and a small German bank, LBBW.

We signed two new clients that are in the process of receiving standard regulatory approval.

Those clients are Key Banc and Credit Suisse, Canada.

And lastly, we have a large, fully disclosed clearing client converting to self-clearing outsourcing as they originally intended when they first became our client.

Creating a list of targets, including large firms that have expressed an interest in understanding more about outsourcing, we've sized the market conservatively at 500 million in annual revenue.

Outsourcing is a processing model and will not create balance sheet activity or have any of the risk associated with being a clearing broker dealer.

However, it can't work unless we have the assets and skill sets from the clearing piece of Ridge.

On April 9th, American Banker published an article noting the large size of the outsourcing opportunity and the high level of complexity required to compete.

Also in April, the ATA (ph) Group, a consulting firm on IT businesses and regulatory issues in the financial services industry, wrote an article that despite another entity's push into the self-clearing outsourcing market, this is Ridge Clearing's market to [lose].

That's the strategy for the business that is today 5% of our revenue and has the potential to double its size and contribute 100 million in revenue growth to all of Broadridge over the next three years.

Let's now talk briefly about our appetite for acquisitions.

One year ago, we said that unless something exceptional came up, we would do tuck-ins in the 25 to 35 million range.

Later, we signaled that we would extend the 25 to 35 million tuck-in range to a higher range as we accelerated debt repayment.

We saw a marked rollup opportunity in the clearing space.

However, in light of the clearing rating focus -- excuse me -- in light of the credit rating focus on clearing, and that fact that virtually no one is running a clearing business as conservatively as we are, this is off the table for now.

Thus far, we've only done one acquisition for 6 million.

Regardless, we won't do a deal simply for the sake of doing a deal.

I'll now turn the call over to Dan for his review of the financials for the quarter.

Thanks, Rich.

I'm on Slide Six.

First I'd like to point out that at the end of Q3, we recognized approximately 65% of our revenues and approximately 50% of our earnings for the full year.

This is typical, given the seasonality in our business, especially around our Equity Proxy season in the fourth quarter.

Our revenue growth of 1% for the quarter from sales, losses and internal growth was in line with our expectations and year-to-date, we're at 4% revenue growth and we benefited from the internal growth that Rich mentioned in the first half primarily from equity trades per day.

We are expecting a stronger fourth quarter than originally anticipated due to positive growth in the Equity Proxy Stock Records, Notice and Access and continued growth in the other Investor Communications revenues.

We're forecasting revenue growth for the year to be between 2% and 4%, and I'll go into more detail when reviewing the segments.

With respect to pretax margins for the quarter, they are down 2.2 points.

The decrease is primarily related to the two large client losses we previously disclosed, which impact all three segments, as well as incremental investments, including the expensing of Founder Grants our Board approved in late February.

Our pretax margins year-to-date are up 140 basis points to 13.4% and we expect to end the year between 15.8 to 16.5.

Let's move on to looking at the segments.

I'm now on Slide Seven.

I want to draw your attention to the chart we've provided at the top of the page.

You can see that year-to-date, we've recognized about 60% of our full year revenues and this is typical in any given year, as the fourth quarter contribution from Equity Proxies kicks in.

We've also broken out fee revenues from distribution revenues, so that you can see the impact each has on the revenues.

Looking at year-to-date fee revenues, they are 2% and expected to be in the 3 to 5% range, and this is after the grow-over from the large client loss we previously discussed, which impacted year-to-date by 4 percentage points and full year by 2 percentage points.

The anniversary date, by the way, of this client loss is at the end of our Q3.

We've broken our fee revenue growth into recurring and event to help you better understand where the total fee revenue growth is coming from, from both year-to-date and for the year.

With respect to our recurring fees, they are up year-to-date and will also be up for the full year.

We have benefited from internal growth in mutual fund interims, statements and fulfillments.

We're also very happy that the Equity Proxy Stock Record growth that was negative in the first half is forecasted to be positive in the fourth quarter.

And finally, the 14 million in sales from Notice and Access activity Rich mentioned will greatly impact the fourth quarter.

Focusing now on event-driven revenues, we're down for the quarter and are expected to be flat or down in the fourth quarter.

Although we had strong mutual fund registered Proxy sales this year, the revenue benefit from mutual funds may not be enough to offset the other event-driven revenues which are in decline in Equity Proxy contests and M&A.

As Rich described earlier, event-driven revenues can be up or down in any one year, but over any extended period of time, have always grown, given our increasing market share and new product.

With respect to distribution revenues, they are flat year-to-date and will be slightly up or down for the year.

As we've discussed before, these revenues are very difficult to predict, given the large clients can choose different ways to deliver materials and not necessarily the same year-over-year.

In this segment, our year-to-date margins are up 180 basis points due to the combination of expense controls and distribution fees.

Given year-to-date results in Q4 activity, we're forecasting margin improvements for both the fourth quarter and therefore, the full year.

Let's move onto Slide Eight, Securities Processing.

Revenues for the quarter are down 4% given the negative net new business which is heavily impacted by the loss of TD, which is previously disclosed.

Net new business has been negative 4% year-to-date and expected to be the same for the rest of the year, as the TD anniversary date is at the end of our fiscal year.

As we forecasted, Equity trades per day for the quarter of 2.5 million are up only 4% over last year and therefore, provided very little revenue contribution to the quarter.

We are forecasting the fourth quarter trades per day to remain flat at 2.5 million.

We are pleased that fixed income trades per day growth is at 19% and year-to-date about the same.

Our fourth quarter expectations are to see continued growth in the 15 to 25% range.

We expect revenues for the year to be flat to 1%, given a strong first half driven by the trades per day and the weaker second half showed a little growth contribution from trades per day and the impact of the TD loss.

With respect to margins, as expected, are down to 28% for the quarter due to the loss of TD and our new product investments.

Also as previously discussed, our Q4 margins will be in the low 20 ranges, given the full impact of the 5 million in R&D expenses coming back now that the successful RBC conversion has taken place.

Margins for the year will be between 26 to 27%.

In FY '07, we had margins in this segment of 28% and we're exiting FY'08 at the low 20s.

We've made the right new product investments in this segment, and expect future periods to show margin expansion as we add new revenue from new sales.

Let's move to Slide Nine.

With respect to Clearing and Outsourcing, revenues for the quarter are down 1%.

We're very pleased with the continued double-digit sales contributions to revenue, and we did sign two new Outsourcing deals, as well as five new Clearing deals.

We expect sales contributions to revenue to remain double-digit for Q4.

TD is the primary driver behind our loss and the anniversary date of this loss is the beginning of next year.

Besides TD, we have not had any other outsourcing losses since inception.

As well, our Clearing business has over 90% client retention rate.

Looking at internal growth, it is slightly down.

Clearing and Other fees contribute about 3 to 5% to the overall revenue growth.

However, we are negatively impacted by the decline in the Fed funds rate, as the change in rates directly impacts our $250 million in net capital in this business.

When rates rise, we benefit; when they decline, we don't.

Having said that, we've benefited with less interest expense on our term loan, given the declines in LIBOR also during this year.

In essence, the way I look at it, the negative impact in interest income in our Clearing and Outsourcing has been offset by the positive impact in less interest expense in Other related to our long-term debt.

Revenue for this segment growth is expected now to be around 3 to 4% for the year.

Given 4 million in lost net interest income, operating losses are now forecasted to be around minus-4 to minus-5.

Moving onto to the Other section, revenues for the quarter are flat, as expected, and year-to-date of 8 million is due to termination fees we benefited from in the first half, and we don't expect any additional termination fees for the remainder of the year.

FY'08 has been an extraordinary year for termination fees, as we usually only see 1 to 2 million a year in termination fees.

As previously disclosed, interest and one-time transition expenses are in line with our expectations for the year and one-time transition expenses are expected to be around $14 million for the year.

Corporate expenses of 10 million for the quarter include 4 million for the Founders Grant and the remainder is the combination of investments and corporate expenses, which are at the levels we've disclosed before.

With respect to FX for the quarter, it continues to have a positive impact to our revenues and earnings and year-to-date, contributed 19 million in revenue and 8 million in pretax earnings.

Let's move onto Slide 10 and talk about our cash flows.

As we've done before, we show consolidated Broadridge fee cash flow, as well as break out our Clearing and Outsourcing and all Other segments, as this is how we do look and manage the business.

With respect to Clearing and Outsourcing, you'll see the three lines we show here in the body and additional information depict how we finance the operations, and how they've changed since June.

You can see that operating activities generated an additional 251 million, which resulted from fewer customer debits to finance and greater cash available within customer credit accounts to use in financing.

As a result, our short-term borrowings are down from June by just over 90 million and cash available for lending is up just over 160 million.

Focusing on the next column which is labeled All Other Segments, this is the column that truly depicts our free cash flows from operations and what we have available in cash to invest or finance the business after our cap ex and intangibles.

We're very pleased with the 177 million free cash flows after nine months, and we look to continue to build cash flows as we've moved into Q4 with around 50% of our earnings yet to come.

We expect 50 million to 70 million in additional free cash flow in the fourth quarter.

Although Q4 is a strong earnings generator, our largest cash in-flow period is the first quarter, given the timing of the collections of the receivables.

As we've discussed before, we think our sources and uses of cash flow (inaudible) as follows.

Depreciation and amortization will be between 50 and 60 million this year and equally will have invested about 50 to 60 million in cap ex and intangibles.

The stock comp will be approximately 35 million this year, including the expensing of 7 million in Founder Grants.

Working capital will normally increase with revenue; however, in any period or quarter, will fluctuate given the level of accounts receivable collections.

So given the above, our remaining cash flow we use to pay down dividends, invest in the business through acquisitions and pay down debt or build our cash position in the short term.

Finally, as Rich mentioned, we are disappointed that S&P downgraded us and the reason for the downgrade was an apparent increase in risk appetite in our Clearing business, given the 380 million staggered trade transaction that Rich discussed.

As disclosed in our press release on April 18th, our risk management practices in Clearing are excellent.

Four points I would make.

We restrict the amount of credit extended to both individual and professional investors to amounts much lower than permitted by Federal regulations.

Second, all loans are fully collateralized by high quality, readily marketable securities.

We do not accept as any collateral any exotic or illiquid mortgage-backed derivative instruments.

Third, we do not maintain an inventory of securities to be offered for sale to our clients and none of our capital is exposed to market fluctuations in proprietary trading accounts.

And fourth, and most important, since the time we acquired the business, we have experienced no losses due to errors or credit policies.

We will continue to work with S&P to assure them that we don't have an increased risk appetite and that our risk management control, both in our Clearing business and throughout Broadridge, have been, and will continue to be, excellent.

As Rich mentioned earlier, we've assured both S&P and Moody's that we won't do any staggered settlement transactions greater than seven days or for more than 20 million in the future.

I'd also point out that none of our bank lines have been negatively impacted due to the S&P downgrade.

Rich, back to you.

Thanks, Dan.

As I mentioned during my opening remarks, we've increased both the low end and high end of our EPS guidance range by $0.05 to a range of $1.35 to $1.45 from our previous EPS guidance range of $1.30 to $1.40.

These are non-GAAP numbers as they exclude one-time transition expenses.

Our fourth quarter is our biggest quarter and makes up approximately 50% of earnings and we're seeing stronger growth potential in our recurring revenues coming from the core business in our Investor Communications Solutions segment.

This view, and where we are year-to-date in terms of our financial performance, gives us the confidence to raise our range.

Going into our fourth quarter, the only key variables will be event-driven activities and trading volumes.

If you recall, when we started our fiscal year 2008, we rolled out an EPS guidance, excluding one-time transition expenses, in the range of $1.17 to $1.25 and now we're at $1.35 to $1.45.

This has been a very good year.

So let me summarize before we go into the Q&A part of the call.

It's been one year since Broadridge was spun off from ADP.

During that year, we've raised our guidance twice; we've expanded our strategic planning efforts and resources.

We've also proved the viability of our Clearing Outsourcing model, which now has seven real clients.

We've generated more cash and paid off more debt more quickly than we originally anticipated, and we still anticipate an additional 50 to 70 million in free cash flow in the fourth quarter.

Our Q3 results are directly in line with our expectations and we're well positioned for the rest of the fiscal year to deliver earnings per share within our new higher guidance range.

The biggest piece of our business, the Investor Communication Segment, is growing with better recurring revenues and is better off today than it was a year ago.

We've taken the uncertainty of Notice and Access and turned it into a positive by gaining more market share and improving earnings.

We were able to achieve our Q3 results despite the difficult times in the markets we serve, and the noise in the general market has not affected us to date.

The business for the most part is trending as expected.

We successfully completed the implementation for RBC and helped them consolidate their retail and institutional securities processing onto one platform.

Many firms have put retail and institutional together under the investment banking umbrella, but a decade later, they still don't have them working together on a single platform.

There's a lot of change going on in the markets we serve and despite some delays that these changes are creating, they should create more opportunities when the dust settles.

We've achieved all this in a market environment that hasn't been viewed positively by anyone.

I want to take this opportunity to thank our high engaged associates for Broadridge's performance during our inaugural year.

I'll now turn the call over to Carol, the operator, for the Q& A part of the call.

Carol?

Thank you, sir.

(OPERATOR INSTRUCTIONS).

Our first question will come from the line of Ian Zaffino with Oppenheimer.

Hi, good morning.

Very good quarter, gentlemen.

Thank you.

Two questions here, I wanted to just focus in on your comments about no share buybacks for the remainder of this year.

This year ends, I guess, next month, so I don't think we'll see anything in the next month, but what about looking out maybe in this calendar year, what your thoughts as far as share buybacks.

Sure, Ian.

We originally said that we weren't planning to do it for this year.

We're sticking with that plan.

As we put together our '09 plan and share that with our Board, I'm sure this topic will come up and beyond that, I don't have any further comment.

Okay.

And can you give us an idea of -- or I guess just backing up on that, you're throwing off over 3 bucks of free cash flow.

That's not too shabby.

So then the other question on the rating agency side, your commitments to the rating agencies as far as the size and days of these staggered loans, is there an opportunity to be upgraded again, given these promises or is this just something that we're going to have to wait to see how it plays out?

We certainly don't have any ability, Ian, to comment on behalf of the rating agencies.

We are committed to run this as a processing business and leverage the skill sets of Ridge to create more transactions.

Okay.

So --

We're not doing a transaction of the nature we did in the staggered trade going forward makes good -- there's no reason for us to do that.

It doesn't add to the value we're looking to create in Clearing and so it was an easy decision to eliminate that going forward.

We will to run this conservatively and hope that it's viewed positively by the agencies as we go forward.

Yes, Rich, and I would add to that piece.

As we did mention, and we will too continue to work with the agencies to make sure that everybody understands exactly how we do operate and why we do believe that we run a conservative, well disciplined, risk management.

Okay.

So the ratings -- just to be clear, the rating agencies haven't done anything yet, given this new commitment you've made?

At this point in time, nothing.

Okay.

All right.

Thank you very much.

Good quarter again.

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

Thanks.

Great job on the call.

A question on guidance, I guess what specific metrics are you looking at that gives you confidence to raise guidance going into 4Q?

I heard a lot of different things.

Maybe you can just rank for us the metrics in terms of importance?

Tien-Tsin, good morning, yes.

Good morning.

First of all, we have our year-to-date performance and being where we are in May, we have a pretty good view into the fourth quarter, particularly proxy season, and where we stand with stock record and those type of initiatives.

So it's real easy.

Year-to-date performance and the clear view we have into the proxy season, that gives us the confidence to believe that the new range we have set is appropriate.

Okay, very good.

And then your goal to double the size on the Clearing and Outsourcing front, how much of that do you expect to come organically versus inorganically?

The size and the growth that we expect to double there, we expect to come organically through Outsourcing primarily.

Okay.

So primarily on the -- so primarily through organic growth.

And then just lastly, and just in general, it sounds like the sales performance has been great; it sounds like the pipeline is good.

But I'm just curious, have you seen any change in the sales cycles at all?

How's the fourth quarter shaping up so far in terms of new sales?

What are your conversations like with your own clients?

I thought that I had mentioned -- and if I didn't, I apologize -- that the changes in management absolutely, we believe, are delaying certain decisions.

With that said though, we've had good results and very good momentum.

Got it.

Very good, thank you.

Thank you.

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

Good morning.

A couple of questions.

First off, can you guys just -- I think you said the Founders Grant of options in the quarter was 4 million.

Is that the right number?

Seven.

Seven?

Actually (inaudible) with that, okay?

In this quarter, we expensed 4 million.

The grand total for the year will be $7 million.

Okay.

So they'll be another piece in the fourth quarter?

In the fourth quarter, yes.

Okay.

And where -- on the consolidated results, the consolidated P&L, is that in SG&A then?

Yes, it is.

Okay.

And then you said in the segment, it's down in that Other.

Yes, it is.

You're right.

That's the exact way to look at it.

Okay.

And then the same thing on the transition expenses, is that the same thing?

Yes, they're both in -- on the face of the financials, in the SG&A and then they're in the Other in the segment piece.

Okay.

And where -- the transition expenses, they're still in Other piece in the fourth quarter, then?

Yes, there's a final piece that will ramp up to the final 14 and then it disappears next year.

Okay.

And then how about on the -- the spending on new -- on kind of R&D and new product generation, is that showing up in the cost of net revenues or is that an SG&A?

The PSETs out in the field that we've talked about with where the field is building up is in the cost of revenues and then the piece that Rich has often talked about, the incremental 10 million, is what goes into the SG&A.

Yes, okay.

And again, in the segment, that's an Other?

Yes.

Okay.

And Rich, maybe can you just comment on how new product development is going, and I think you had the Work Flow Solution that you introduced a couple of quarters ago.

Just give us some update on how those -- that product or other new products are being received.

Sure.

At the time of the spin, we were committed to expand our efforts beyond any other time in my previous almost 20-year tenure with the organization.

Most importantly, we drove the process much deeper into the organization.

The team initially teed up 45 potential areas.

We netted that down to 15, which we're in the process of flushing out and pursuing and the Work Flow would be considered one of those as an example.

Okay.

But are those -- those are -- how many -- Work Flow is out.

You're selling that actively, correct?

That's correct.

And there are expansions to the Work Flow even beyond the pieces that we're currently selling.

Okay.

So the way to think about it we're really looking to leverage the distribution channel we have, leverage the trusted relationships we have with our clients and in all cases, we're communicating with clients as they think about new things they need to address, whether it be to service their business or related to regulatory, rather than build it once only for themselves, think about building it with us, all right, and creating a better industry solution.

Those are the type of activities that we're actively pursuing.

The intent is to enable -- to support that continued growth rate of 4 to 6 and ideally over time, and time being not next year in terms of it relates to new initiatives, raise our growth rate.

That's the overall revenue growth potential, you're saying?

Correct.

Right.

This year, by the way, when you kind of think about it, you thought -- you heard about RBC.

Well, part of our Wealth Management, RBC was very important to that piece of it, so that piece has already started to generate some of the revenue.

And as we mentioned a year ago, we had increased some of our Notice and Access investment in our Investor Communications and that's helped drive the $14 million in Notice and Access, as well as help us get the 4 million, which is really $4 million in revenue, but over 200 clients additional to the registered side.

Okay, terrific.

Well, keep up the good work.

Thanks very much.

Thank you.

(OPERATOR INSTRUCTIONS).

Sir, I'm showing that we have no further questions.

Do you have any closing remarks?

Thanks, Carol.

Well, I want to thank everyone for their participation today and we certainly look forward to meeting and speaking with you in the near future.

Thanks so much.

This concludes today's Broadridge Financial Solutions, Inc., third quarter fiscal 2008 earnings conference call.

Thank you for your participation.

You may now disconnect.