Broadridge Financial Solutions Inc (BR) 2010 Q2 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 Broadridge Financial Solutions Second Quarter Fiscal Year 2010 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. (Operator Instructions). I would now like to turn the call over to Marvin Sims, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Stephanie. Good morning, everyone, and thank you for joining us this morning for our second quarter fiscal year 2010 earnings call and webcast. As usual, this morning I'm here with Rich Daly, Chief Executive Officer for Broadridge, and Dan Sheldon, Chief Financial Officer for Broadridge.

Hopefully by now, everyone has had the opportunity to review the earnings press 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 home page of our website at broadridge.com.

I'd like to remind everyone that we've also included a copy of the key metrics on page 25 and 26 in the appendix of our webcast for your reference. You may find these metrics helpful during Dan's review of the financial results for each of the segments.

During today's conference call, we'll discuss some forward-looking statements regarding Broadridge that involve risks. These risks are discussed here on slide one and we encourage participants to refer to our SEC filings, including those on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements and risk factors.

Before we begin, I would like to point out to everyone that as a result of the Penson transaction we announced last quarter, the clearing business is now reported as discontinued operations and our remaining Outsourcing business has been merged into the Securities Processing Solutions segment. Also as a result of the reporting treatment of the clearing business, the financial results that we will discuss today will address continuing operations, unless otherwise stated.

Now let's turn to the next slide and review today's agenda. As always, Rich will start today's call with his opening remarks. Dan Sheldon will then review the second quarter financial results. 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 slide three and I'll turn the call over to Rich Daly. Rich, it's all yours.

Thanks, Marvin. Good morning, everyone. This morning as part of my opening remarks, I'll talk about the following topics -- first, a summary of our second quarter financial results; followed by a review of our closed sales performance and sales pipeline; and then an overview of our strategy for our two segments. Then, after Dan provides you more on the financial details on the quarter and a guidance update, I'll wrap it up with some closing comments about why I feel Broadridge remains well positioned to create greater shareholder value in the future.

Let's start on slide number four. I'm pleased with our financial results for the quarter. We had an extraordinary quarter that was driven by an unprecedented level of event-driven mutual fund proxy activity. The second quarter activity made up for the first quarter's softness and pulled in some revenue from the second half of the year.

Event-driven revenue continues to be a strong growth enabler for Broadridge. This revenue is not as predictable as Broadridge's recurring revenue but historically grows double digits over any multi-year period.

The increase in our net earnings from continuing operations is directly related to the second quarter's significant increase in event-driven mutual fund proxy revenues and a lower effective tax rate. The strong performance in our Investor Communications segment offset the decline in equity and fixed income trade volumes in our Securities Processing segment.

On our first quarter earnings call, we announced that we were exiting the clearing business by selling the contracts of our clearing clients to Penson. We stated that the transaction would allow Broadridge to focus on its core competencies as a processing company. The transaction is progressing as planned and we anticipate closing in the second half of our 2010 fiscal year.

Also during our first quarter earnings call we announced that we had signed a seven-year agreement with Morgan Stanley Smith Barney to become their customer communications solutions provider in conjunction with our purchase of certain assets of Morgan Stanley Smith Barney. They will outsource to us production and distribution of account statements, performance reports, tax reporting documents and certain trade confirmations, as well as prospectus fulfillment services.

We expect that when fully converted this relationship will generate greater than $35 million in fee revenue annually. This transaction is proceeding better than expected.

During the second quarter, we opportunistically repurchased about 2.6 million shares under our share repurchase agreement at an average purchase price of $22.62 per share. Fiscal year to date we have opportunistically repurchased about 6.1 million shares at an average cost of $21.43.

Now let's move on to slide five. Closed sales for the quarter were $58 million, which represents a 30% increase compared to the same period last year. Year-to-date fiscal 2010 closed sales were up 36% to $88 million. Our sales performance in the second quarter continued to build on the momentum that began in the first quarter.

Our strong recurring revenue sales for the quarter include the previously announced $35 million Morgan Stanley Smith Barney transaction. Our recurring revenue sales were up 34% for the quarter and 21% year-to-date. Our event-driven sales were up 14% for the quarter and 71% year-to-date.

Our sales pipeline continues to be very strong and we still have large opportunities in the pipeline for both segments. Investor Communications continues to have extremely robust sales. Investor Communications closed sales are up greater than 70% for both event-driven and recurring revenue sales.

The Investor Communications segment's strong sales offset the slower start in Securities Processing sales. Our confidence to achieve strong sales results in both segments still remains high due to the quality of our pipelines. Let me discuss the quality of our pipeline, specifically in the Securities Processing segment, and I will also walk you through how the pipeline process works.

In order to be included in the pipeline, we must have given a presentation to a potential customer, not just made a cold call. If both sides are interested, we discuss the conversion process. If both sides are still interested, the contract negotiations begin. As you can see, this can be a very long process.

There are a handful of transactions that we hope are at the very end of the sales process. Given that, and our unique and compelling value propositions, I am confident that many of the deals that we are currently working on will get signed in the future.

I feel good about our sales performance year to date and the strength of our pipeline. We raised our fiscal 2010 closed sales forecast during the first quarter to a range of $185 million to $205 million and our guidance remains unchanged.

Moving on to slide six, let's now review our strategy in Investor Communications. We are expanding our leadership position in driving e-solutions. We are in the process of rolling out a complete e-strategy to enable our clients, their customers and Broadridge's shareholders to benefit from the aggressive application of electronic technologies to enhance the customer experience while simultaneously taking out paper and postage costs.

We have driven electronic participation in our traditional proxy business from zero to over 50% in recent years. Our transaction reporting business is approximately 10% electronic, but growing.

We want to emulate the success of our traditional proxy business across all of our other communication offerings. Through our new Investor Mailbox and Advisor Mailbox solutions, we are confident we can emulate that success.

Now please turn to page seven. This is my favorite slide. This is our $1 billion picture, because if anyone wants to fully recreate this, it's going to cost $1 billion, assuming, of course, that they have the intellectual capital, know-how, and time to do it.

Let me tell you why this is a significant slide. If you look down the left side, we service virtually every broker and bank trust department of any scale significance. Now if you go to the right side of the slide, you will see that we service every registrant in North America, whether they are an equity issuer or mutual fund. They all go through the Broadridge data hub.

Now, look at all the databases underneath the Broadridge data hub. Through these investor preferences and mapping databases, we believe we save the industry about $1 billion a year by eliminating more than 50% of the paper. We built this on a proprietary basis over the last 15 years with hundreds and hundreds of associates participating at significant investment cost.

Now please turn to page eight and we'll continue to discuss data management opportunities that can be mined from our unique Investor Communications market position. Investors and the firms that service them increasingly have needs to manage data from multiple custodians. The previous page shows how Broadridge can uniquely bring together the same customer data across multiple custodians.

As I stated on the previous slide, our Communications business has links to every financial intermediary and, with their concurrence, gives us access to the data. It is very clear to us the uniqueness of this position in this ever increasingly complex financial world and the need for all entities who service investors to be able to give them a complete view of their financial position.

Today our Investor Communications business is a data hub for the distribution of investor and intermediary information. Going forward, we intend to leverage this unique aggregation capability, creating new levels of transparency to the benefit of investors, intermediaries, registrants and regulators.

We see opportunity to enhance the data we collect on behalf of our intermediary and issuer clients to add value to our clients in the form of better reporting and analytics. It is possible to reconcile 12b-1 fees to the penny, certify 22c-2 compliance, provide distributors of financial products with marketing analysis that measures the effectiveness of distribution channels and advertising campaigns at levels never aspired to before.

Our recent acquisitions of Access Data and Investigo have created new capabilities within Broadridge that will allow us to leverage our data management capabilities to the next level.

Let me move on to regulatory needs and opportunities. As a result of the financial crisis, there is significant activity and dialogue surrounding additional regulation in the financial services industry. We at Broadridge believe we have the technological solutions today to enable the financial services industry to provide higher levels of transparency, efficiency and accuracy. We view these dialogues as opportunities to demonstrate to the industry that we can quickly execute by leveraging our unique market position.

At Broadridge, being a solution to the industry's challenges will continue to drive our products and new activities. We will implement the most effective solution, even if it is not in our short-term interests. Successful execution of our Investor Communications strategy will enable continued market leadership and profitable revenue growth.

Turning to page nine, now let me spend a few minutes on our Securities Processing and Outsourcing strategy. We will expand our leadership position in Securities Processing and Outsourcing by leveraging our number one market position and our number one ranking in the Black Book of Outsourcing.

We will continue to expand our breadth of offerings to include information technology outsourcing and business processing outprocessing. We will provide complete end-to-end processing solutions with Broadridge's systems and personnel for self-clearing entities. Our customers will realize significant cost savings and scale improvement by significantly reducing technology and operations expenses. We will continue to expand our leadership position in operations outsourcing.

Our outsourcing annual revenue is expected to be approximately $100 million after the close and conversion of the Penson deal. We are expecting above-average growth for this product. We believe there's a strong market need and we are in discussions with numerous potential clients.

We have already started to see the Penson transaction also create new growth opportunities. Penson shared with us that they recently signed a deal where the customer noted it was attracted to Penson because of its plans to use the highly rated and extensive functionality of the Broadridge securities processing platform.

We will also expand our global presence. Today we have settlement solutions for global institutions, UK private clients and Swiss-based private banks. We have locations in the UK, Switzerland, Germany, Australia, Hong Kong and Japan that service clients in each region. Our solutions enable our clients to effectively settle trades in over 50 markets.

We are an established supplier in these markets, but with modest market share. Large financial firms have increasingly focused on managing and expanding the markets that they trade in. Broadridge will focus on delivering ASP and outsourcing services to the expanded markets that our clients require, building on each success to become a global provider of choice.

Broadridge will also establish itself as a premier provider to the financial services industry, providing coverage of middle market, back office, data center and select corporate functions for the mid-to-large firms. Broadridge will have the ability to assume and transfer a comprehensive range of services with substantial economic benefits that will typically generate significant savings for our clients. Successful execution of our Securities Processing and Outsourcing strategy will enable segment revenue growth of greater than mid-single-digits.

Now I'll turn the call over to Dan, who will go into more detail about the second quarter financial results and our guidance update.

Thanks, Rich. I'm on slide 10 and, as Marvin mentioned, all my comments will address continuing operations, unless otherwise stated.

You heard Rich state that this was an extraordinary revenue and margin growth quarter, given the event-driven mutual fund activity, and that's true, but let me put it into perspective.

First, we knew we'd have a great year with respect to growth in event-driven mutual fund revenues. What we didn't expect was that it would, for the most part, fall into the second quarter versus a more equal distribution between this quarter and the second half.

Second, we are generating recurring revenues from sales in the mid-single-digits for both the quarter, year-to-date and are expected to continue at this growth rate for the full year. And, as expected, these recurring revenues were offset by our previously disclosed carryover losses and concessions from fiscal year '09. The good news here is that we've not been made aware of any new large losses or price concessions and, therefore, our second half begins to benefit from less negative impact, given the anniversary dates.

Our challenge, as well as the industry, has been that we continued in Q2 and year-to-date to experience softening in our market-driven revenues related to trades per day and equity stock record growth during the first half. However, we do expect the softening to be less in the second half, but it's still there.

Our pretax margins were up significantly due to the higher-margin revenues for the quarter and year-to-date would also be up, once adjusted for the one-time benefit from the repurchase of our senior notes we did last year in fiscal '09.

GAAP earnings per share increased due to the pretax margin contributions, the benefit derived from the recurring state tax credits granted last year in our third quarter, and year-to-date 6 million of shares repurchased. And in this quarter, we benefit an additional $0.06 from a one-time foreign tax credit.

Let's turn to slide 11, Investor Communications. Revenue growth for the quarter and year-to-date were up significantly again, primarily due to the Q1 mutual fund proxy activities, but let's move down to the boxed section. Our recurring revenues are up mid-single-digits for the quarter and year-to-date and we expect them to still have a 9% to 11% growth for the year.

If you're following along with the ICS key stat page, you'll note that equity stock record growth is running negative 5%, but better than Q1. As mentioned last quarter, our shareholder position testing indicates more likely low-negative-single-digits for the year. And remember, the first two quarters represent less than 20% of equity proxy activity for the year and the biggest decline in the first half was driven by small caps.

On the up side, notice and access is adding a couple points of growth year-to-date and expected to be at 55% to 60% position penetration rate for the year. And our registered and global equity proxies, as well as new product sales, will benefit the second half.

Our interim stock record growth is up 6% for the quarter and we expect that to stay in the mid-single-digits for the rest of the year.

Transaction reporting is up and benefiting from the addition of the Morgan Stanley Smith Barney deal and is offset slightly by lower number of statements being mailed.

Net/net on our recurring revenues, we're forecasting, as I mentioned before, to be up 9% to 11% for the year with 50% of that growth coming from the core business, primarily new sales, while the other 50% is generated from the Access Data acquisition, Morgan Stanley deal and additional notice and access.

Let's move on to the event-driven line and the elephant of elephants this quarter and for the year, mutual fund proxies, which primarily relate to two clients. If you're looking at the key stat page, then you can see that mutual fund proxies alone are just under $80 million this quarter and that's up almost $70 million from last year.

We expected a good uptick this quarter. What we thought it would come in over two quarters all hit this quarter as the two big jobs happened very quickly. We also had more activity than we expected, which is why we are increasing our low and high-end growth for event-driven revenues 5 points from our November guidance.

I'm thrilled to have the $470 million in mutual fund proxy growth this quarter and another $10 million to $20 million of growth for the second half, but let me put it into perspective. It's true last year was a down year and every time we come out of a down year we usually see good, double-digit growth when it comes to event revenue. As we said before, event revenues have historically had double-digit CAGR growth over any five-year period.

But -- and I do mean but -- we're at unprecedented highs that have very little likelihood of repeating in the near future, given that the two jobs generated $65 million to the revenue this year and likely won't be repeating these size jobs over the next few years. And since we know our client base and what they can generate in any up or down year, you should be thinking about mutual fund proxies that this fiscal year revenue of $140 million to $150 million would more likely be in the $60 million to $65 million range, even with a 20% growth over the prior year's $55 million. As you think about FY '11, be thinking $75 million in mutual fund fee revenues in totality at this point.

With respect to other event-driven revenues, they are down slightly year-to-date, but expected to be flat for the year, as we do expect to see some uptick in proxies, specials and contests in the second half, given expectations of increased M&A activity. Over the last few years going back to calendar year '06, specials and contests have averaged $25 million a year and only down to $19 million in FY '08 and forecasted for '10 to be just over $25 million, as an average.

Moving out of the boxed area and down to the distribution revenues, they are up but at a lower growth rate than fee revenues due to the revenue mix and continued growth in notice and access. Margin gains for the quarter and full year are a direct result of the mutual fund proxy contributions, offset slightly by higher investments this year related to the Morgan Stanley deal and other new product initiatives. As I've said before, this business in a normal, mid-single-digit-growth year, should provide plus 50 basis points improvement year-over-year.

Let's move to slide 12, Securities Processing -- and this is pre-merge of outsourcing. For the quarter, revenues are down 9% and year-to-date 8%, primarily due to the previously disclosed carryover from fiscal '09 of losses and concessions, as well as the negative impact from lower trade volumes. I'm pleased that we have not experienced nor been made aware of any other large losses and that Bank of America is still processing with us, to some degree, which was a pickup to our plan in the first half of $5 million and on a full year basis, approximately $8 million, but does go completely away by the mid fourth quarter of this year.

On the concession front, our revenues, as anticipated, have been negatively impacted in the first half by about 5%, but given our largest negotiations are behind us, the second half impact will be less.

We are picking up mid-single-digit growth from new sales which were, for the most part, sold in fiscal year '09 and we expect this growth to continue throughout the year. Fiscal year '10 sales are behind our plan, but we expect momentum to pick up in the second half of the year.

If you're following along with the SPS key stats page, you'll note that both equity and fixed-income trade volumes from same-store operations, or what we call internal growth, are down for the quarter 9% and 12%, respectively, and both worse than Q1. Our full-year guidance assumes, at the high end, flat equity volumes from where they were at Q2 of around 1.5 million trades per day and at the low end, an additional falloff of 5% from these Q2 levels. And for fixed-income trades, we expect the second half to continue to have mid-to-high-single-digit negative growth.

These continued declines in volumes have us lowering both our high and low end for this segment guidance since November. I don't know when volumes will pick up, but they should eventually and hopefully get back to averages more in the 10% growth per year range, which would add a few points to our overall growth.

Non-trade revenues have been virtually flat and this has been good news, as we had expected a falloff this year. We're now expecting flat revenues for the year, as well.

Let's move to slide 13, Outsourcing. This slide is now referenced as Outsourcing as clearing has moved to discontinued operations, which I'll review on the next slide. With respect to Outsourcing revenue, it is about $25 million a year business before the addition of the Penson business, as you can see by the $6 million in revenues each quarter.

The pretax losses are currently $2 million a quarter, but as you can see, get worse as the year moves on and given there is revenue growth, this seems counter-intuitive. It's all related to $50 million in expenses allocated to discontinued operations that actually come back into continuing operations once we close phase one of the Penson deal.

The best way to think about our run rate in this business is to look at the far right, where we disclose Q4 run rate and you'll see $16 million in revenue and operating losses of $5 million.

Let's move to the next page to better understand what's going on here and the impact of discontinued operations and Penson on the business as we move from fiscal year '10 into fiscal year '11 and beyond.

Slide 14 -- this chart is a graphic depiction of what's happening to our financials as we finalize the Penson deal and exit the clearing business. Let's move to column five, labeled "Fiscal Year '10 Pro Forma." The columns to the left of five depict how we transition from Clearing and Outsourcing to just Outsourcing and include the impacts from discontinued operations. I'm not going to go through this, but they are here for your information.

Focusing again on column five, you can see fiscal year '10 pro forma as if Penson phase one and all our base revenues and expenditures were in place for the year. From the prior page, it's revenues of $16 million and operating losses of $5 million per quarter, or annualized $65 million in revenue and $20 million in operating losses.

Moving to column six, you can see that during the second half of fiscal year '11, we expect to convert the Penson business on to our platform from a competitor for incremental revenues of $25 million to $35 million and incremental profit of $10 million to $20 million.

On column seven, this consolidates the other two columns and brings us back to a $90 million to $100 million revenue base and negative $10 million to breakeven operating position. Given we expect to have additional sales the second half of this year and in FY '11, we expect those sales to convert to revenue during the latter part of fiscal year '11 and all of this, including the Penson and base business, should put us in profitable position as we move into fiscal year '12.

Let's move to slide 15. This is what the combination of Outsourcing into the Securities Processing segment will look like as we go forward and reconciled to our press release segment data. We will continue to speak to three revenue lines, including Outsourcing.

Slide 16 -- Other and FX. This page is in the deck to assist you in your analysis and nothing has really changed materially since our guidance last quarter.

Slide 17 -- Cash Flow. Given that clearing is now part of discontinued operations, we now only show the continuing operations and this makes for a much easier reading of our cash flow. The six months ended column is provided for your benefit, but given that usually over 50% of our profits come in the fourth quarter. The full-year range is where I'll focus you.

Next cash flows from operations hasn't changed much since last quarter. We've had some reclassifications in the operating activities related to the Penson deal, but that's it.

CapEx intangibles range hasn't changed, but given the speed at which our Investor Communications team is delivering on the Morgan Stanley project, I expect we'll be at the high end or slightly above. Again, our activity here is usually between $50 million to $60 million a year, unless there is a large deal where there is additional CapEx or a large sale where there is conversion cost.

Our free cash flow is still projected to deliver $235 million to $270 million and, given we expect to close the clearing sale later in the second half, we still expect to see $180 million to $250 million in freed up capital this year and the upside has increased as Penson may not need the $50 million in capital we discussed in the last call, since they are lining up alternative sources.

Dividend payments expected to continue and currently generating about a 2.5% yield. We did buy back an additional 2.6 million shares in Q2, which brings our total repurchases, year-to-date, to just over 6 million shares.

We don't forecast or give guidance on timing of future buybacks or acquisitions in the pipeline, so nothing additional here.

Slide 18 -- this is our fiscal year '10 financial guidance for continuing operations. Quickly hitting the highlights from the slide, and you'll find additional information starting on page 23 in the appendix, our revenue growth is going to be in the range of 7% to 9% and is a combination of both recurring and event-driven, primarily in our Investor Communications segment.

Closed sales forecast, as Rich mentioned, for the year remains at $185 million to $205 million. Our non-GAAP EPS from continuing operations still in the range of $1.50 to $1.60 a share and our effective tax rate is approximately 37%, without the one-time benefit from foreign tax credit. And, as I already mentioned, our guidance does not include the impact from any future share repurchases, any future acquisitions or additional pay-down of debt.

I'll now turn the meeting back to Rich.

Thanks, Dan. Now let's turn to page 19. Before we go into the Q&A part of the call, let me summarize and leave you again with a few more thoughts on how excited I feel about Broadridge's future. The year is going very well. Second quarter revenues, earnings and sales were very strong and are tracking to our full-year expectations.

Event-driven revenues, as anticipated, were unprecedentedly strong due to mutual fund proxies, which impacted both fees and postage and, therefore, drove the extraordinary second quarter earnings improvement.

As I discussed in the strategy portion of today's presentation, both of our segments have expanding, clear and executable strategies with clear objectives to accelerate growth. The Investor Communications segment continues to have very good results and I am confident that we can create acceptable growth in the Securities Processing segment with above-average growth in the Outsourcing offering.

Our sales pipeline remains strong and we continue to expand our product depth. The fiscal-year-to-date sales results in the Investor Communications segment have been outstanding and we are working on significant opportunities in the Securities Processing segment.

We continue to generate strong free cash flows to create greater shareholder value. We expect to generate $235 million to $270 million in free cash flow this year and, once the Penson transaction closes, we expect to free up an additional $180 million to $250 million. I am looking forward to discussing our plans for the use of this cash, once the Penson transaction closes.

Based on our year-to-date results, the momentum we have generated in the first six months and our clear and executable strategies, I am confident that we will continue to create shareholder value.

Before I turn the call back to Stephanie, the operator, for the Q&A part, I must acknowledge the continued commitment of all of our associates, who not only do their jobs so well, but put forth the extra effort required to integrate our new client and to pursue strategic and acquisition opportunities.

I would also like to announce that, once again, Broadridge has been selected as one of the 40 best companies to work for in New York State for 2010. The Best Companies Group researches the elements that create workplace excellence. The Group analyzes company data to find and recognize those organizations that successfully create and maintain the best workplaces.

Broadridge was selected as one of the 15 large-size best companies to work for in New York. We're extremely proud of this accomplishment and believe that the underlying higher level of associate engagement that this award represents will continue to enable Broadridge to outperform its peers.

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

(Operator Instructions). Your first question comes from James Kissane with Bank of America. Your line is open.

Great job, guys. Phenomenal performance. But, Rich or Dan, can you give us a sense of what your long-term target might be for the Securities Processing business? Say, three, four years out when you take into account the more Outsourcing, the Operations Outsourcing, and, say, over a cycle with normal trading volumes?

Sure.

Thanks.

And thanks, Jim. What I tried to articulate in the call, Jim, is that the low-single-digit growths of the historical Securities Processing segment we need to accelerate. We believe that we can create acceptable growth because the Outsourcing offering really is very compelling for the people who are on it and they're really able to effectively compete far better than their competitors because of the scale benefit we give them and the cost benefit we give them, as well as functionality.

So our belief is that if you take the low-single-digits in the core business and we can accelerate the Outsourcing piece to higher single digits, we'll, at the minimum, create acceptable growth.

Thank you.

Your next question comes from Ian Zaffino with Oppenheimer & Company. Your line is open.

Hi. Thank you very much. The question would be as far as capital structure, now that you're done with the clearing business, how important is having an investment grade rating? Do you really need it any more? Because it seems like you'd have enough cash flow to do a very big buyback and, I don't know, ultimately maybe even go private and it seems you have the steady cash flow to do that. What are your thoughts on that? Thanks.

Good morning, Ian.

Good morning.

First of all, from the very beginning of Broadridge as an independent company, we made it very clear that the investment grade rating was tied to the business model as much as anything else. We provide mission-critical services to the financial services industry. And so, for example, we are 60%, round numbers, of the fixed-income market. The industry having confidence and, specifically, our clients having confidence is a critical strategic imperative.

So we, from the beginning, said that we were committed to maintain and create an investment grade rating. That will not go away because-- now that we're out of the clearing business. We will have more flexibility in our capital structure because we're out of the clearing business, but there is no desire to give up the investment grade rating and that will remain a strategic imperative.

And, Rich, I'll echo exactly what you said because what's very interesting to us, equally, is as we're out there with our new prospects for outsourcing and they're now turning over their people, as well as their systems to us, they are very focused on that investment grade. And on top of that, I think what's very important that Rich mentioned was we used to always earmark $150 million or $150 million-plus for the clearing business to use on occasion and that has now been freed up.

Okay. All right. Thank you very much.

Your next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Hey, good morning. This is David Cohen for Tien-Tsin. I wanted to ask a little bit on the stock record growth. In the past, you've talked about that being a key metric and, Dan, you addressed the relative weakness this quarter, last quarter. What's your expectation going forward? Is there some risk that maybe there's a little bit of a-- the start of a secular trend? And sort of what would be the implications if stock record growth stays maybe modestly negative?

David, the way to think about that is, we talk about stock record growth, in good periods, being in that 3% to 4% kind of range and there were periods, even, where it was north of that. And we've also said for the last couple of years it's been flat or slightly negative.

To put it in perspective, I don't think there's anything yet that indicates there is some secular change. I think we're just going through market changes and a lot of positions moving around. As I mentioned, it was a lot of the small caps that were really driving it down and we've seen improvement, even more recently, of only being in the flat to slightly negative in the mid-to-large size caps.

To also put a financial perspective around it, let's just say that we're going to be plus 5 or minus 5 percentage points. You should be thinking that is plus or down $5 million on the bottom line.

Okay.

David, let me add some something else to this. I've been involved with the stock records side of the beneficial proxy world for 30 years and this is-- if it is a negative year, in 30 years it would be only the second negative year. In terms of recurring revenue metrics, this is without question my favorite.

And bear in mind that we're talking equities, but mutual funds continues to see money go into it and that's another part of the marketplace which we service on a recurring revenue basis, as well. So I would take this stability across any product we have and any product we would have, going forward in the future.

Okay, that's great. And with the processing volumes, obviously, I think volumes have sort of been moving lower and I think a little over a year ago, you've talked about what you've seen in the past is that in a bear market I think you said the volumes tend to go up and then come down and so as you're looking forward here, are you seeing volumes picking up? I think you said they'll be a little less soft in the second half, but what's sort of the expectations for volumes going forward maybe out 12, 18 months?

Well, I'm looking at out just six months because somebody else is going to have to tell me what's going to happen 12 and 18, but let's put it in the perspective that says right now what we're looking at is in the second half of the year on the equities we could either be flat to the $1.5 million I'm talking about -- and, if you remember, last year we talked about in our first half, which was June through December, we had a large uptick in trade volume and that fell off in the second half. So that's why we don't think we're going to see as much of a falloff, pretty much flat or slightly down, in this second half.

And on the side of the fixed-income, it's all being driven on what's going on with the mortgage activity and, as we pointed out there, we are now, of the top 10 that are out there doing fixed income, we've got five of the top 10 and we've got the top four. So it's really going to be a question of when the market starts really turning around, but for the next six months I'm going to be as I usually am. I'm going to look out there and say I don't it. I haven't seen it yet, so I'm going to call it flat to slightly down.

Okay. And last question, Rich, could you update us on the how the sales efforts are going related to the acquisitions?

Sure. The-- we are particularly pleased with the interest in our Access Data offerings, which we've been able to expand, taking advantage of our data hub, which I spent a little bit of time highlighting in today's call. So when I say we're particularly pleased, historically in the mutual fund world meeting the Head of Procurement or maybe a senior operations individual, an executive, would be about as high as we get. We've been in large fund complexes, not only in the C-suite, but with the CEO in attendance.

Enabling firms to have analytics, again, at the effectiveness of marketing campaigns, at the effectiveness of their distribution channels and at the effectiveness of how they're not only doing in a large financial entity but by region, by branch within that large financial entity is giving them analytics at levels, again, that they never anticipated being able to get to before. So we remain confident that our mutual fund strategy is going to enable even better growth in the Investor Communications segment.

Great. Nice execution. Thanks for the good disclosure, guys.

Thank you.

(Operator Instructions). Your next question comes from Stefan Mykytiuk with Pike Place Capital. Your line is open.

Hey, good morning. A couple questions. First off, when I look at the balance sheet, this net-- the discontinued ops, the assets and the liabilities, if I take the net of that, it's about $286 million. Is that basically netting to the restricted cash that's sitting there? Or what--? In other words, is that-- that's kind of the indicator of when you sell this, this is what gets freed up on the balance sheet?

It does. That's the way to look at it and also what we've said is we will still be operating where we're going to keep some capital on board. So what we've said is what we'd be freeing up, but it's the right way to look at it, Stefan.

Okay. And then secondly, the close of the Penson transaction, what needs to happen for that to occur, in terms of regulatory approval or anything else that you need to accomplish before you can close it?

Stefan, this is Rich. Good morning. It really is just the regulatory approval. We believe it's very straightforward. The reality with regulatory approval, though, is that they don't give you an exact timetable. But we remain very confident, the filings are made and we are certainly confident that this will take place in the second half of the year. And, of course, from our point of view, sooner is always better than later.

And who, specifically, what are the-- what's the regulatory-- which regulators do you need approval from?

Well, there are three parts of the transaction. So bear in mind, it's FINRA for the US, it's the UK equivalent and it's the Canadian equivalent.

Okay. All righty. And then the-- just in terms of the sales pipeline, it's sounds like you're saying you've got some big transactions that are coming to the close. That's on the Securities Processing side mostly, or where are those?

I talked about opportunities in both segments. We talked about the number that we would achieve, the revised guidance we gave in the first quarter hitting for the year. We're leaving that guidance in place that we revised to $185 million to $205 million. And I would expect that both segments would contribute in the second half to bring us into that range.

Okay, great. Thanks very much.

(Operator Instructions). Your next question comes from [Bill Hyler] with [Ridgecrest]. Your line is open.

Yes, thank you. Just a quick question on the buyback program. I believe you said you repurchased 6 point-- was it 6.5 million shares through the first six months of the year?

What we said-- so what we said was for the first half just over 6 million shares have been repurchased.

Just over 6 million. And what's an estimate of what you need to repurchase to cover employee compensation, stock compensation for a year, just kind of a ballpark?

So the ballpark would be approximately 3 million shares.

About 3 million shares. Okay, so you're ahead of stock compensation on a run rate.

And just to follow up, I missed that one comment on the $50 million loan to Penson which may not be required. Can you kind of go through that again? I kind of missed the-- what you were saying there.

Sure. Good morning, this is Rich.

Yes, Rich. Thanks.

When we entered into the transaction with Penson, we only wanted a regulatory approval condition to closing. So we didn't want anything that we would be on the side of either party, with the exception of regulators -- actually, let me clarify what I told Stefan earlier, which is the only thing left for us is the FINRA approval. There are three pieces of the transaction. What's left is FINRA.

In any event, so Penson recognized, in order to service the additional business, they would need and would like to add additional capital to give those clients more comfort. So they had the clear intention of adding $50 million to their capital base.

If, for some reason, with the liquidity crisis that had taken place recently, et cetera, they weren't able to raise it, we said, okay, we would make it a loan as part of the transaction. Their confidence right now is very high. They have several options that are available to them.

And so until the transaction closes, we're not going to narrow the range of the $180 million to $250 million freeing up, but we're thinking right now it's closer to the $230 million to $250 million because of Penson's what I'll call very, very high confidence of the multiple options they have to finance the $50 million at a far more attractive rate than they can finance it through us.

Okay. So naturally, if that happens it would be a net positive for both parties.

Yes.

Yes, okay. Excellent. I appreciate it. Thanks.

(Operator Instructions). I am showing we have no further questions at this time. I will now turn the call back to Mr. Daly.

Thanks, Stephanie. Well, Dan, Marvin and I certainly want to thank everyone for their participation today. We're certainly excited about the future. We hope you are, as well, and we'll look forward to seeing you in the near future. Thanks so much. Choose to have a great day.

This concludes today's Broadridge Financial Solutions, Inc., Second Quarter Fiscal Year 2010 Earnings Conference Call. Thank you for your participation. You may now disconnect.