Broadridge Financial Solutions Inc (BR) 2009 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Broadridge Financial Solutions Inc.

second quarter fiscal 2009 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.

There will be a question-and-answer period after the speakers' remarks.

Please try to limit your questions to one per participant.

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

Please go ahead, sir.

Good morning, everyone, and welcome to the Broadridge quarterly earnings call and Webcast for the second quarter of fiscal year 2009.

I am Marvin Sims, Vice President of Investor Relations.

As usual this morning, I am here with Rich Daly, Chief Executive Officer for Broadridge, and Dan Sheldon, Chief Financial Officer for Broadridge.

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

The news release and slide presentation that accompany today's earnings call and Webcast can be found on the Investor Relations homepage of our site at Broadridge.com

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

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

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

Rich Daly will start today's call with his opening remarks and will provide you with a summary of the financial results for the quarter, followed by a discussion on some key topics.

Dan Sheldon will then review the second quarter financial results in further detail, including a review of cash flow for the quarter end.

Rich will then return and summarize the fiscal year 2009 guidance, and provide his overall summary and some closing thoughts before we head into the Q&A part of the call.

Now please turn to the next slide and I will turn the call over to Rich Daly.

Rich.

Thanks, Marvin.

Good morning, everyone.

I am now on slide No.

3.

This morning I will talk about the following [comp ex], a summary of our second quarter financial results and the reaffirmation of our 2009 fiscal year EPS guidance; a review of our sales performance; an update on the current market dynamics, including industry consolidation and how to put these dynamics into context for Broadridge.

And, finally, after Dan's financial update.

I will provide some concluding thoughts before Q&A.

So let's go to slide No.

4 and start.

Given the current market environment, I'm satisfied, overall, with our second quarter results.

I'm also pleased with our sales performance, increased market share, liquidity and forecasted free cash flows.

I will talk more about these points a little later.

Our Q2 performance was better than our expectations as we continue to experience strong trade volumes in our securities processing segment.

Our revenues for the quarter were down 1%.

However, operating revenue growth for the business segments excluding foreign exchange and other was up 2% and recurring fee revenues were up 7%.

Event-driven mutual fund proxies were down year-over-year, as well as distribution revenues related to the increased adoption rate of notice and access.

The increase in notice and access adoption rate lowers overall revenues but creates a positive offset in fee revenues at higher margins.

Reductions in distribution revenues replaced by recurring fee revenues at higher margins is the only time I am not upset with declining revenues.

Net earnings for the quarter are up 3% and were better than expected despite the anticipated expense rollovers we've previously disclosed.

Our earnings growth was primarily due to our trade revenue over performance and lower interest expense related to our lower debt level.

Despite the challenging market conditions, the business fundamentals continued to demonstrate resiliency as the core investor communications key recurring review drivers remain essentially unaffected by volatile market activity.

Mutual fund interim positions continue to grow and stock record growth for equities is better today that it was last year at this time.

Given this, we continue to anticipate volume growth for the year in equity proxies.

These factors are helping to offset much lower event-driven mutual fund proxy activity.

As we look forward for the remainder of the fiscal year, we are once again reaffirming our full year guidance for non-GAAP EPS to be in the range of $1.45 to $1.55, which excludes the benefit of $0.04 for the onetime gain on the purchase of our senior notes from our first quarter.

Therefore, we are also reaffirming our GAAP EPS of $1.49 to $1.59 which does include the $0.04.

We are anticipating a revenue decline of minus 3% to flat, which is down from our previous growth guidance of flat to 3% growth.

The 3 point drop in both the low and high end of the guidance is primarily due to the FX in the second half, lower mutual fund proxy event-driven activities, and reduced distribution revenues, resulting from higher notice and access adoption rates.

We are still expecting recurring revenue to grow in the second half of the fiscal year and on a full year basis, a contribution of 3 to 4% towards overall revenue growth.

Irrespective of the unfavorable impact from foreign exchange rates and product mix changes driving our lower revenue growth guidance for the year, we still expect to generate free cash flows in the range of $210 million to $250 million, where we've increased the lower end from our November guidance.

Keep in mind that over 50% of our free cash is generated in our fiscal fourth quarter.

Dan will talk more on cash flow in his section.

This quarter, we purchased one million Broadridge shares at an average price of approximately $11 per share, and have authorization to buy back another 1 million shares.

In the short term, given the banking and credit market environment, we remain focused on our liquidity options to ensure we have the ability to run, invest in and grow our business.

We believe our liquidity for the current needs of the business are strong, given our impressive free cash flow, balance sheet and financial flexibility from our $500 million committed revolver and other bank [lines].

We are also confident that our balance sheet is strong and given our debt levels, that a one-to-one debt to EBITDA ratio, we are pleased that the liquidity crisis is not a direct threat to Broadridge or our ability to execute our strategy.

Now let's move on to sales on slide No.

5.

As I mentioned earlier, I am pleased with our sales performance.

As a matter of fact, if you promise to keep it a secret from our sales manager, I'm actually very pleased with our sales performance.

Our closed sales of $47 million for the quarter are up 36% for the quarter and year-to-date closed sales of $80 million are up 26% over the prior year.

Recurring sales year-to-date represent almost 50% of total closed sales and are up 100% over the prior year.

Recurring closed sales being this high over the prior year is very good news for the long term, given our successful history of client retention.

This quarter we closed a $5 million statement deal.

We signed an international deal with [Instanet], a subsidiary of [Nemora] Bank.

We also signed a new contract with JPMorgan for fixed income processing, which now includes the old Bear Stearns fixed income business.

We signed a new contract with Barclays for both equity and fixed income processing services, including all of the Lehman business they acquired.

In addition, 67% of our closed sales were made to 15 different entities, each purchasing greater than $1 million in new services.

Our sales pipeline remains strong and is still building momentum.

Our only disappointment is at the level and length of our outsourcing sales cycle, for mid-sized prospect has increased, in some cases influenced by liquidity crisis.

But we also have a stronger pipeline of promising larger deals that we are moving along in the sales cycle.

Although when talking about promising [large end] deals let's never forget that it ain't over till it's over.

Even though we arguably have the most efficient processing platform in the industry, the complexity of conversions remains the biggest hurdle to overcome in closing larger deals.

Outsourcing the people function to Broadridge, along with a system, should ultimately reduce this hurdle.

Our comfort level about achieving our full year sales forecast of $160 million to $180 million is even higher than it was one quarter ago.

Our market's current challenges ironically add to our optimism for Broadridge's future given the financial industry's focus on cost reductions and, more than likely, future greater regulatory requirements.

Our industry's recent challenges means that every firm needs to look at cost, look at efficiency and look at functionality as they recognize that regulatory requirements are expected by virtually everyone to increase.

Broadridge as the No.

1 player in our space as substantiated by Brown and Wilson's Black Book of Outsourcing is best positioned not only to be able to reduce cost, but simultaneously improve accuracy, meet any new regulatory requirements, and ultimately provide our clients a platform with scalability, flexibility and the industry's best reliability and functionality.

Now on slide No.

6, let's talk about the current headwinds in the financial services industry and how we are managing through them.

We believe these headwinds are creating a short-term revenue slowdown or shrinkage for us.

However, as I just mentioned, they are also providing long-term opportunities.

In the short term, as we move into the second half of our fiscal year, we are expecting to see less trade volumes and increased concessions in our securities processing business, and continued shrinkage in mutual fund proxy activity in our core investor communications business.

With regard to seeing lower trading volumes, we normally see trades per day decline shortly after they spike, especially in markets like we are in now.

With respect to pricing pressures, we are re-signing extending contracts for existing clients earlier than normal.

This has created greater concessions than we had originally anticipated for fiscal '09 and will impact the second half of our fiscal year as well as carry over into the future.

The offsetting point is that we have been able to retain clients and market share with longer contract terms.

And we believe this better positions Broadridge to benefit for the longer term when the markets return to normal.

Last quarter, I providing you with a summary of the impact of Broadridge from consolidation in the financial services industry.

So let me recap that summary.

I stated that we were winning about as much as we were losing and, that in the long term, it appeared that consolidation will create new opportunities for us to demonstrate our strong value propositions.

The consolidation of Lehman and Bear Stearns into Barclays and JPMorgan, respectively, will negatively impact revenues and our securities' processing segment given volume discounts.

However, with Neuberger going to our clearing segment and new sales to JPMorgan and Barclays for fixed income products, which I mentioned during my sales update.

We are still in a net positive position on a consolidated Broadridge basis.

With respect to Bank of America and Merrill Lynch, the transaction just closed and their processing platform strategy has not yet been settled.

We are still involved in discussions around their immediate decisions and their longer term platform strategy.

There are two new items related to industry consolidation that I want to address now.

The first is a combination of Morgan Stanley's wealth management business with Smith Barney.

Virtually the only impact we can see from this, if any, would be upside benefits.

This is because neither firm makes any material used of Broadridge products other than our core proxy offering.

Of course, we expect them to continue [to] using our proxy offering and will look at this new opportunity as aggressively as we can to induce them to use other Broadridge communications and securities processing offerings.

The next item is related to the future potential consolidations driven by the top good bank bad bank activities.

It is too soon to have any clear view regarding any positive or negative impact on Broadridge, if any at all.

In our favor, we believe the control environment of our processing applications should be very attractive to any bank in this position.

On the other hand, it seems unlikely that if the bank in this position was performing any proprietary trading activities that they would continue these activities at the same level going forward.

Both of these new items are still unclear at this point.

Overall, in the securities processing and outsourcing businesses, there are many reasons to be pleased.

Our strategy is sound.

We have a strong sales pipeline and have active dialogs taking place.

But in order for me to be completely pleased with the performance of the securities processing business, I would have to be convinced that we were near the end of the market correction and we were winning new business by adding outsourcing clients, and adding new applications to all clients at a rate that creates market share and revenue gains well beyond being just net positive.

As for our investor communications business, I am pleased with our financial results and how we are faring in these markets.

This is not surprising, given the high quality of the investor communications recurring revenue base.

The investor communications core proxy recurring revenue, which is more than 80% of Broadridge's overall revenues, is maintaining its unique, historical resiliency to negative markets.

Recurring fee revenue is expected to do well the second half of our fiscal year.

We have also had increases in notice and access adoption rates, as well as increased market share in registered equity proxy.

As for the strategy and long term, we expect we will exit this down market with additional market share and increased compliance opportunities, as the new administration in Washington is expected to champion increased transparency for investors and regulatory oversight of industry participants, which would most likely increase compliance requirements.

When you take all of the factors that I just discussed for all of the businesses into consideration, we anticipate leaving these challenging times with more market share than we entered them with, and will be better positioned when the markets return.

We continue to make strategic investments in the business at a slightly higher run rate than last year as we believe the financial services prices will create significant long-term opportunity to serve our markets.

This is an opportune time for a trusted and proven partner like Broadridge.

I will now turn the call over over to Dan who will go into more detail about the quarter, year-to-date and full year with respect to each of the segments.

Dan?

Thanks, Rich.

I'm now on slide 7.

As Rich mentioned, our revenues are down slightly for the quarter and up slightly year-to-date.

So looking at the specific revenue drivers you can see that sales and losses are running at our Q2 forecasted contribution to revenue rates; and we expect the year-to-date contribution rate to continue into the second half.

Once you are halfway into a year, you pretty much know your contributions from revenue for sales and losses, given the conversion and deconversion timeframes.

Also we've included in the appendix a general guideline for conversion timeframes between close sales and revenue recognition.

Looking down at internal growth, it continues to be up and slightly over our forecast, given the strong trade volume and time and material activity in the quarter.

For the second half, we are expecting additional contributions to internal growth, as Rich mentioned, from our investor communications business and less from the other two segments, given lower trade per day growth, lower time and material jobs and less interest revenue, which I will go into more detail when I review the segments.

Both our event-driven mutual fund proxy and foreign exchange revenues continue to shrink in the quarter; and we are slightly below our Q2 forecast.

And we are also forecasting the shrinkage to continue into the second half.

Our year-to-date pretax margins are slightly down and diluted EPS is flat to last year but above our forecast, given the revenue mix and the net FX transaction gain.

Let's move to the next slides where I will go into more detail on the quarter year-to-date and full year view of our segment, other and wrap up with cash flows.

I am now on slide 8, investor communications solutions.

For the quarter, our revenues were down 3%.

Recurring revenues up and event-driven and distribution fees down.

The good news is that recurring revenues, driven by net new business and internal growth from equity and mutual fund stock record positions, as well as transactions and fulfillment activity, continued to show growth this quarter and are slightly better than our expectations.

You see the growth in recurring revenues continue into the second half where we are anticipating increased notice and access adoption rates as well as increased market share gains with respect to registered equity US and global proxies.

However, we are lowering our full year forecast with respect to event-driven and distribution revenues.

Let me go into that a bit.

Our events revenues are down entirely due to mutual fund proxies.

Given where we are year-to-date in our sales pipeline, we are now forecasting the mutual fund proxies to be down this year by 50% to 60%.

As we've said before, mutual fund proxies don't repeat each year and it takes a triggering event like a change in directors, a change in pricing or fund mergers to cause a proxy.

Although we are forecasting this year to be down, I would really suspect given all the activity in mutual funds that in FY '10 and into FY '11, we will see the resurgence as we've seen before, given that at some point there will be a triggering event.

The good news on our other event-driven revenues for equity proxy content, mutual fund supplemental mailings, and presale fulfillment had been up slightly year-to-year over year and we see this continuing into the second half.

With respect to distribution fees, they are down for the quarter and expected to be down for the year, due to both increase, notice and access, adoption and revenue mix.

With respect to notice and access as Rich mentioned, overall lower revenues, but overall higher margin dollars is a good thing.

With respect to our margins, they are down for the quarter and year-to-date, but it is entirely due to the revenue mix of less event-driven.

For the full year we are still expecting margin expansion, given strong fourth quarter growth, which is heavily weighted towards recurring revenues primarily driven from the equity proxy products.

I will now move to slide 9, securities processing.

This segment had revenue growth of 9% for the quarter and year-to-date 8%.

Net new business for the quarter and year-to-date contributed 2% to revenue growth and we expect sales to continue to contribute 5 to 6% to overall revenue and losses to continue at about a 4% rate for the year.

Our internal growth this quarter was very positively impacted and above our forecast due to increased trading volumes, as well as higher than expected time and material revenues and delayed price concessions.

We saw the increased trade volumes towards the end of Q1, and they continued for the most part into Q2.

However, we have seen both retail and institutional volumes drop since December and are forecasting trade per day growth to be less in the second half, but still forecasting growth in both the low and high end, between 3% to 8%.

We are also forecasting less T&M in the second half, given the tightening of R&D spend by our clients.

I mentioned a delay in price concessions had a positive impact to our forecast in Q2.

We have historically averaged and annualized negative 2 to 3% impact to revenue from concessions each year in the segment, due to contract re-signs.

Some fiscal years we've had as low as 1% negative impact to revenues from price concessions and some years plus 4%.

And it is all dependent upon when the contracts are re-signed.

As Rich mentioned, this year we have some very large clients up for renewal, and finalization of pricing terms will take place in the second half.

So where we experienced some negative impact to revenue from price concessions in the first half, we will have at least 4% negative impact to revenue in the second half.

Overall, for the year, averages out about the same 3% that we've talked about.

Our margins for the quarter were positively impacted by the internal growth contributions, full year forecasted margins are down year over year due to the planned investment and less deferred conversion expenses this year, as well as the higher concessions I just walked through on the second half.

Let's turn to slide 10.

This is our clearing and outsourcing segment.

Our revenue growth for the quarter and year-to-date is primarily driven by the addition of the Neuberger sale, which impacted September and all of Q2.

Offsetting the growth is the continued drop in interest revenue due both to reduced spread fund rate and approximately a 25% decrease in margin balances.

Besides the Neuberger sale, we also added net [two] clearing clients over the last six months and sold one new outsourcing deal in Q2 and converted two clients from our securities processing segment on to outsourcing.

From our full year perspective, the contribution to revenue from net new business is primarily from the Neuberger deal as outsourcing deals are slower in closing than we had planned.

However, as Rich mentioned, we do have some larger outsourcing deals we are working on, but if closed would not benefit FY '09 and likely not be a contribution until late FY '10 or into FY '11, given the long implementation times for large accounts.

Our internal growth from interest revenues continues to be a drag both year-to-date and for the full year.

The combination of lower Feds funds and lower margin balances negatively impacts the first half by $6 million and on a full year basis by $11 million.

I guess the good news with respect to interest revenues is that Fed fund rates really can't go much lower and margin balances are forecasted to remain at the $700 million level, of which we are experiencing in Q2.

I look forward to provide an upside in the future.

With respect to pretax operating losses, the loss of interest revenues more than offset the positive contribution from net sales given interest all falls to the bottom line.

Moving on to slide 11, other and FX.

We are giving you a lot of data points you've asked for.

The only area I am going to cover in detail is with respect to FX as that is what has changed the most since the last time we gave guidance.

With a P&L impact perspective, both revenues and margins are negatively impacted primarily by the strengthening of the US dollar against the Canadian dollar in the later part of Q2.

Our full year forecast uses the forward rates which negatively impact the second half revenues and margins.

By the way, the line called FX Transaction Activity, which is the last line under Other, is all related to cash and billings we have in US dollars in foreign locations.

Given the forward rates are about the same for the second half as they were at the end of December, we are not forecasting additional gains or losses for the remainder of the year.

Finally, with interest is in line with our previous guidance and corporate expenses are down at the high-end due to discretionary spend holdback and less stock compensation expense, given where our stock price is at.

Moving to slide 12.

We have shared this slide with you before to help in understanding the grow over challenges we were faced with which primarily impacted us in the first half and, really, nothing has changed on this page.

Let's move to my last slide which is cash flow.

And by the way, this is my favorite slide.

The greatest benefit of an 80% recurring revenue model and a low capital-intensive business is that free cash flows are mostly predictable and always positive.

In our business model, I pay very close attention to client retention as this is the foundation of our recurring revenues.

As we've discussed before, internal growth from market transaction activity, including event-driven, will be up in good market and down in bad market, but in any given five-year period has been upon a compounded annual basis.

And the really good news is that our client revenue retention rate are forecasted to be over 98% this year.

With that said, let's focus on the first line of earnings and go to the far right to the FY '09 low and high ratings guidance.

Even though we've lowered our revenue growth ranges from flat to a positive 3% to a negative 3% to flat, we've maintained our $207 million to $222 million earnings range.

As Rich mentioned, we did not reduce our investment spend, but addressed discretionary spend as appropriate.

We are a highly fixed cost-based company, but we do have areas of discretionary stand, including variable compensation and temporary employment that help us manage our expense levels to some degree.

As far as free cash flows, we've tightened our ranges and are up on the low end.

Our range is now, as Rich mentioned, $210 million to $250 million.

With respect to cash flows from other investing and financing activities, we really haven't changed much here.

We do expect to continue to pay a dividend; and with respect to additional acquisitions, additional buydown or additional buybacks as we move into the second half, we will determine how to use cash based upon returns of the opportunities and how we are tracking against the high and low end of our free cash flow.

As Rich mentioned, we earn and collect the majority of our cash in Q4.

I do want to shift attention back to the left side of the page which addresses our ridge clearing and financing activities.

First let me say that our (inaudible) ridge business has had no writeoffs since we acquired the business.

And that is due to the tight credit and margin policies we have as well as the quality of our clients and how they operate their businesses.

Remember, we are strictly a clearing firm and don't have any investment positions or inventory ourselves.

Second, we are in a net positive cash position with the short-term debt at the end of Q2, just as we were at the end of the last fiscal year.

But just like in our Q1 of this year and last year's Q3 we could be in a short-term debt position as it is all due to timing of activity.

However, given our margin, credit policy and highly liquid collateral, I don't lose sleep over the swings and we purposely pay down our long-term debt to ensure we average over any period of time a one-to-one debt to EBITDA ratio, including both long- and short-term debt.

I am also, by the way, happy to report that S&P upgraded us in November to BB+ with a stable outlook from BB flat with a negative outlook.

Our other two agencies, Moody's and Fitch, have maintained their investment grade ratings.

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

Thanks, Dan.

Let me summarize our fiscal year 2009 guidance on slide No.

14 as Dan and I have already touched on most of these points.

Our revenue for the year will be in the range of down 3% to flat.

This is down from our previous guidance of flat to up 3% as a result of the continuation of unfavorable foreign exchange rates; lower event-driven mutual fund proxy revenues; and lower distribution fees related to higher notice and access adoption rates.

As I've already mentioned, we are very pleased with the growth in our recurring revenue this year and we expect the operating segments to generate revenue growth in the range of flat to 2%.

We still expect our sales plan to be in the range of $160 million to $180 million.

We expect EBIT margin of 16.2% to 17.1%; GAAP EPS of $1.49 to $1.59; non-GAAP EPS of $1.45 to $1.55; and a tax rate of 39%.

And finally we expect to generate free cash flows in a range of $210 million to $250 million.

So on slide No.

16, before we go into the Q&A part of the call, let me leave you with a few thoughts on how I feel about the business as we continue to navigate through these unprecedented times.

As you know, the financial services industry is in a crisis.

However Broadridge is weathering the storm well.

The majority of the Broadridge business model continues to be resilient as key recurring revenue metrics remain stable.

Our recurring fee revenue base contributed 2% to overall revenue growth in the first half of our fiscal year and is projected to do better in the second half.

And our investor communications business had recurring revenue fee growth of 8% in the first half and is expected to grow 7 to 11% for the year.

We believe Broadridge has navigated the recent financial services industry consolidations well to date, providing slightly more upside than downside risks.

Our unique three tiered securities processing model, turned the lean and loss into a Neuberger Barclays win.

We still have Bank of America and Merrill opportunities and/or risks on the table which we will understand better over the next few months.

New consolidations will always create opportunities or risks.

The headwinds remain and are impacting our near- to mid-term results as mutual fund proxy event-driven activities have slowed; and early contract renewals with term extensions are creating greater than planned pricing concessions.

These headwinds combined are turning good execution into flat to slightly negative revenue growth.

We remain disciplined and focused on our long-term strategy as we continue to invest in the business with the goal of improving our long-term prospects to create greater long-term shareholder value.

We'll always continue our focused cross management practices that will help drive sustainable margin improvement.

In terms of our acquisition, we will pursue tuck-in acquisitions at our strategic investments, as opposed to acquiring revenue for the sake of acquiring revenue.

However the new liquidity filters and unsettled valuations have temporarily delayed acquisitions.

The financial services crisis really should create significant long-term opportunities for Broadridge to serve our industry.

Our sales pipeline has good momentum with some exciting opportunities; and we are closing meaningful business in this pipeline.

We are continuing to expand our market share as we have signed contracts for new business with some of the larger players within our space and positioned ourselves for when the up markets return.

The new administration in Washington we expect will be championing increased transparency for investors and the regulatory oversight of industry participants should increase which should translate into more requirements that Broadridge is best suited to fulfill.

And the industry cost savings mandates that are being made across the board should bode well for our high functionality, low-cost, securities processing solutions which uniquely includes outsourcing.

When the storm subsides and capital returns to the equity markets, Broadridge will be well-positioned to be on the high ground.

I continue to believe Broadridge is well-positioned for the future.

We have a strong recurring revenue base, consisting of more than 50% of all of Broadridge's revenue that historically always grows, irrespective of market conditions.

In our great communications business, this is particularly true of that growth.

Our customer satisfaction levels are at the highest in our -- our customer satisfaction levels are the highest in our market, as noted by the Black Book of Outsourcing.

Our value propositions are the strongest in our market and we continue to generate new initiatives.

Our cash flow always remains strong and our balance sheet is solid and we have the liquidity we need to execute our strategy.

All of this could not be possible without our dedicated and engaged associates.

I want to take this time to personally thank them again.

As I said earlier, this is a good time for a trusted improvement partner like Broadridge.

I will now turn the call over to Jackie for the Q&A part.

Dan, Marvin and I welcome your questions.

(Operator Instructions).

Ian Zaffino.

Thank you.

Want to talk a little bit about new products or potential acquisitions.

What are you thinking about in this kind of environment, the opportunity to introduce any new products or anything in particular you are able to introduce to take advantage of what is going on now?

Any customer needs specifically or any companies out there that are providing something you would like to offer to your customers?

Thanks and then I have a follow-up.

First of all, we put a lot of effort into making sure that we've leave no stone unturned in terms of looking for new activities.

So since the spend, the term we internally use is that we have the acquisition flywheel turning and that we are comfortable that we are out there not waiting for something to be delivered to us as a potential sale, but going out there looking for products that, under our umbrella, would perform better.

And we feel good about those activities and we've actually uncovered several pieces that are strategic that we feel good about.

I am also particularly pleased that these opportunities are proportionally playing out, about in the range of the sizes of our business.

Meaning, we are looking at more things in communications than we are in any other area.

But we are looking at things across the board.

I had said in my comments that the current market environment really has temporarily delayed some of the activities because what we are experiencing is that potential sellers are looking at valuations pre the market crisis.

And we don't think that that would be in the best interest of our shareholders.

So we are being very sensitive to that.

At the same time, we are encouraged because there absolutely is more opportunity for Broadridge, because it's so well-positioned versus competing prior to the crisis with, I will call it some of the irrational money that was around before the crisis.

Great.

Thanks.

Then, a question for Dan.

On the C&O business, what type of interest rates do we need to see for the business to be profitable?

Can it be profitable at these levels and what would you need to do?

Then also on the free cash flow buildup, can you just go into the working capital change a little bit as far as what you are assuming for DSOs going up?

(inaudible) or payments, slow payments, etc.?

Thanks.

Yes.

Okay.

So let's go first to the clearing and outsourcing.

When we talk about the impact of, we will say the FX and the margins, let's focus primarily on the FX.

So even if (inaudible) -- not going to say FX, the Fed fund.

So when we think about the Fed fund, you know that has dropped over 400 basis points since we were talking about 18 months ago.

So that is what has driven us down.

In bringing it back up, the net new business is what we are primarily focused on.

Focusing there and looking into next year, we would hope to see profitability as we exit that year.

If the Fed funds go up or if our margin balances come up, that will absolutely impact us positively.

So to put it in perspective, every 25 basis points is just under $1 million of Fed fund opportunities to the top and the bottom line.

Okay?

In going over to the cash flows, when you think about our cash flows, when you said working capital, I think I got you pretty right on the fact that said what we look at there was, we are pretty tight now when we look at how much our -- we are going to spend on our CapEx as we've talked about.

The receivables are the only thing that can drive the change really in the working capital.

All the other items in there are pretty now stable.

And we are understanding them and really very comfortable with them.

Did that help?

Yes.

That's helpful.

And you said exiting fiscal 2010.

Yes.

Exiting because unless I see the Fed fund's rates come up or the margin balances increase, we will still have a drag in the first half into next year just by what is happening recently in Q2 with the lowering again of the Fed fund, as well as the margins dropping from about $900 million average down to the $700 million.

That will impact the beginning of our next year.

But again I think what is important is, is looking at even if those don't change at the second half of the following year which is FY '10, I feel pretty good about it.

This is Richard.

It is also always worthy to mention that without the ridge capabilities, we wouldn't be able to be in the outsourcing business and again, that is the key strategic region why we are in the clearing business.

Okay.

Thank you very much.

Anurag Rana.

Good morning, gentlemen.

Congratulations on a good quarter.

I'm again trying to beat a dead horse about the use of free cash flow.

You know, we have seen two quarters in a row, stable business, the guidance [flow] or the bottom end guidance of free cash flow goes up and yet we don't see any announcements regarding any buybacks or any further reduction in debt.

I do understand all the things you talked about on the call.

But could you get us any more color regarding what is the thought process behind not utilizing cash flow at this point?

First of all, there's only one factor here and that is time.

Given the liquidity crisis, we decided that we would err on the side of being conservative.

Now that we are at the one-to-one ratio, now that we have our ratings in a more solid position, we will look at the opportunities as we go forward to use this cash flow to create shareholder value.

I am very excited that we will have that opportunity and we will, without question, look to increase shareholder value through the use of our cash.

But I will say that to date I think our conservative view and the management of this free cash flow has served us well in all of our activities.

So again, historically, my first choice would be to create profitable revenue growth and I clarify that on the acquisition side by saying it would be more strategic than going out there to do a big deal for the sake of buying revenue.

That likely means that we will have -- even an execution of that strategy successfully -- we'll have cash flow available for dividends and buybacks to be considered as we go forward and we will consider those as we go forward to create the best value for shareholders.

Thank you.

And just a follow-up.

Are the rating agencies giving you any pushback on that or what's their take on given where your EBITDA versus your debt is at this point?

Okay.

So the rating agencies are happy with our debt to EBITDA; and as far as acquisitions, they view those as if they're right for the business and you've done all your due diligence and looked at it and you are paying the right kind of prices for it, they have not had any issue with us on that.

Thank you.

(Operator Instructions) Tien-Tsin Huang.

I have a couple of questions.

Just the change in the revenue guidance, just wanted to clarify.

How much of that is coming from foreign currency versus the lower expected event-driven mutual fund properties and the distribution fees?

Right so if you think about it I will give you the high-end, low-end type of approach here.

On the low end for what we will call the event-driven to be thinking the $10 million to $15 million drag from the last time we spoke, postage down about [20 to 25] and FX creating about $15 million to $20 million.

Net net we are saying we are down about $50 million on the low end and $75 million on the high end, but those are the three drivers.

Got it.

And as we mentioned -- when we mentioned when I look at those drivers especially since postage is really primarily the notice and access and that is bringing in extra revenue when we stay on the fee side, it is definitely higher dollar margins.

I look at postage, the event-driven and we all know what can happen with FX at any period of time.

I look forward to the future when it all starts coming back.

Got it.

That's good to know.

Then on the pricing on the new deals and the renewals that you discussed, that was pretty clear.

What's the -- I guess what is the impact on margins in the second half?

How could that play out?

Are there some offsets there?

And then over -- longer-term, I guess or mid-term, how should we think about pricing playing out as more business comes up for renewal?

I will hit the margin piece first.

When you think about us talking about concessions, you really have to think top line falls to the bottom line.

When you talk about sales coming on, you really need to be thinking, depending on the type of business, anywhere between a 25 and 50% margin.

I think the way we really think about now our second half is, when we looked at our ranges, we pretty much comprehended what could be our high and low end with respect to concessions; with respect to losses; as well as any kind of impact from even the event-driven, which have higher margins than our normal recurring revenues in the investors communications.

So the way I just do it is, as you are trying to look at your models in that is take our low end.

Take the second half.

You can back it into the various numbers and then take a look at the SPS business because really it is only the SPS business, also, that has any real impact from concessions.

Again, it is all timing.

You are going to have small concessions one year and large concessions the next year because of contract re-signs when they come up.

That is really what we have to deal with.

This is Rich.

Regarding how it's going to play out, this is really going as expected and if you go back and play back the tapes, we have pretty much addressed everything we are experiencing right now in the past when we talked about potential down markets.

So pricing pressure is always out there and intensifies in difficult markets.

The offsetting good news to that, though, is that firms are far more willing to consider internal changes to create cost savings.

So when every one of these pricing dialogs we are talking about how other Broadridge products, particularly outsourcing, could help them save significantly more than just getting a price reduction and these are all active complicated dialogs, but in every case dialogs are taking place.

Yes, the only thing I would also add to that is we did make a point of pointing out that when we are doing some of these unplanned concessions, they are all due to us also taking the clients and extending those contracts, which is back to Rich's point.

You extend the contract you have more opportunity to sell additional business in there.

That, I think, is a real positive.

Got it.

Appreciate the disclosure.

Nice quarter.

[Stefan Zut].

Good morning.

Couple of questions.

I guess, first off on the event-driven, I think you said in the first half of the year M&A was maybe a little better than you had planned and just over the last few weeks, seems like there's been a bit of a pickup in M&A and also in maybe some proxy contests and things like that.

Are you factoring any of that into your guidance for the second half?

Or are you just kind of assuming that what occurred in the first half just kind of continues in?

No, what we're actually doing is we kind of focused a lot on that event-driven mutual fund and told you how much it came down.

But also when I take a look at the [contests] and specials as well as a couple of our other areas where we saw supplemental for interims and some of our [presale fulfillment], we are actually carrying that forward as a positive into this second half.

Okay, but you are not assuming it gets any better in the second half?

You are just assuming that the outperformance in the first half continues?

Yes, that's exactly right.

Okay.

And been in terms of the, you talked about how -- and I think this chart is helpful on the conversions.

You know if the sales, the sales success continues, how it won't help revenues for quite a while.

But I seem to recall that you are actually carrying some extra expenses so to speak, post the RBC conversion, that were a bit of the drag on profitability.

And I'm just wondering if you do indeed convert some of these sales, does that actually help the margins even though the revenues won't show up until much later?

First of all let me just address the extra expense side of that.

For the majority of the internal people, that worked on RBC, what we did was we shifted resources from other activities that need to be done, and maintenance and other enhancements, to focusing on getting that project done.

All of the contract labor that was brought in specifically for that activity was released, once the job was complete.

So there isn't a lot of extra expense floating around per se, although as Dan commented, we're looking at all discretionary expenses and all expenses overall, even more carefully than we normally do.

Dan, why don't you comment on the margins?

Yes.

What I want to say there is what we are going to be doing [if] we go forward, the only time you really see any large impact there to margins is it's on a large deal we would convert.

And if we ever went into a large deal and said we are going have to take some of our internal costs and capitalize them, I would be very clear with you of how much that would be, how long it would be, and what you should expect on an ongoing basis post-conversion for anything like that.

I think that is very important because I think we've had some discussions before were that was confusion confusing when we didn't do that in the past.

Okay.

So just to be clear, if you did sign some very large deals there might be some capitalizing of expenses in the future that obviously improve margins but, from a cash perspective, don't really change things?

Yes.

And if you look at, by the way, a cash-flow statement, you'll see that when we talk about change in long-terms, assets and liabilities, you will see that cash being used there.

But you are exactly right.

And that's how I'd relate that.

I would say the margin changed, but I also talk about the use of cash.

And again this is all GAAP-driven, as we all know.

Okay.

Terrific.

Just lastly I will, without beating a dead horse, just to point out it seems like net debt at the end of the quarter was $25 million.

I know that is benefiting from the fact that the clearing and outsourcing balance sheet was improved.

But it would seem like within your guidance, you'll end -- you will generate -- even if that balance for the clearing business goes up to $150 million or something like it can or has in the past, you'll generate that much by the end of June.

So it seems like you are probably on target to end the year around this $25 million or maybe $50 million in net debt which seems like you have quite a bit of room on the balance sheet to do a buyback and acquisitions.

So I know that is more of the statement than a question, but the shareholder -- I think -- I appreciate that you are conservative, but I do agree that you could be maybe a little more aggressive on the buyback go forward.

So --.

Hopefully at the end of the day, we will be viewed as conservative and not dumb.

We are committed to create value.

We are committed to execute the strategy.

And we are pretty pleased at where we are positioned right now.

And we believe when these markets settle, we will be viewed as an organization that is on the high ground in terms of its opportunity to execute and use its cash to create value.

I would echo that.

So that's great.

Thanks.

(Operator Instructions).

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

I will now turn the call back over to Mr.

Daly.

Thanks, Jackie.

Well, Dan, Marvin and I certainly appreciate your participation.

We will look forward to speaking to you in the near future and certainly look forward to talking to you about great quarters in the future.

Thanks so much and have a great day.

This concludes today's Broadridge Financial Solutions Inc.

second quarter fiscal 2009 earnings conference call.

Thank you for your participation.

You may now disconnect.