Broadridge Financial Solutions Inc (BR) 2009 Q4 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the fiscal-year 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 for the speakers' remarks.

Please try to limit your question to one per participate.

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

Please go ahead, sir.

Stephanie, thank you.

Good morning, everyone, and welcome to the Broadridge quarterly earnings call and webcast for the fourth quarter and fiscal-year 2009.

As usual, this morning I'm 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 presentations that accompany today's earnings call and webcast can be found on the investor relations home page of our website at Broadridge.com.

As requested by some, earlier this morning our quarterly key revenue metrics were posted on our IR website as well.

We've also included a copy of the metrics in our appendix of our webcast for your reference, as they may be helpful during Dan's review of the financial results.

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

These risks are discussed here on slide 1, and we encourage participants to refer to our SEC filings, including those on Form 8-K, 10-Q, and 10-K, for a complete discussion of forward-looking statements and risks.

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 a summary of the financial results for fiscal-year 2009, followed by a discussion of a few key topics.

Dan Sheldon will then review the fiscal-year 2009 financial results and financial guidance in further detail, including a review of cash flows.

Rich will then return 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.

This morning as part of my opening remarks I will talk about the following topics.

First, a summary of our fourth quarter and full fiscal year financial results, followed by review of our sales performance for the year and sales pipeline.

Then an overview of our fiscal-year 2010 financial guidance; and finally, an update on our capital allocation policy and how we plan to use our free cash flow to create long-term shareholder value.

Let's start on slide number 4.

Overall, I'm satisfied with the fiscal year results, as the financial performance for the fourth quarter was in line with our expectations and concludes an acceptable year.

Our fiscal year non-GAAP EPS of $1.51 and GAAP EPS of $1.58 were both just above the midpoint of our May guidance.

Our revenue decline of 3% was at the low end of our May guidance due to lower equity stock record growth, somewhat offset by higher trading volumes in the fourth quarter.

As I think about revenue growth for the year, and I exclude the lower distribution revenues and negative impact from foreign currency exchange, we had fee revenue growth of 2% and fee revenue growth in all three of our operating segments.

Our growth in recurring fee revenues has been one of the highlights for the business this year and was the foundation for growth during this challenging market, as it has helped to offset some of the decline in mutual fund event-driven fee revenue for the year.

Although our revenues for the year were down, our non-GAAP earnings per share were up 6% and we benefited from lower interest expense and a lower recurring effective tax rate related to the work we've done since the spinoff to obtain recurring state tax credits.

We generated greater than $250 million in free cash flow, which enabled us to internally fund two acquisitions, significantly pay down debt, buy back 2 million shares to offset dilution from our equity compensation plans, pay a dividend, and end the year with over $170 million in cash on our balance sheet.

In a few minutes I'll discuss our proposed use of this cash and our future free cash flow when I review our capital policies.

Let me put our fiscal-year 2009 financial performance into context.

We achieved our full-year EPS guidance, which we first issued last August just prior to the meltdown in the market; and this guidance remained unchanged throughout the crisis.

Broadridge fared better in this down-market than it did in previous down-markets.

This is due to the breadth of products which include a broader registered proxy offering, the expansion of our fixed-income processing capabilities, as well as our unique three-tier Securities Processing offerings.

We have more products than ever before, and we add new products every year to create new revenue opportunities even in a down-market.

Going forward, as we drive deeper into mutual fund solutions, take our investor network products to market -- which include virtual annual meetings and shareholder surveys -- we will even be better positioned both to face down-market cycles and take advantage of stronger markets.

We had record employee and client satisfaction ratings this year, which helped us maintain our annualized 98% recurring revenue retention rate.

This includes the previously announced loss of Bank of America's equity processing business.

Overall, I believe our performance during these challenging markets has yet again proven the resiliency of our recurring revenue model.

It's our recurring revenues, new sales, contributions from internal growth, and our high client retention rates that are the primary enablers of our future revenue growth.

Now let's move on to slide 5.

We had solid sales performance during the quarter and ended the year with closed sales of $156 million.

Our annual closed sales were just below the low end of our guidance.

However, this performance still represents 5% growth over the record year we had last fiscal year.

Overall, I'm pleased with this performance, and I'm particularly pleased by the greater than 30% growth we achieved in recurring fee closed sales, as this creates a higher revenue base to grow from in the future.

When event-driven activity returns, as event-driven revenue has historically done after a down-market, this could enable even stronger growth.

Closed sales in our Investor Communications business were $98 million, a decline of 10% over the prior year.

This decline was due to the significant drag created by lower event-driven mutual fund proxy sales.

Recurring fee sales in our Investor Communications business were up 18% to $55 million, which represents higher sales in the transaction reporting, fulfillment, and registered corporate issue of product sets.

With respect to corporate issuers, we've increased the number of clients this year from approximately 1,200 to over 1,500.

For the combined Securities Processing businesses, closed sales increased 47% from $39 million to $58 million.

The most significant growth was generated by our Securities Processing Solutions segment, where closed sales increased by 66%.

This includes a $10 million sale made to a top-tier clearing firm that will use one of our ASP service bureau offerings.

We also had solid performance in our Clearing and Outsourcing segment, with closed sales growth of 20% even though we didn't land any Outsourcing deals greater than $2 million.

Our sales pipeline continues to be robust and includes some promising large opportunities in all three segments.

I continue to be encouraged by the type of conversations we are having with our clients and prospects, as the conversations around short-term cost-cutting appears for the most part to be behind us.

However, the sales cycle continues to be long and closing the larger strategic deals will be lumpy.

We know that the length of the sales cycle for large opportunities, particularly for Outsourcing deals, can lack clarity.

So let me provide a little more color around the dynamics in the market for Outsourcing.

When we first communicated the targeted market for our Outsourcing offering, we had focused on firms that had the capital to be self-clearing but were clearing through other clearing firms because they lacked the systems and the people expertise to be self-clearing.

These firms were small to mid-sized firms and the selling process was less complicated, as this type of Outsourcing was very strategic to the buyer and represented meaningful growth and brand improvement opportunities for them.

These type of transactions are worth in a range of $2 million to $5 million each annually for Broadridge.

The financial crisis, in particular the credit crisis, created a major drag on the midsized firms as they became concerned about access to credit.

The good news is that the market crisis made our already strong Outsourcing offering even more compelling for some of the larger self-clearing firms.

However, with larger firms and the resulting larger-sized deals comes a much longer and less predictable sales cycle, as you are now dealing with much more complex negotiations and systems conversions.

I believe this dynamic will create more opportunities in the long term, but it will likely require a broader offering, which we are actively working on.

Broadridge, due to its unique multi-entity platform is still the only company with the ability to offer an Outsourcing option to the market at this time.

For fiscal year 2010, we expect closed sales in the range of $165 million to $185 million, which represents growth in the range of 6% to 19%.

As we did in fiscal-year 2009, we are once again anticipating annual sales growth as we come off a record year in closed sales.

We expect another year of solid performance in our recurring fee closed sales, with growth of greater than 10% in this area.

Sales in any given quarter can be up or down from our internal expectations.

Please keep in mind that historically our first quarter, which includes the summer months, can start off slow; and the last quarter, which is generally our best, can vary widely in any given year.

We try not to over-react positively or negatively in any given quarter, as each year always has its own unique set of twists and turns.

Finally, despite the longer than normal sales cycle we continue to encounter for larger deals, I feel good about our near-term and long-term prospects, as our pipeline remains robust with large opportunities for all of our segments.

And once again we were rated the number one Outsourcing company in our space by Brown & Wilson's Black Book of Outsourcing.

Let's move on to slide 6 for an overview of our 2010 fiscal year guidance.

Earlier, I put fiscal-year 2009 performance into context, and this context is important for you to consider as we move into fiscal-year 2010.

Overall we expect fiscal-year 2010 to be another acceptable year.

Our revenues are projected to grow in a range of 4% to 8%, with modest revenue growth in the first half of the fiscal year and stronger growth in the second half of the year.

Our growth in fiscal-year 2010 will be led by our Investor Communications business, which is our strongest and most resilient business.

We believe the continued solid growth of our recurring revenues and the anticipated increase in event-driven activity in the Investor Communications business will more than offset the revenue grow-over challenges in our Securities Processing businesses of $37 million in the first half of fiscal-year 2010.

Dan will go into more detail around the grow-over challenges.

We're expecting fiscal-year 2010 EPS in a range of $1.50 to $1.60, which includes the EPS impact from the grow-overs I just discussed.

The appropriate point-to-point EPS growth comparison is to compare fiscal-year 2010 GAAP earnings with fiscal-year 2009 non-GAAP EPS, which excludes the one-time benefit from the gain on the purchase of our senior notes and the retroactive benefit of a one-time state tax credit.

This comparison results in EPS growth in a range of flat to 6% as EPS goes from $1.51 in fiscal 2009 to a range of $1.50 to $1.60 in fiscal-year 2010.

We expect GAAP EPS growth in a range of minus 5% to 1%, or $1.58, versus a range of $1.50 to $1.60 since we're not planning on any additional one-time tax benefits or senior note repurchase gains like we experienced in fiscal-year 2009.

We expect to continue to generate strong free cash flow in the range of $235 million to $270 million.

We anticipate that the lower range and high range of our EPS guidance will be driven more so by the key drivers related to event-driven revenue activity and to a lesser degree by trades per day and margin debit balances.

I believe we are well positioned to meet our goals for fiscal-year 2010 and I expect to exit next fiscal year with positive momentum as I anticipate the performance for the operating segments will continue to be strong and not weighed down by grow-overs as we exit the 2010 fiscal year.

Now let's move on to slide 7 and discuss how we're planning to use our strong free cash flows to create long-term shareholder value.

Coming out of the spinoff, Phase 1 of our capital allocation plan was to pay down debt to achieve our goal of a 1-to-1 debt-to-EBITDA ratio, a goal which we accomplished more quickly than we had anticipated at the time of the spin.

Phase 2 of our capital allocation plan is to create greater shareholder value from our strong free cash flow.

Given our free cash flow generation during one of the worst markets ever and the strength of our recurring revenues even in down-markets, we believe we're in a position to refine our capital structure.

The framework of our capital allocation structure will consist of, first, maintaining our existing debt level, which we have consistently stated as staying at a 1-to-1 debt-to-EBITDA level.

Next we're doubling our annual dividend from $0.28 per share to $0.56 per share.

This payout level equates to approximately 35% of our fiscal-year '09 GAAP net earnings.

In addition, our Board has authorized a 10 million share repurchase which is approximately 7% of our outstanding shares.

This authorization will be used to buy back shares opportunistically, including any equity compensation dilution purchases.

And finally, we'll look to execute strategic acquisitions that leverage the Broadridge brand and distribution channels.

In the Investor Communications business, we'll look for acquisition opportunities where we can leverage our unique position in the marketplace.

In the Securities Processing business, we will look for product acquisitions that further strengthen our offering as we leverage our number-one brand and continue to create the tipping point and new reasons that will entice in-house processors to outsource some or all of their back-office processing.

Last quarter's acquisition of Access Data is a perfect example of the type of acquisition we're looking to execute.

It represents the strategic type of acquisition that leverages our industry leadership position and offers a more complete industry solution around mission-critical processing and at the same time creates a path for us to grow quickly.

I really feel good about this acquisition.

I'm more confident than ever that in five years this business will generate $100 million in revenue in a market that was sized by independent third-party research to be over $600 million in annual revenue.

The integration of Access Data is going very well.

As always we continue to make the necessary investment in the business in order to drive internal product development and accelerate the launch of new revenue growth opportunities.

In fiscal-year 2010, we expect our new products to generate an additional 1% in fee revenue growth and account for approximately 15% of our fiscal-year 2010 closed sales.

This momentum adds to my confidence for the future.

The future will always include regulatory changes in our core communications business.

The latest change is the elimination of the 10-day or so-called broker vote.

To enable corporate issuers to better manage this change, we are working on new initiatives that will enable greater voting participation by retail investors whose votes will no longer be generated by the 10-day vote.

Most regulatory changes require Broadridge to make changes to its systems, normally requiring us to perform additional functions and often creating new product opportunities.

Regulatory changes have generally both increased the importance of Broadridge's role and improved our financial performance.

We are expecting more regulatory changes going forward.

I'll now turn the call over to Dan, who will go into more detail about the quarter and full-year results for each of the segments.

Dan?

Thanks, Rich.

I'm now on slide 8, our fiscal-year '09 results and our fiscal year '10 guidance.

You will note the chart at the top of the page shows how the revenue drivers have and are expected to contribute to revenue growth for fiscal years '08, '09, and along with our guidance for FY '10.

In fiscal-year '09 revenues for both the fourth quarter and the year were down, but they were entirely the decrease driven by FX, distribution fees, and event-driven related to mutual fund proxies.

Our recurring revenues from net new business and internal growth were positive for the year.

The trends over the last few years and our expectations for revenue drivers as we move into fiscal-year '10 are as follows.

Sales.

Contributions to recurring revenue have been increasing each year due to the increases in recurring closed sales from existing products and the introduction of new products.

As Rich mentioned, we had a record year in fiscal '09 with over 30% growth in recurring closed sales and expect to have greater than 10% growth in recurring closed sales in FY '10.

Losses.

They have averaged over the last few years 2%, giving us a 98% revenue retention rate even in these tough economic times.

Internal growth.

It does better in bull markets than it does in bear, but the impact is not material on the downside which we experienced in the second half of fiscal '09 due to the increased price concessions, drop-off in our time and material, and lower net interest in our Securities Processing and Clearing businesses.

Given this, we expect to experience in the first half carryover headwinds into FY '10, which for the most part should be behind us as we enter the second half of our next fiscal year.

With respect to the event-driven, it's been flat to down.

But given what we're hearing in the market we expect to see growth as we move into fiscal-year '10; and this is similar to what we've seen after a down year.

Distribution revenues were down in the last two years mostly due to notice and access and revenue postage mixes.

With respect to notice and access, it created decreases in postage of approximately $60 million combined in fiscal-year '08 and '09, but added new fees.

And although the fee revenues are less than the postage revenues, the margin dollars are better on fees, so overall a win for the business.

With respect to FX, about 12% of our revenues are international, primarily Canada.

The US dollar was on the decline in fiscal '08 and gave us a positive contribution to revenues.

The US dollar began improving in fiscal '09 and had a negative impact on revenues and margins.

Our guidance here is based upon continued improvements in the US dollar using forward rates, but will have less than a 1% negative impact to revenues for next year.

As Rich mentioned earlier, given our revenue grow-over challenges as we move into fiscal '10, we expect modest revenue growth in the first half and stronger growth in the second.

Net income is up in fiscal '09 for both the quarter and the year for both GAAP and non-GAAP, and is primarily due to the lower interest expense on debt and the effective tax rate for non-GAAP, and the same plus no transition fees in fiscal '09 from a GAAP perspective.

Margins are expected to be slightly down in fiscal-year '10 Q2 due to the loss of Bank of America and concessions, which are partially offset by increased margins in the Investor Communications business.

Let's move on to slide 9.

We finished the fourth quarter with revenues ahead of our May guidance due to increased -- so let's move on to slide Nine, Investor Communications.

FY '09 was a slightly down year for the business but all due to event-driven and distribution fees.

So focusing on the recurring under fee revenues, you can see we ended fiscal-year '09 at 5% growth and are looking at fiscal-year '10 to more resemble fiscal-year '08, with contributions from new business, with continued market share gains in transaction reporting, global and registered proxy, as well as our acquisition of Access Data.

Additional positive impact expected from investor network products as well.

Internal growth is also expected to be flat at the low end of our guidance to mid-single digits at the high end.

In previous down-markets we've seen these types of ranges and again look for bull markets in the future where internal growth historically grew greater than 5%.

Event-driven revenues were down 8% in fiscal '09 but all due to mutual fund proxies, as other event-driven revenues like proxy contests were up.

As for fiscal-year '10, the growth of 18% to 28% may seem high; but given mutual fund activity and history, this does not seem like an aggressive range.

I would note that we expect the level of activity to begin to show growth in the second quarter and beyond next year.

Distribution revenues are expected to be up due to increases in event-driven and US postal rate increases, offset somewhat by notice and access, where we expect to do slightly better than our current 50% penetration on the low end or move up to 60% at the high end.

Our margins were only up 10 basis points for fiscal-year '09 and below our expectations; but this was all due to revenue mix.

In fiscal-year '10, we are expecting our margins to improve due to product mix and the impact of new products and businesses like Access Data that have higher operating margins.

Moving on to slide 10, Securities Processing.

And if you're following on the key stats slide, that's also number 23.

We finished the fourth quarter with revenues ahead of our May guidance due to increased trade volumes, of which most fell to the bottom line.

Revenues were down slightly for the quarter over last year due to the BofA lost business and increased price concessions.

For the year, revenues were up 4% with 8% contribution in the first half and flat in the second.

Our guidance for fiscal-year '10 is for revenue to be down 3% to 5% due to the losses and price concessions primarily impacting the first half.

Therefore, our first half will have high single-digit negative growth while our second half is expected to be low single-digit growth.

When you look at the revenue drivers, which are listed on key stats slide 23, you can see the following.

Revenues from sales for fiscal '09 were strong at $40 million and when annualized equate to over a 7% contribution to revenues.

And this is positive momentum given our historical run rate has been around 5%.

We are very pleased to see a $10 million sale close in June as this was one of the large pipeline deals we were working on.

Due to the implementation timing, however, the $10 million won't start to hit revenues until fiscal-year '11.

Concessions and losses primarily impacted the fourth quarter in fiscal '09, so have three quarters of grow-over headwinds in fiscal year '10.

Internal growth, primarily trade volumes, is expected to generate a positive $11 million to $15 million in revenue growth.

However these revenues are slightly more than offset by the falloff in our time and material work, which we don't expect to see a recovery during fiscal-year '10.

As you look at the revenue ranges for next year, most of it is dependent upon what happens with trade volume growth and concessions.

At the low end, we're assuming low single-digit internal trade growth and some additional concessions.

High end assumes high single-digit growth for trades per day.

Our margins are totally dependent on mix of trade and non-trade revenues, and new sales have lower margins due to implementation than our internal growth from trades, lost business, and concessions.

This segment is forecasted to begin to have positive revenue and margin growth by Q4 of FY '10 once we grow-over our losses and concessions, which have the biggest impact in the first half, of approximately $28 million, and $12 million in the second half.

Let's move to slide 9, Clearing and Outsourcing; and again, key stats slide number 24.

Revenues in this segment were just over the high end of our guidance for Q4 and, like with Securities Processing, it was due to trade volumes.

Sales contributions to revenue both in fiscal '09 and '10 are strong, with 26% in '09 and between 14% to 17% in fiscal year '10.

Revenue retention rates still above 95%, with just over a 4% loss rate in both '09 and in '10.

This is a testament to the quality of our clearing clients.

They too have weathered the storm.

Our biggest challenge last year as well as for fiscal-year '10 is net interest income, which is impacted by margin balances and Fed fund rates.

We are not forecasting any real change in either driver for fiscal-year '10 and therefore will have headwinds in the first half of $7 million to $8 million and not expecting to see profitability in this segment until fiscal-year '11.

As noted before, every $100 million in margin balances adds $1 million to the top and bottom line; and every 25 basis points change in Fed funds rates adds $700,000, again all revenue falling to the bottom line.

Given normal periods where Fed funds average 4% to 5% and margin balances more in the plus-$800 million range versus $500 million today, there would be an additional $14 million to the top and the bottom line.

As I've said before, I do look forward to more normal times.

Our operating losses are expected to be greater in FY '10 due to the lower net interest revenue, all falling to the bottom line, and contributions from net new business -- a again, sales less losses -- have margins in the 20% to 50% range.

Also, Q4 of '09 had a $2 million in what we call year-end activities, so the run rate is a negative $4 million per quarter for this business at this time.

Let's move to slide 12, our Other and FX.

We are not expecting any termination fees in fiscal-year '10, just like we did not see any in '09.

So therefore Other fee revenues are zero.

For FX, revenues and margins, we're expecting to have additional negative impact given the forward rate.

As mentioned in the beginning, 12% of our revenues are international, mainly Canada, and forward rates indicate continued improvement in the US dollar.

Sensitivity here for us is for every 5% change in the US dollar to the Canadian dollar is plus to minus $13 million for revenue and plus to minus $4 million for EBIT.

When you move down to interest and corporate expenses, they were in line with our forecasts for the fourth quarter; and run rates approximate the midpoint of our fiscal-year guidance.

The low and high end for corporate expenses reflect variable investment spend.

Let's move on to cash flow, slide 13.

I've reviewed before why we segregate out the Clearing business financing from cash flow from Processing businesses.

So let's focus on the shaded columns, starting with the second column, fiscal-year '09, all other processing activities, where we ended the year at $252 million of free cash flow, which was the midpoint of our May guidance.

Moving down into the investing and financing section, during the year we used $114 million in cash to pay down debt to $324 million, which puts us in line with our debt-to-EBITDA ratio of 1-to-1, including a cushion for short-term borrowings at clearing.

So not expecting to pay down additional debt in the near future.

We're also pleased with the recent increase of $75 million in committed bank lines, bringing our committed lines to $575 million.

We did buy back 2 million shares during the year which was in line with dilution created by stock compensation plans.

Let's move to fiscal-year '10 and the guidance range, which are the shaded areas to the far right.

In arriving at free cash flow, the net income range is a derivative of the lows and highs I discussed as we went through the segments and Other.

Working capital range based upon timing of receivables and CapEx range, mostly tied to new sales and timing of those sales.

This brings me down to the investing and financing activities.

Our dividend, 2X last year and approximately 35% of our fiscal '09 GAAP net income.

We do not give guidance on future acquisitions or amounts of paybacks; and therefore you see no ranges for these line items.

Let's move to slide 14.

This slide contains the major assumptions in our fiscal-year '10 guidance and since either Rich or I have already covered the various parts of this presentation, I just won't repeat them here, but give them here for your information.

I'll now turn the meeting back over to Rich.

Rich?

Thanks, Dan.

Before we go into the Q&A part of the call, let me summarize and leave you with a few more thoughts on how excited I feel about the business as we look to a new fiscal year.

I'm on slide 15.

We had solid performance during fiscal-year 2009, whereby we maintained and achieved the EPS guidance that we issued last August before the financial crisis hit.

We had another record year in closed sales.

We had great growth in our recurring fee closed sales, and our pipeline continues to remain robust, with promising large opportunities in all of our segments.

As we exit fiscal-year 2009 with positive momentum, driven by the Investor Communications business and strong sales contributions in our Securities Processing and Clearing businesses, we're well positioned for fiscal-year 2010.

We are anticipating revenue and EPS growth in fiscal-year 2010, with modest revenue growth in the first half of the fiscal year and stronger growth in the second half.

In the first half of fiscal-year 2010, we expect to experience a tougher compare as a result of the grow-over impact of price concessions, the Bank of America equity processing business loss, and the impact that lower interest rates and margin balances will have on net interest income.

Our capital allocation policy will return meaningful cash to shareholders as we have doubled our dividend and have authorized a 10 million share repurchase plan.

Even with the doubling of our dividend to $0.56 and share buybacks, our strong free cash flow generation capabilities enable us to continue to pursue value creation by building or buying profitable revenue growth.

We'll look to create greater shareholder value as we execute strategic acquisitions that will leverage the Broadridge brand and distribution channels.

Our focus in fiscal '10 will be to diligently protect and grow our market position across all segments; drive and grow sales by landing some very large deals across all segments; execute our operating plan and continue to drive strong internal growth in all of our businesses; take to market the investor network which includes virtual shareholder meetings and other electronic investor products; accelerate the execution of our mutual fund strategy; and finally, in our Securities Processing businesses we will look to drive to a better value proposition that will provide our clients with more flexibility in how they can take advantage of the efficiency and feature-rich functionality benefits of all of our offerings.

Broadridge is well positioned for the future as we have a great product set led by the strength of our Investor Communications business that drives a strong and growing recurring revenue base.

I believe our Investor Communications business is stronger and more resilient than ever.

And although we still have some work to do in our Securities Processing and Clearing and Outsourcing segments, I also believe we have the right strategic focus and direction as we continue to execute our unique processing strategy.

In addition, we have diligent expense management, a strong balance sheet, the appropriate liquidity, strong free cash flows that will enable us to continue to invest in the business, and a strong risk management culture.

Our product set combined with our strong sales pipeline and our new product initiatives will provide a clear opportunity to take Broadridge to a higher level.

I want to end and take this opportunity to personally acknowledge our associates who remain dedicated, engaged, and focused as we continue to find ways to create shareholder value through these challenging times.

This past year, their commitment to the service profit chain and personal sacrifices do more with less have given us the foundation to provide customers better services, shareholders higher returns, and associates a more stable environment with a better future.

I'm now going to turn it over to Stephanie, the operator, for the Q&A part of the call.

We look forward to your questions and comments.

(Operator Instructions) James Kissane, Bank of America.

Great.

Thanks and congratulations on the results.

Rich, can you give a little more color on the 4Q processing win?

Was this customer previously in-house, or was it a competitive takeaway?

This customer was using a different vendor.

And because of the -- they have asked not have their name disclosed, Jim, it's going to be a little tough for me to provide a lot more color.

We are excited by this because the value proposition we offered them was more around the features and functionality that will enable them to run their business and grow their business better, which is what led to their decision.

So adding all the new apps that we continually do, we reached a tipping point here in this particular case.

Okay.

Dan, a quick question.

Your confidence level in the event-driven revenue for fiscal '10 sounds very high, and it seems like it's all based on mutual fund activity.

So you are not assuming any uptick in M&A activity?

And to the extent that there is, you could have even faster acceleration or improvement in the revenues there; is that the case?

The event-driven, Jim, is focused on mutual fund activity.

It's tied directly to the discussions we are in right now.

The activities of those discussions is much stronger than it was last year.

Yes, and Jim, I would add to that piece, onto it, the degree of confidence is when we are actually in dialogues with people and then we know the large funds, and two of the largest ones are in active dialogues with us and even have scheduled jobs -- that's what gives us the confidence.

What I would share with you, as I mentioned, is it will be more in our Q2, 3, and 4 than you'll see anything in our Q1.

Great.

Okay.

Thank you very much.

Congrats.

Ian Zaffino, Oppenheimer.

Hi, thank you.

Good quarter.

Question is on the Investor Communications business, or I'm sorry not Investor Communications, the C&O business.

What is the profitability we should look at, Dan?

I know you gave us some sensitivity as far as 25 basis points, $100 million change in margin balance.

But we've been waiting a long time for this thing to become profitable.

It's not profitable and you are not projecting any profits going forward for some time.

I understand we might be in a unique interest rate environment.

But at what time do you or at what point do you really fish or cut bait and just get out of it, or look for some other alternative?

Okay, so I'll handle the first part, which is going to be more numbers and profitability; and I'll turn it over to Rich for more of the strategy.

You're absolutely right, when you look at the interest and it's all from the net interest and it's a combination of the Fed funds and the margins, and that's why I gave you the statistics, we don't expect anything to move there for the next year.

So therefore we're saying it's going to be sometime in fiscal-year '11 we expect profitability.

I think the most encouraging thing besides just what I call those internal growth features is the fact that we talked about the $10 million deal we just signed.

That is both a combination for the Securities Processing business of technology and very important for new business into our Clearing and Outsourcing business.

And again, though, the implementation timing which all large deals take, it won't hit profitability, again, until fiscal year '11.

So I'd say to you that fiscal-year '11 is the year we're looking at to start turning around.

And as we said before, when you look at this business, Clearing brings in about a 50% margin.

The Outsourcing brings in 20% to 25% margin.

And overall, the rest is internal growth, which we would expect to see some improvement also in fiscal-year '11.

Rich, I'll turn it over to you for the strategy.

Ian, I absolutely appreciate and respect your comments.

Our mission is to create shareholder value, and any of our pieces -- if it ultimately won't lead to greater shareholder value, we are certainly not wed to.

With that said, the pipeline in the Clearing and Outsourcing space is more than 2X the total revenue of the Clearing business right now.

It's certainly the growth opportunity in the Securities Processing space that we have.

So we will continue to look for ways to accelerate growth.

And if there is an opportunity out here to do something that would minimize these losses or move it to profitability more quickly, we are going to be aggressive in pursuing that.

But our strategy is to take the industry and create this opportunity to the next level, which provides the overall industry to a higher level of efficiency.

And despite others trying to get into this space, we're still the only one that have this offering out there.

So it's been tough but we're still staying with the Outsourcing strategy.

Okay, so it seems to me that you view this as an integral part of your strategy.

So what type of losses are you willing to sustain?

It is -- we are not pleased with the position we are.

In the last call, I clearly stated that in the Processing space that we're not meeting our performance goals.

We've done an awful lot of work since that call.

In this call, I stated that we've now identified ways to expand the offerings, right?

And we believe we're on the right path.

So I'm not really willing to sustain losses ever, and I'm certainly not willing to sustain them for any sustainable period of time.

So we recognize the appropriateness of your impatience and we feel the same way here.

But at the same time if there is an opportunity to get this to a tipping point and create meaningful value, we don't want to pass on that.

Okay.

All right.

Thank you very much.

Good quarter again.

Thank you.

(Operator Instructions) Tien-Tsin Huang, JPMorgan.

Good morning.

It's Tien-Tsin, thanks; and thanks for all the disclosure once again.

It's very helpful.

I just wanted to ask about I guess pricing on new sales in the fourth quarter and in general what your expectation is on pricing on new sales and renewals in fiscal '10.

If we can get some more color on that.

All right, the pricing of the new sales was not materially up or down in terms of any historical pricing we've done.

Tien-Tsin, the benefit we have is that because we're a skill business, any incremental revenue provides significant benefit.

As we saw with BofA, any loss of revenue provides a dramatic reduction to the bottom line as well.

So I think I'm answering the question here.

I'm not seeing anything materially different in pricing in the last quarter or as we are going forward.

Yes, and if I can just add to that, I don't think it is so much of our pricing of new sales.

The pressure we've gotten were on existing clients, which we talked about before; and we called those the price concessions.

As I mentioned, and I think this is very important and I want to stress it, was -- we said that over any period of time, we have seen this time and time again.

When you go into a down-market your concessions are higher than when you're in a bull market.

And when we look our concessions this time we said, we've re-signed the majority of our clients.

Yes, we saw an increase to our concessions.

But when I looked at -- when we get through that growth in the first half of next year, I expect to see the concessions really drop a little bit.

And as a result, still average our overall what we call historical trend of about a 3% annualized basis.

Some years 1%, some years 4% to 5%.

And that's where we have seen the pressure; but again not unusual in a bear market.

Sure.

Totally understood.

I guess this is a follow-on to that.

What does it take, then, to get some of these new sales and that's in the pipeline?

It sounds like in general it's quite strong.

What is it going to take to get these deals across the finish line?

Is it really a question of just focus, or is it pricing that we're trying to negotiate?

I'm just trying to better understand that.

For the large Clearing and Outsourcing deals -- or I should say ASP and Outsourcing deals, Tien-Tsin, the challenge is that the client needs to go through an internal conversion as well.

And these are complex activities that require lots of senior management focus.

The reason I said we're encouraged by the dialogues is because after the initial dialogue that they have with all their vendors about -- I need a price reduction, if you're not satisfied with your performance and your run rate, things like going to a conversion, if it can dramatically takeout nine-digits of expense from your run rate is something you are more willing to have than in a bull market where the conversation is more around just keeping up with all the revenue growth opportunity you have and pushing your existing providers or in-house providers to give you new apps to take advantage of revenue opportunities.

Right now, the focus is still very, very strong across the industry on expense management.

Got you.

Okay.

So we'll be looking out for the deals.

My last question is just maybe if you can just walk us through your expectations again for the stock record growth and trade volumes.

Just wanted to better understand the visibility and the confidence level there.

Thank you.

Okay, so let me answer that one.

When we looked at July and going into August -- and I will start with the stock record growth.

I think first I'm going to take you back to the fourth quarter.

When we looked at the stock record growth, and yes we were down (inaudible) percentage points, when we kind of break that into the tiers of we'll call it the large-caps versus the mid-or small, the large-caps were actually up.

It was the small and the mid-cap that were down.

We've seen a little bit of that carry forward here.

But we also have seen where the large-caps have continued to be strong.

So therefore that's why we say, okay, last year was a negative 2; we're looking at next year of anywhere between flat to a positive 2 and nothing more or less.

Moving on to the trades per day, the biggest thing there is to be thinking about -- we have said at the low end in the 4% to 5% kind of range, and at the high end the 8% to 10% kind of range.

Again what we've seen is in the summer it's very difficult to gauge because in the summer months trading always falls down or off.

However, we feel pretty comfortable that we at least at the low end would definitely make.

Great.

Thank you so much.

Stefan Mykytiuk, Pike Place Capital.

Good morning.

Just I guess a few questions.

You addressed the visibility on the mutual fund event-driven, those are really -- your optimism really is based on concrete discussions, as opposed to just hoping it materializes?

Absolutely.

Okay, terrific.

The Clearing and Outsourcing business, maybe I remember this wrong; but it seems to me like, despite the fact that the way you break this out you're actually losing money in Clearing and Outsourcing, I seem to recall that you guys really from a strategic point if view look at this as part the Securities Processing offering.

And therefore we really should look at those businesses combined, because it's part of the strategy of how you go to market and how you approach clients and the breadth of the services you offer them.

Am I remembering that wrong?

You're absolutely remembering that correctly.

We view it as running two businesses, a communications business and a processing business.

Right now we're at a point where the losses that we have in the Clearing and Outsourcing space are somewhat offset by revenue that is in the Processing space.

But in context of the other statements made, we at this time -- when we discussed this in our original strategy -- expected to be further along and have profitability contributions in both reportable segments, the Clearing space, and the SPS space, by this point in time, which we don't have now.

Margin balances are down.

The trading activity is down.

We have the things going on here.

But nonetheless, we are in business to create shareholder value, and in this space we have not accomplished that yet.

We have made changes over the last quarter in the way we are going to approach this; and we hope those changes will bring value.

Okay.

But what you're saying is that your big opportunities from a revenue growth point of view for the combined Securities Processing and Clearing and Outsourcing really is coming from that Outsourcing business?

Right.

That's correct.

Without the people from Clearing, we can't offer the Outsourcing offering.

And those are our -- in the total pipeline of the large deals that we have across all the segments, the largest amount of pipeline is because we have the Outsourcing capability.

Yes, and I would also add to that piece of it.

I think what's very important and the reason we break out sales, losses, and internal growth for everybody is -- when you ask the question strategically and you look at this business, and it's driving 20% revenue growth, call it, from sales and next year somewhere between as we called it 10% to 14%, and we only have losses of 4%, that's the real value that we look at.

Because we know the internal growth piece will come back when the markets come back.

Right, right.

Okay, great.

Thank you for clarifying that.

Lastly, just in terms of the -- I think Rich made a comment that you had $177 million of cash on the balance sheet at June 30; and I'm seeing $280 million.

Are you just kind of stripping off the cash sitting in the Clearing and Outsourcing business?

Absolutely.

The correct way is it was $172 million, call it what we have available to use; and the other $109 million is all related to the Clearing business.

Okay.

Then just so -- it brings me to the last piece, which is if you generate, call it $250 million in free cash flow again, you're going to spend, call it $70 million on the dividend and be left with $180 million, assuming you do some buyback.

I guess if you did the whole buyback in a year then that would be all the free cash.

But how should we think of -- if you're not able to find acquisitions, what are you going to do with the surplus free cash flow?

The commitment is to generate shareholder value through our free cash.

So I would be disappointed, Stefan, if we didn't find any acquisitions.

As a matter of fact, internally I would use a different word than disappointed.

So we believe we are well positioned right now with a far clearer policy as we go forward; but acquisitions we expect to be a part of that.

Think in terms of the type of acquisition we did with Access Data.

Okay, and in terms of how it affects the business and also in terms of how much money you're spending?

You shouldn't be thinking we are going to go out and do a megadeal.

Right?

You should be thinking that we are looking for things that when we put it into the Broadridge engine, through our distribution channel and our processing capabilities and our brand recognition, that we should be able to take a good product that the market needs, that doesn't have significant market penetration, and accelerate it to the benefit of our shareholders.

Right, right.

Okay.

Great.

Sounds great.

Thank you very much.

(Operator Instructions) [Vivian Mamelak], US Steel Pension Fund.

Good morning.

Could somebody walk me through what your implementation process is for Outsourcing?

What the upfront commitments are from a capital perspective, and how that works along the timeline until you get to a point where everything is up and running and you get to the 20% and 50% margins you were talking about?

Sure.

I think the most significant thing about this, Vivian, is going to be the timing.

So if someone was to sign a deal today, then we are going to need to understand in detail what the conversion plan is.

We put significant effort into understanding exactly what their system does and what pieces of their system -- for example, the desktop -- are they going to leave in place.

We do all the mapping to enable the desktop to stay in place so that the brokers the day after the conversion won't see any disruption.

It will look like just exactly as it did the day before the conversion.

Those things take time.

In some cases, they want us to do work to give them a better desktop.

In some cases we're making investments to do that.

In all cases we are making investments as it relates to getting the conversion accomplished.

So the timing on this can go back in history -- when we did the Lehman conversion that was a rather large transaction; that took nine months.

Some conversions can take 18 months, depending on the gaps and the functionality that the client is looking to add.

The more functionality they're looking to add the more investment we're making until we actually start to generate some revenue.

Dan, why don't you talk about the accounting of that a little?

Yes, well let's talk about -- the cash flow I think was the real question in that piece of it.

So Rich has already mentioned that the deal can take up to a year to implement.

And I'm using a year because it can be the six months or the 18.

This one [build of margin] we're talking about at $10 million is going to be about a year out.

Those type of deals at $10 million do not require significant cash on our side to implement.

If we ever did a significant large deal -- or I should put it more appropriately -- when we ever get a very large deal, like we did when we talked about RBC, as we're talking about that deal we also share with you -- could that be using up $10 million to 20 million worth of our free cash flow?

And the answer would be pretty much yes.

But think about that.

It'd be in the same kind of frame, thinking of a major acquisition, call it a $45 million to $50 million kind of acquisition.

That is how we think about some of those very large sales.

And that's how you should be thinking about a $10 million to 20 million usage of cash.

Okay.

That's helpful.

Thank you.

Mr.

Daly, I now turn the conference over to you.

Well, we certainly thank you for your participation.

Dan, Marvin, and I are going to look forward to seeing you over the next month or so.

And thanks again for being here with us today.

Have a great day.

This concludes today's conference call.

You may now disconnect.