Broadridge Financial Solutions Inc (BR) 2010 Q3 法說會逐字稿

Good morning, my name is Andrea and I will be your conference facilitator.

At this time I would like to welcome everyone to the Broadridge Financial Solutions third-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.

There will be a question-and-answer period after the speakers' remarks; please try to limit your questions to one per participant.

I will now turn the conference over to Rick Rodick, Treasurer and Vice President of Investor Relations.

Please go ahead, sir.

Thank you.

Good morning, everyone, and welcome to the Broadridge quarterly earnings call and webcast for the third quarter of fiscal year 2010.

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 today.

The earnings release and slide presentation that accompany today's 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 pages 30 and 31 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 segment.

During today's conference call we'll discuss some forward-looking statements regarding Broadridge that involve risks.

These risks are discussed here on slide number 1 and we encourage the 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 the risk factors related to our business.

Before we begin I'd like to point out to everyone that as a result of the Penson transaction that we announced in the first quarter, the clearing business is now shown as discontinued operations and our remaining outsourcing business has been merged into the security processing segment.

Also, as a result of the reporting treatment of the Penson transaction, the financial results discussed today will address continuing operations unless otherwise stated.

Now let's turn to slide 2 and review today's agenda.

Rich Daly will start today's call with his opening remarks and will provide you with a summary of the financial results for the third quarter of fiscal year 2010 followed by a discussion of a few key topics.

Dan Sheldon will then review the third-quarter fiscal year 2010 financial results and the full-year financial guidance in further detail including a review of cash flows.

Rich will then return and provide his overall summaries and some closing thoughts before we head into the Q&A part of the call.

Now please turn to slide number 3 and I'll turn the call over to Rich Daly.

Rich?

Thanks, Rick.

Good morning, everyone.

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

First, I'll start with an executive summary of the quarter and year-to-date activities.

Then I'll provide an overview of our third-quarter financial results, followed by a review of our strong closed sales performance and sales pipeline.

And then a business update for our two segments.

After Dan provides you more of the financial details on the quarter and a guidance update, I'll then wrap it up with my closing comments.

Let's start on slide number 4.

Our business execution remains strong; year-to-date closed sales were 41% higher than last year and client revenue retention rates were 98%.

We continued to grow in all of our markets during this down cycle and we were recently upgraded by Moody's due to the Company's continued strong operating performance throughout the economic recession.

We are executing on our strategies.

On April 1 we announced that IBM and Broadridge had signed both business alliance and data center outsourcing agreements.

The Penson transaction is proceeding as planned and we anticipate closing the transaction prior to June 30, 2010.

On March 9 we announced that we had entered the registered equity transfer agent market with our acquisition of StockTrans.

We intend to be aggressive in this space by leveraging the more efficient street processing processes to the benefit of both issuers and shareholders.

The Morgan Stanley Smith Barney transaction that we announced in November is progressing nicely as the performance under the contract is tracking ahead of expectations.

We have assumed the legacy print, mail, fulfillment operations of Smith Barney and have also begun converting the Morgan Stanley legacy applications.

Our high level of associate engagement and productivity was recognized when we were named the Best Large Company in New York State according to the new rankings issued by The Best Companies to Work for in New York statewide survey and awards program.

This is more than a big honor; this says our associates are the most engaged in the industry.

Key recurring revenues have not yet rebounded as originally anticipated at the start of the fiscal year.

Trade volumes, stock record growth and fulfillment continue to run at levels below last year.

However, they have improved from the first half of our fiscal year.

Fortunately this year's unprecedented increase in event driven mutual fund proxy revenues enables us to be within our original earnings per share guidance, even though we are taking our revenue guidance to the low end of the range at about 7% due to market driven factors such as trade volumes and stock record growth continuing to run at levels below last year.

As pleased as we are at successfully executing on a number of different and complex strategic activities, recognize that we are a lagging indicator and that the market is not yet back and therefore we're coming in at the lower end of our revenue guidance.

Until it recovers, as it always has, it will impact future revenue growth.

Now let's move to slide 5.

I am pleased to report solid results in light of weak market conditions impacting our business.

Revenues were up 6% for the quarter which was slightly below expectations.

The revenue growth was primarily driven by the continued growth in event driven mutual fund proxy revenues and recurring revenues from the Morgan Stanley Smith Barney transaction.

Key market driven revenues continue to run at levels flat or below last year.

Trade volumes, stock record growth and fulfillment continue to run at levels below last year; however, they have improved from the first half of our fiscal year.

GAAP earnings per share were down from last year, as expected, primarily due to the dilutive impact of the Morgan Stanley Smith Barney transaction and the one-time state income tax credit received last year.

Now let's move to slide 6.

Our closed sales for the year have been excellent.

Year-to-date closed sales of $130 million are up 41% from last year.

Recurring revenue sales were up 32% year to date and event driven revenue sales were up 60% year to date.

We expect to again have record closed sales for full-year fiscal 2010.

During the quarter we closed three significant processing sales to foreign-based multi-national companies totaling approximately $15 million.

They were three diverse Securities Processing Solutions sales and the majority of this amount was an outsourcing sale.

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 were up approximately 54% for both event driven and recurring revenue sales.

Our confidence to achieve strong sales results in both segments still remains high due to the quality of our pipelines.

I feel very good about our sales performance year to date and the strength of our pipelines.

Our full-year closed sales guidance of $185 million to $205 million remains unchanged.

Let's now move to slide 7.

Investor Communication Solutions is having another successful proxy season.

Equity proxy represents approximately 25% of Broadridge's total revenue.

Although stock record growth is down 1%, we are retaining our clients and our service levels remain very strong.

Notice and access penetration increased to approximately 52% this proxy season.

Global proxy is up and we increased our number of US registered equity proxy clients to approximately 1600.

This client base will be our key prospect list for our new registered equity transfer agency business we acquired during the third quarter through the acquisition of StockTrans.

We will create a new transformative model that will leverage our unique street processing capabilities.

We believe the current market size for the North American transfer agency space will be approximately $900 million.

We intend to be aggressive and disruptive in the transfer agency marketplace.

We now have approximately 1600 registered issuer clients because of their need to service it shareholders better in the annual meeting process.

Many of those customers told us that we should consider being a transfer agent.

When we investigated it we found the cost to change our platforms, to add the functionality additionally on to our platforms in our Securities Processing systems, was not cost prohibitive.

Beyond that we found that the basic floor on the current model is that there is an attempt to keep the registered holder a registered holder.

We're going to the marketplace and saying to the issuer community you should be focused on servicing shareholders and communicating with shareholders irrespective of what form of ownership they desire.

Very similar to what happened to mutual funds with sub accounting, we believe that the same opportunity exists here to go out and move many holders to become street holders.

Our model with the issuer will not be a per account model, but will be an overall model where we're going to go in and drive cost out for them and get paid based on the overall service levels, not on an account level basis.

So, we will lower issuer cost and raise investor service levels with a cost competitive structure that leverages our existing processing infrastructure.

This also leverages our outsourcing group where most of this functionality is already being performed today at levels of higher complexity with brokerage clients which includes their record-keeping and stock transfer activities.

We continue to make progress on our mutual funds data aggregation strategy.

We have identified additional data mining products and we're having meaningful dialogues with the largest EPS about creating levels of transparency unavailable in a cost effective way today.

As we said last quarter, the financial crisis has created significant activity and discussions surrounding additional regulations.

The proposed regulatory reform affecting proxy can only be implemented due to the strength and flexibility of the unique Broadridge data hub.

We expect there to be continued regulatory change as there always has been.

Generally regulatory changes have been neutral to somewhat positive to Broadridge and we expect that to continue going forward.

The complexity of regulatory change continues to make outsourcing to Broadridge and attractive solution since we handle the cost, implementation and on-time development without ever failing.

Now let's please turn to slide 8.

Securities Processing and outsourcing solution retention rates are high and we have had no new large concessions to date in fiscal year 2010.

As I mentioned in the soils performance overview, we're very happy that we closed three significant Securities Processing transactions and the largest was an outsourcing sale.

There is an increased sales pipeline in SPS fixed income because of the number of firms considering becoming primary dealers.

In trading terms the US Treasury market has been a sizable market for the last decade.

However, competition has been sparse.

Recently there has been a renewed interest in the market as treasury issuance doubled in 2009 as compared with 2008.

Issuance in 2009 was more than $2 trillion.

A number of new dealers have come on board and none of the existing dealers have dropped their primary dealership.

We currently process trillions each day in fixed-income processing.

Successful execution of our Securities Processing and outsourcing strategy will enable the segment to improve its margins.

The majority of the economic benefit related to the IBM alliance will occur in the Securities Processing Solutions segment.

The alliance carries both top-line and bottom-line economic opportunities for Securities Processing.

Let's turn to slide 9.

As you can tell, I'm really excited about the IBM alliance.

The IBM alliance is a key strategic decision that positions Broadridge with the industry leader.

The Business Alliance Agreement is structured to deliver a comprehensive portfolio of technology-based solutions and services for the financial services industry.

The Alliance joint go-to-market strategy is a technology lift by IBM and an application shift by Broadridge.

The combined solution suite will enable firms to outsource more of their non-core technology and operations functions to both IBM and Broadridge combined.

Broadridge is also outsourcing its data center to IBM.

IBM is the recognized global leader in IT outsourcing services.

Broadridge will be aligned with a technology provider that offers recognized market leading data center services.

IBM data centers meet all of the highest standards of reliability, availability, security and scalability as specified for Tier 4 data center architecture, Tier 4 being the highest standard.

It is anticipated that the data center agreement will save Broadridge approximately $25 million annually over the 10-year contract beginning in fiscal year 2013.

During the conversion and implementation Broadridge will incur a one-time cost of approximately $25 million during the conversion period of fiscal 2011 and 2012.

Any transaction where you can spend a total of $25 million over two years and save $25 million annually for the next 10 years feels pretty good.

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

Dan?

Thanks, Rich.

I'm on slide 10 for our third-quarter and our year-to-date results.

Since Rich already addressed the revenue growth components for the quarter and year to date, I'll quickly go into just a little bit of detail on we'll call it the EBIT margins.

So, for the quarter the margins were down 2 points mainly due to the forecasted revenue fall-off in the Securities Processing business, as well as in Investor Communications the on-boarding of the Morgan Stanley deal and increased short-term investments including some incremental sales commissions.

EBIT margins were down slightly year to date due to the positive impact from Investor Communications event driven mutual fund proxy revenue in the second quarter which was then offset by the Q3 activity we just mentioned.

Our non-GAAP earnings per share was down for the quarter and up year to date due to the contributions from EBIT and share buybacks.

Let's move to slide 11 and review our revenue drivers in a little but more detail.

On this slide I wanted to refresh your memory on how the revenue drivers have worked in the past and how they are forecasted to look in fiscal year 2010.

We use these drivers to build our forecasts and forward-looking revenue models.

To the far left is the five-year CAGR starting with fiscal year 2005 and includes fiscal year 2010.

During this period we had growth in all years except the one down period we experienced last year in fiscal 2009 of a negative 2%.

The percentages to the right represent our actual year-to-date and forecasted full-year view of revenue growth from the comparative period last year.

As you remember, the fourth quarter is our largest quarter due to the equity proxy activity and this quarter represents over 30% of our revenues and 50% of our annual profits.

So that's why year-to-date and full-year can look different.

With respect to the drivers -- sales, this line represents the revenue generated from our recurring closed sales.

Rich just stated we expect between $185 million and $205 million in closed sales this year.

Of this $135 million to $150 million is related to recurring sales and the rest is related to event driven.

Sales in the security processing and larger deals in Investor Communications can have installation periods of up to 24 months and sometimes even longer.

Therefore, the contribution to revenue from sales can stretch over a three-year period including the current year.

There is a chart in the appendix on page 26 to help you understand both fiscal years 2009 and 2010 closed sales and the contributions to the respective fiscal year revenues.

Let's move to client losses.

This line represents the revenue we lose due to consolidations, clients who go out of business and, very rarely, to the competition.

And you can see historically that we've maintained a 2% loss rate or, more appropriately, have a client revenue retention rate of 98%.

We also have not been made aware of any new large losses at this time.

This high revenue retention rate is due to our market position, continued investments in the business and high client satisfaction survey scores.

The next two lines in yellow, internal growth and event driven, are and have been very important to our overall revenue growth and are tied to the markets we serve, but are also very volatile depending upon market conditions.

Internal growth, as defined in note A at the bottom of the boxed area, is made up of equity and fixed income trade, as well as time and materials in the Securities Processing businesses, and equity and mutual fund stock record positions as well as statement and fulfillment activity in the Investor Communications business.

Think of these revenues as same-store sales.

The drivers here have contributed as much as up to 5 points and down 2 points in any one year and the 5-year CAGR has netted 3 points to overall growth.

This year we're expecting total revenues to be negatively impact 1 to 2 points due to the decreased level of trade volumes, stock record positions and statement activity.

Event driven, as defined in note B, includes mutual fund proxies, equity proxy specials and contests, as well as marketing communications and all are in the Investor Communications business.

The drivers here have contributed as much as up 6 points and down 7 points in any year.

And the 5-year CAGR has netted 1 point to overall growth.

This year we're expecting 3 points to 4 points of growth contribution and all due to the mutual fund proxies as the other revenues are down year over year.

Historically both internal growth and event driven have moved in the same direction during a downturn in the economy or the beginning of a recovery.

However, during this year we've seen event driven mutual fund proxies grow over 40% and that's before the impact of the two large unprecedented jobs which drove mutual fund proxy growth for the year to over 150%.

On the other hand, the internal growth and the other event driven activity have been and still are down from the prior period, but have been improving ever so slowly.

As we mentioned last quarter, the $60 million in revenue and the $35 million in EBIT, we got this year from the two unique mutual fund jobs, proxy jobs will most likely not repeat next year.

Our guidance of around 7% revenue growth is at the low end of what we thought last quarter.

We had planned to have a weak first half and then expected a larger pickup in the second half.

Although there has been improvement from the first half, we're not yet experiencing the level of uptick we thought we'd get in the second half.

Let's move now to distribution revenues which are also tough to predict as they are more influenced by client behavior including adoption of notice and access and the movement to electronic activity.

This year we're expecting about 1 point in contribution to growth and almost all related to the mutual fund proxy activity offset by notice and access.

Acquisitions and FX on an historical CAGR basis have had no impact to overall revenue growth.

But this year each is contributing about 1 point.

The acquisitions we made last year and this year have added around $20 million to revenues and given the Canadian dollar and the US dollar are at about par, we're expecting around a $20 million pick up over last year.

As we convert the Penson deal the revenue contribution will be recognized in this line.

In fiscal year 2011 we expect to generate an incremental $35 million in revenues with an incremental negative impact to EBIT of around $15 million which approximates $0.07 of earnings per share.

As Rich mentioned in the earnings press release, we are anticipating offsetting the EPS dilution with the repurchase of shares opportunistically.

In summary, we're pleased with our revenue growth contributions from sales and client retention.

We are fortunate this year that the unprecedented growth in mutual fund proxies and benefit from FX are making up for the negative 1% to 2% internal growth and the decrease in other event driven riders.

We expect to continue to retain clients and grow through increased sales and acquisitions.

We also expect our revenue growth to benefit from additional internal and event driven activity in the future.

We'll continue to monitor the market trends over the next few months and assess the likelihood of growing over the unique $60 million in mutual fund proxy activity this year with incremental internal and other event driven revenues as we build our fiscal 2011 plan and provide for our fiscal 2011 guidance in August.

Let's turn to slide 12.

Investor Communications.

As usual, I'll focus you on the box there.

Fee revenues were up 13% for the quarter and 21% year to date, and we're now forecasting growth for the year of 15% to 16%.

Both the quarter and the year were down from last projections by a couple of points due to less of an uptick in equity stock record and other event driven revenues like proxy specials and contests, as well as mutual fund supplemental activity.

As mentioned earlier, the good news is we've seen an improvement as compared to the first half (technical difficulty) had thought (technical difficulty) historical (technical difficulty) lag the market in a recovery period and we do know that retail activity has not rebounded yet.

We are the majority of the way through our equity proxy season and expect to be down only about 1 point in equity stock record growth for the year.

And this is great news as in the previous quarters we were looking at a much larger decline.

We're very pleased with the sales growth in this space and retention is at 99%.

Margins were down 200 basis points for the quarter primarily due to the Morgan Stanley Smith Barney conversion which, as mentioned before, will have around a 100 basis points negative impact to margins for the year.

We still have about 18 months before it will be totally consolidated into our operations, but once complete we expect $35 million to $40 million in annualized fee revenues with margins above 20%.

Margins were also negatively impacted for the quarter from increased sales commissions and increased short-term investments.

As we've said before, the majority of the profits for business and for Broadridge as a whole occur in the fourth quarter due to the proxy season, so we look at margins on an annual basis.

I feel really good about the financial results in this segment and even without the two large mutual fund proxy jobs fee revenue growth would still be in the 7% to 8% range.

Let's turn to slide 13.

This slide includes the traditional Securities Processing businesses and does not include the outsourcing activity at this point -- that will be on the next slide.

We're doing this for an easier compare until the Penson deal closes.

Revenues for the quarter are slightly below our expectations.

BofA has still not fully deconverted and has helped to somewhat offset the pickup we were expecting in equity trade volumes.

In January the equity trade volumes were up, but then in February and March back down to the 1.5 million trades per day level.

Now in April the volumes on the equity side were up and retail appeared to be improving.

So, no trend yet, but we're at least experiencing less shrinkage in Q3 than we had in the first half for both equity and fixed income trade volumes.

On a full-year basis we kept the low-end of the revenue and margin guidance about the same and reduced our high end slightly due to the expected less trade volumes.

The good news here is that we're expecting to be in a positive net new business position for the year.

Meaning that revenue from sales is greater than the lost business.

So now we just need the trade volumes to pick up.

Moving to slide 14, outsourcing.

The quarter, year-to-date and full-year are tracking as expected pre-Penson.

At the far right is our estimate of the quarterly run rate including Phase I of Penson with $14 million in revenues and a loss of $8 million.

The change in revenue and pretax losses for Phase I from our Q2 guidance is better explained on the next page.

So let's turn to slide 15.

We've shared this chart with you before.

Although Phase I under column 4 will have about $10 million in less revenue and therefore a higher loss rate by $10 million which is due primarily to the loss of the Neuberger business, we anticipate to still generate under column 6 revenues of $25 million to $35 million in Phase II and less expense in this phase.

So we end up at the same pretax position in column 7 of a negative $10 million to breakeven.

When we add the recent sales and the anticipated future sales we expect to be heading towards $100 million in revenues and breakeven or better once we enter fiscal year 2012.

Slide 16, Other and FX.

This chart is provided for your information, and the biggest positive changes as I mentioned were with improved FX and also by the way less spend in our corporate operations.

Slide 17, cash flow.

We still expect to generate between $235 million to $270 million in free cash flow which is listed in the middle of the page.

In the acquisition space, we acquired StockTrans for just under $10 million.

And we have tightened our expected freed-up capital from the Penson deal to $210 million to $240 million from the $180 million to $250 million, as we believe Penson will not require the $50 million for additional capital.

If the deal closes in our fourth quarter, we may not -- I'm sorry -- when the deal closes in our fourth quarter, we may not see all of the freed-up capital by June 30.

But we do expect it all by the end of Q1 next year as we do need to wind down the assets and liabilities, which is expected to take 30 to 60 days.

With respect to the IBM deal, Rich already mentioned the $25 million in off boarding and restructuring cost related to the deal of which we expect $5 million to $10 million to hit as expense in fiscal year 2011 and we'll also incur an incremental $40 million to $50 million in CapEx software in fiscal year 2011.

On slide 18, our financial guidance.

Our guidance is as follows.

Revenue growth of around 7% as the only variables at this point are in trade volumes and event driven revenues which could push the percentage up a little or down a little.

Closed sales remain at $185 million to $205 million and include some larger deals we're working on.

EBIT margins look to be in the 15.8% to 16.2% range.

And diluted GAAP from earnings per share from continuing operations of $1.58 to $1.64 and earnings per share non-GAAP, which excludes the one-time tax credit this year of $1.52 to $1.58.

GAAP earnings per share including discontinued operations in the range of $1.36 to $1.42 and free cash flow remains, as I mentioned, at $235 million to $270 million.

Rich, back to you.

Thanks, Dan.

Please turn to slide 19.

In summary, we expect to end fiscal year 2010 with an EPS within the range of our original guidance we gave to you last August.

However, fiscal year 2010 is turning out to be a different year than planned in light of the weak market conditions still impacting the recurring revenue volumes in our business.

Fortunately event driven revenue offset these volume weaknesses that always return when retail participants return to the market.

We have also had record closed sales which position us to achieve higher levels of growth and earnings when these market-driven volumes return.

Although there are some signs of retail participation returning, it is too soon to call.

I remain confident about our future because of our consistent ability to execute against our strategy.

Let me share with you some key variables that we're successfully executing against that will lead to revenue growth and greater shareholder value.

We have a 98% client revenue retention rate and we're very pleased with this achievement.

We also have outstanding service levels; this is directly related to that fact that in our space we happen to be the clear employer of choice and this is one of the reasons that we were recently named the best large company in New York State.

Our highly engaged associates are very productive and consistently deliver more for clients which enables us to sell more products to existing and new clients.

This is a clear part of why in this weak market environment we're again having a record sales year.

Our engaged associates continue to push and continue to view revenue growth as a priority in the way we run the business.

We will continue to sell existing and new products to existing and new clients.

We will find new tuck-in acquisition opportunities to further enhance our profitable revenue growth.

Let's talk about tuck-in acquisitions.

We spun off from ADP approximately three years ago and we've done approximately $70 million in tuck-in acquisitions.

We would have liked to have spent approximately $50 million to $100 million per year on acquisitions.

I'll tell you that we've looked at hundreds of possible opportunities.

We remain very selective, but that doesn't mean that we don't see an opportunity to create value here.

It just means that we're not going to go after something that if we own it it's not worth more.

We're not going to have a "money is burning a hole in our pocket" mindset.

I really do wish we could have created more revenue and earnings opportunity through tuck-ins beyond what we have done to date and I remain confident we will add clear value here in the future.

We remain as confident as ever in our ability to generate free cash flow.

We demonstrated that last year by doubling the dividend.

Our dividend in our peer group has a meaningful yield.

We believe it attracts a wider base of investors which we believe ultimately will serve all of our investors better.

Let's talk more about share buybacks.

Our mindset was, is and will remain that we'll repurchase shares opportunistically.

Given the results that we have been able to achieve in a difficult market environment, once a normal market environment returns there will be significantly greater value potential to be created.

We're committed to creating long-term shareholder value.

Now that the Penson transaction closing is imminent, subsequent to the closing we anticipate opportunistically repurchasing shares to offset the $0.07 per share dilution the conversion process will cause over the next 12 to 18 months.

Once the Penson transaction closes we will request Board authorization for additional share repurchases.

Now let's turn to slide 20.

I am pleased with how over the last three years we have demonstrated we could successfully run a public company, evaluate our assets, reposition those assets, recognize the strength of Broadridge and use our strong free clash flow to the benefit of our investors.

We have recognized the opportunities that we have in our core communications business by expanding into the mutual fund space and now into the equity transfer agent space.

Both our mutual fund and transfer agent strategies are game changing models leveraging the long-term success of street ownership and our remarkably strong position in the street ownership process.

In our Securities Processing segment we identified an outsourcing market that would be unique and provide clients significant scale, functionality and cost advantages.

We're well on our way to having $100 million of revenue and incremental profitability in that space.

We entered into a business alliance with IBM which created meaningful market opportunities as well as future margin improvement.

All of these steps have positioned Broadridge to take advantage when a positive market environment returns.

As I have stated before, our performance throughout this weak period, relative to what our industry went through, demonstrates I believe both the quality of Broadridge overall and Broadridge's ability to navigate the most difficult market environments.

I really do look forward to having a call in the future where we discuss how Broadridge has executed just as well in a positive environment.

The above achievements are tangible building blocks to create future greater shareholder value.

Without having the most engaged associates in our markets we would not have fared as well through the downturn or be as well-positioned as we are for when our markets return.

I remain proud to be the leader of the Broadridge team and grateful for the sacrifices that our engaged associates make every day to make our clients number one.

Broadridge is the number one employer in New York, number 17 in India, number 39 in Canada and a company to watch in the UK.

Long-term this is a sustainable differentiator.

Dan and I are now ready to address any questions you may have.

So I'll turn the call back over to the operator for the Q&A part of the call.

(Operator Instructions).

Jim Kissane, Bank of America-Merrill Lynch.

Thanks.

Hey, Rich and Dan, great job.

A question on the event driven because it seems to be a pretty important swing factor for the next 12 months.

Do you think it's going to normalize or stay elevated as you look out?

Jim, when we set out this year one of the key questions that people asked us was, gee, you're planning on a big increase in event driven, and then with the two key jobs of American Funds and iShares we wound up being $60 million even over the large increase we had planned.

Now as I've often say, Jim, I really like event driven because it's our strongest CAGR.

It's just in any given year it's very difficult to see out more than three months, six months at the most.

So, there is a possibility of very strong activity next year.

Over any period of time we believe that it will continue to grow because the mutual fund positions are growing even in this market.

So, it's very difficult to say specifically where we're going to be next year at this point.

We'll have a slightly better view in August.

But long-term we believe that event driven in the mutual fund space will continue to be strong.

Yes, Rich, the only thing I'd add on to that is the proxy specials and contests, there's more M&A activity out there.

We would have hoped for a little bit more activity as far as the revenue goes, but right now we're not seeing any of it.

And the other piece that's called mutual fund supplementals, which means it's not part of the semi annual or the annual mailing, just hasn't been there this year.

So it's really hard, until we start seeing a trend, to predict what we would think for next year.

I think we're all believing that it can't go any further down.

So that's what I'd leave you with.

Great, thanks.

Ian Zaffino, Oppenheimer.

Hi, thank you.

As far as -- I'm glad to hear that you guys are going to approach the Board to buy back shares.

Is there a dollar amount that you're thinking?

And the other question would really be given the I don't want to say lack of excess, but I guess limited acquisition opportunities that fit your criteria, does that make you more willing to buy back shares or do you think keep your powder dry with hopes that eventually you'll see something out there?

Thanks.

Okay, I'm going to address the buybacks first and then the acquisition PCM.

In terms of the buybacks what we specifically said was we're going to look to offset the $0.07 share dilution, so you can do the calculation of about how many shares that would be.

And in terms of acquisitions, what I said was that we have had $70 million over three years versus a desire to do between $50 million and $100 million.

Again, with that said, we continue to actively look and I would like to believe that as we go forward we'll be more successful in identifying targets that fit our space exactly as we would like it to and create better revenue and earnings opportunities.

So, as we go forward we expect to be more successful there.

Let me emphasize though, we're not going to lower our standards and we're not going to lower the fact that we're going to remain very selective.

Yes, Rich.

The piece, Ian, on that was remember last August we announced that we had a $10 million authorization from the Board and we spent $6.6 million of that authorization.

So therefore that leaves about $3.4 million and we've talked about buying back shares to avoid the dilution from the Penson deal.

So obviously that's why we're talking about additional authorization.

Okay.

Thank you very much.

Tien-Tsin Huang, JPMorgan.

Hi, thanks.

Rich, I wanted to ask for your thoughts on what happened last Thursday in the markets with all the volatility in the markets obviously and what the implications would be for Broadridge from that, if any?

Tien-Tsin, thanks.

I listened to the commentary on Friday, over the weekend and even this morning; it's still a highlight on the NewsRadio 88 updates at five-thirty and six in the morning.

So, first of all, Broadridge -- our systems performed very well throughout that process, I'm pleased to state.

In terms of what this means to our markets, I would expect that there's going to be some changes at the exchanges and I expect that we'll be well-positioned to manage those for our clients and, again, it's an advantage for our clients when something like that happens.

Beyond that, Tien-Tsin, this is something well beyond Broadridge in terms of the market-making activity, the program trading activities and the off- exchange activity.

And I would expect that there's going to be if not regulatory activity I'll call it industry activity to ensure that the real companies don't go to a value of zero because of imbalances.

Got it.

I'm sure the volumes obviously -- the additional volumes obviously help.

Just a quick follow-up unrelated.

Just -- glad also to hear about the additional share repurchase at the offset.

Did you comment at all about your willingness to take on leverage to address the share repurchase?

Thanks.

Okay.

Well -- we now, as we mentioned in here, we've been upgraded and we have the ability to take on additional leverage to create value.

We don't anticipate, because of the freeing up of the cash from Penson, to have to take on additional leverage though to buy back the shares to offset the dilution at this point in time.

Yes, I would totally agree with that, Rich.

I think the other thing though -- Tien-Tsin asked a question earlier which was on the trade volumes.

Just so everybody knows, those trade volumes on -- last week late in the week jumped up 20%, so we went from $1.5 million to $1.8 million.

I'd love nothing more than that to stay at that rate.

But what I can really see out there is that the April time period we were talking to everybody where we saw a little bit of an uptick and a return of the retail side, maybe right now we're looking at 2 or 3 points of growth right now for where everything sits.

And again, we'll wait and watch this week.

But I don't think $1.8 million is going to be sustainable for any long period of time.

Yes, and I would add one other thing.

We would like a stable market and we would like retail to return.

I don't think last Thursday did anything to help those events taking place, both a stable market and retail returning.

Totally agree with you, Rich.

Great, thanks for the disclosure.

[Peter Dale], Omega Advisors.

Gentlemen, good morning.

Gentlemen, my question is not a lot different and similar to Ian's question surrounding acquisitions.

Richard, you've really focused over the last four or five months on the commitment to improve the top-line growth.

We see the StockTrans acquisition that conveys alignment.

I guess importantly you added Tim Gokey, distinguished background and reputation, as your Chief Corporate Development Officer.

I guess my question is this, gentlemen, is there something bigger out there on the acquisition front that looks more appealing?

Could we see something bigger than the tuck-in acquisition thesis?

And I suspect it doesn't change your view on dividends and share buybacks, but can you elaborate?

Peter, thanks.

Peter, I'm delighted you raised the fact that we added Tim and it was probably an oversight on my part to not include that in the script.

We believe we've been very successful in executing against the strategies and in my summary I highlighted a number of them which we feel very, very good about.

That doesn't mean we're satisfied and that we don't want to do more.

And by bringing in someone with Tim's background and experience, shows our commitment to create greater top-line and earnings growth.

So, the focus with Tim now running the strategy group and the M&A activities is to be even more successful as we go forward.

Tim though will be part of the same mindset we have here, which is if we acquire something we're acquiring it because we believe when we own it it's going to be worth more.

And we're not going to go into a space where we don't have expertise in, but we think with the expertise we have in both communications and Securities Processing there are good opportunities and now it comes down to can we get those opportunities at a price that we believe would be attractive to our shareholders to create greater growth as we go forward.

What you're hearing is our focus and intent is greater than ever in achieving this, but our mind set in how we achieve it isn't changing, Peter.

Yes and, Rich, onto that piece was Tien-Tsin -- this ties back to what he was talking about with cash versus debt.

We do feel that we've got the cash and the right amount of cash to do what we think is appropriate with share buyback, especially in light of the Penson deal.

But also we're going to make sure that we have room in our debt capacity for the tuck-in acquisitions or other things that should come along.

Gentlemen, thank you.

Thank you, Peter.

Stefan Mykytiuk, Pike Place Capital.

Good morning.

Rich, can you just elaborate?

You mentioned something about the IBM alliance also creating a top-line opportunity.

Can you just elaborate on what that would be?

Sure.

Stefan, one of the things that we find in the outsourcing agreements is that, although we're taking over the systems and the people, there's a systems infrastructure there that sometimes is a challenge for the client to right size.

And what we believe is when we go in now to market with IBM as a strategic alliance partner, what we're actually going to be able to do is take over the systems, the people and the infrastructure which really will create not only a very significant additional cost opportunity for the client, but it will also create a far better way for the client to manage the transition.

So, I'm expecting and planning on my calendar in the near future to be going out with IBM senior management to be visiting a number of large prospects where we both have strong relationships and we like to believe that this will enable some of these clients to be more confident to make the decision to outsource to both Broadridge and IBM as we go forward.

So just if I understand you correctly, you're saying basically that this is potentially removing a hurdle to the client wanting to outsource?

Right now it's systems and people, now it's systems, people and infrastructure.

That's going to be very compelling in some significant C suites out there, Stefan.

Okay, great.

And then back to the buyback, if you don't mind.

But, it looks like you did not buy back stock during the quarter.

Were you guys blacked out for some reason due to the Penson deal or --?

We bought back a small amount.

There were some issues about what we could or couldn't buy.

But we wanted to get a much firmer handle on a clear closing on the Penson transaction.

We remain very confident it's going to close in this fourth quarter and we bought back about, what, 500,000?

Yes.

Okay.

But just kind of following up on a couple of previous questions.

You're going to end the year with $500 million or something of cash or more and you've got very little leverage.

So it does seem like you have the ability to do these kind of acquisitions as you've done in the past, even at a slightly better rate, plus maintain a strong dividend policy, plus really buy back stock more than just offsetting the dilution from the Penson deal.

Is there some reason why you wouldn't be a little more aggressive on the buyback?

We like everything you just said.

We really think we're well positioned to create value across all the levers that we can execute against, which is the dividends, which is the buybacks, and which is the acquisitions.

And we're going to look to manage those to the maximum benefit to create shareholder value.

So, there's -- we have the options and we have the cash and because of our strong free cash flow we're confident that we're going to continue to have these options as we go forward looking to create value for the long-term.

Yes, Rich, I totally agree with you and I think you said the right thing where you said options.

And we're looking at all three of the triggers, right?

We look at the acquisitions, we look at cash we want to have on the balance sheet which we said should be approximately $100 million, and we've also said that we look at what the buybacks would potentially be.

So (multiple speakers) same place.

Okay, great.

Thanks.

(Operator Instructions).

Milan Gupta, Southpoint Capital.

Thanks for taking my questions.

I just had a couple, just real basic questions.

Why is there dilution associated with the Penson deal?

I was under the impression that you guys are getting shares in Penson and then subordinated note consideration.

Can you just walk me through that again?

Yes, so there are two pieces.

One is the sale of the contract and that is out there as far as you're going to get -- we're going to get probably one-third of it which right now we're using a range of call it $40 million to $50 million.

So we think one-third of it will come in the form of stock, Pinson stock, and the rest will be in a 5-year note.

When we're talking about the dilution, what that is is the run rate dilution.

If you remember what we talked about last period was there's $50 million of expense right now that is sitting over in discontinued operations that as soon as we close this deal comes back into the operations.

And that was back on that slide that we can walk you through at a different time or off-line.

I don't have the slide right in front of me but that's when we call it the evolution of the Penson deal and that's the one that shows you that when we bring back in that $50 million it takes us through the time of conversion.

It's by the way page 15.

Until it's fully converted until such time that we would say we'd be at a negative $10 million to breakeven on the bottom line.

So that's what I think the two pieces are that you're looking for.

So when you (multiple speakers)?

And as you recall, when we announced the Penson transaction, the thing that we were so excited about was that we would be exiting the clearing business, okay, and the conflicts of the clearing business for a pure processing play like Broadridge.

At the same time, at the ended that transaction we would have about $100 million in revenue and outsourcing and be well on our way to having incremental profit from that outsourcing.

But we have to go through the conversion of Penson's existing business and moving it on to our outsourcing platform which will take somewhere between 12 and 18 months after the close.

What you're saying is you're offsetting a P&L charge by shrinking the denominator?

Which is great.

That's all I've got, thank you.

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

I will now turn the call back over to Mr.

Daly.

Well, as always, Dan, Rick and I really appreciate your participation and we'll look forward to seeing you in the near future.

You guys choose to have a great day.

This will conclude today's broadcast -- Broadridge Financial Solutions, Inc.

third-quarter fiscal year 2010 earnings conference call.

Thank you for your participation.

You may now disconnect.