Broadridge Financial Solutions Inc (BR) 2010 Q4 法說會逐字稿

Good morning.

My name is Monica and I will be your conference operator today.

At this time, I would like to welcome everyone to the fourth quarter 2010 fiscal earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question-and-answer session.

(Operator Instructions).

Thank you.

Mr.

Rick Rodick, you may begin your conference.

Thank you, Monica.

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

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

I am sure by now everyone has had an opportunity to view the earnings release we issued this morning.

The news 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 would like to remind everyone that we have also included a copy of the key metrics on pages 26 and 27 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 will discuss some forward-looking statements regarding Broadridge that involve risk.

These risks are discussed here on slide number 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'd like to point out to everyone that as a result of the Penson transaction we announced in the first quarter and closed in the fourth quarter, declaring business is shown as discontinued operations of our remaining outsourcing -- and our remaining outsourcing business is now part of the security processing solution segment.

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

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

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

Dan Sheldon will then review the fourth quarter and fiscal year 2010 results and the fiscal year 2011 financial guidance in further detail.

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

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

Rich?

Thanks, Rick.

Good morning, everyone.

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

First, I will start with an overview of our financial performance.

Then, I will discuss our key accomplishments for the fiscal year 2010.

Followed by a review of our strong closed sales performance and sales pipeline.

And then a regulatory update which I am particularly excited about.

After Dan provides you more of the financial details on the quarter and the full year, plus a guidance update, I will wrap it up with my closing comments before Q&A.

Let's start on slide four.

Our financial performance for the quarter and full year was within our guidance range.

I am satisfied with our overall results for fiscal year 2010 and our ability to achieve our revenue and earnings results during these challenging market conditions.

We had record full year closed sales of $175 million which represents a 26% increase over last year's results.

In addition to our strong closed sales results, we also had excellent client revenue retention of 98%.

Revenues increased 7% for the year which was in line with our guidance.

The revenue growth was primarily driven by growth in event-driven mutual fund proxies, new sales and acquisitions.

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

Trades, stock record and statement volumes are all down in fiscal year 2010 reflecting the continuing weakness of the financial markets.

Non-GAAP diluted earnings per share from continuing operations of $1.56 were at the midpoint of our guidance and the growth was primarily due to a lower share count.

We had significant share repurchases in fiscal year 2010.

We repurchased approximately 13.7 million shares during the fiscal year of which 7.1 million were repurchased in the fourth quarter.

We also repurchased an additional 2.5 million shares subsequent to year-end in July.

All told, for the period August 2009 through July 2010 we spent approximately $330 million on share repurchases and last night our Board authorized an additional 10 million shares for future repurchases.

Later in the call, I will talk about all of the ways we could use our strong free cash flow to create shareholder value.

As we previously announced the Company's Board of Directors declared a quarterly dividend of $0.15 per share payable October 1.

The annual dividend was increased approximately 7% to $0.60 per share.

Let's move to slide five.

I am really very proud of our accomplishments this year and I'm very pleased with the successful execution of our strategies.

In November, we announced that we exited the clearing business and had entered into an agreement with Penson Worldwide that provided for the sale of our clearing plan contracts.

We also announced that we were entering into a long term outsourcing contact -- contract under which Broadridge would provide certain securities processing and back office support services to Penson.

We closed the transaction on June 25 and announced the execution of an 11 year global outsourcing services contract that is expected to generate $50 million to $55 million in annual revenue when all of Penson's clients are converted on to Broadridge's securities processing platform.

In addition, the closing of the transaction will free up $240 million in capital.

Once this transaction is fully implemented, Penson will be our largest outsourcing client.

The implementation will take most of fiscal year 2011 to be completely implemented and the transaction along with new sales will allow us to exit fiscal year 2011 at a break even or better earnings run rate for outsourcing.

As I mentioned on the previous slide, and I will go into more detail on the next slide, we had record closed sales of $175 million in fiscal year 2010.

Again, this represents a 26% increase over fiscal year 2009's results.

I want to point out that the $175 million does not include the annual $55 million in revenue on the Penson transaction as we first view this as a transaction related to selling the clearing contracts.

In October, we signed an agreement to provide customer communication services to Morgan Stanley Smith Barney.

The services include the production and distribution of account statements, tax reporting documents, and certain trade confirmations as well as the provision of prospectus fulfillment services.

Our results from the transaction were better than planned financially for the first nine months, and we have surpassed the clients expectations every month by exceeding our service level agreements.

This past month end, we successfully converted the Legacy Morgan Stanley statement on to the Broadridge platform to rave reviews, which now has increased the annual run rate for Morgan Stanley and affiliated agreements to greater than $40 million per year.

The Morgan Stanley Smith Barney transaction is diluted to fiscal years 2010 and 2011 and is expected to generate 20-plus% margins beginning in fiscal year 2012.

In April, Broadridge and IBM announced an information technology services agreement whereby IBM will provide Broadridge with data center and information processing services.

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 totaling approximately $ 25 million during fiscal years 2011 and 2012.

Broadridge and IBM also signed a business alliance agreement.

The business alliance is structured to deliver a comprehensive portfolio of technology based solutions and services for the financial services industry.

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

The combined solutions suite will enable the firms to outsource more of the noncore technology and operations functions to IBM and Broadridge.

We currently have two meaningful opportunities in our sales pipeline that would utilize our alliance with IBM.

We made two acquisitions during the year that we believe will contribute to our ability to grow revenues and earnings.

In March we entered the stock transfer agency business with the acquisition of StockTrans.

Our acquisition of StockTrans was intended to better address the needs public companies have voiced for lower cost, more reliable, shareholder record maintenance and communication services.

Broadridge is focused on identifying ways to further reduce corporate issues overall costs by aggressively applying technology to the stock transfer process.

In June, we expanded our global reach with the acquisition of Citi Networks.

Citi Networks is a leading middle office software and services provider for the global financial services industry with over 400 clients in seven countries.

They presently have a very small presence in the US which we expect to be able to significantly improve.

The acquisition further accelerates Broadridge's international growth, extending our growing range of solutions and competencies, to our existing bank broker and asset management client base.

The acquisition also increases our services reach into clients domains by providing reconciliation services for foreign exchange, money markets and OTC derivatives.

Let's talk a little about associate engagement and customer satisfaction levels.

I am extremely proud of the two of the awards we received this year for operating excellence.

We were recognized for our high level of associate engagement and productivity and we were named the best large company in New York State by the Best Companies to Work For in New York State, state-wide survey and awards program.

This really is a great honor for us.

This tells everyone that our associates are the most engaged in the industry.

Next for the third year in a row, we were ranked number one globally in the prestigious Black Book of Outsourcing.

We ranked number one for brokerage processing services in 14 of 18 subcategories that we were benchmarked against.

Our differentiated service levels are reflected in our strong sales performance, and will continue to aid our growth in the future.

Let's move to slide six.

As I mentioned on the previous slide, we had record closed sales results for fiscal year 2010.

Worth repeating yet again, $175 million in closed sales represent a 26% increase over fiscal year 2009 results.

Recurring fee sales of $119 million increased 25%, and event driven sales of $56 million increased 29%.

The closed risk sales results fell below the $185 million to $205 million guidance as some of the deals we anticipated closing in fiscal year 2010 are still very active, but have slipped into fiscal year 2011.

Overall, I am very pleased with our record sales performance.

A key highlight for Broadridge since our spin off from ADP has been our sales performance.

At the time of the spin, we were anticipating annual closed sales in the low $100 million range.

But our results have been much better.

We believe our strong sales performance will continue.

We believe that this level of sales performance will require less of a market recovery to get us back to mid single digit revenue growth.

Obviously, as we maintain this performance, and the markets recover to historical averages, our performance will be even better.

Closed sales and investor communications were very strong at $135 million, which represents a 37% increase as compared with the prior year and accounted for 77% of our total closed sales for the year.

Recurring fee sales increased 43% this year, primarily as a result of the Morgan Stanley Smith Barney transaction.

Closed sales were flat in securities processing, as some of the sales that we had forecasted to close this year have slipped into fiscal year 2011.

Outsourcing closed sales were $14 million.

Our sales pipeline is strong and continues to have very good momentum.

Investor communications continues to have extremely robust sales, and we anticipate continued strong sales results in fiscal year 2011.

The sales process is very long in securities processing where some of the large deals can take multiple years to come to fruition.

I have stated in the past that closing the largest strategic deals is lumpy.

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

For fiscal year 2011, we expect closed sales in the range of $160 million to $215 million.

This range reflects the less predictable large sales process.

Achievement of the higher end of the range will be dependent on the quantity of large deals signed.

Let's now turn to the regulatory update on slide number seven.

The Securities and Exchange Commission issued its concept release on the US proxy system last month.

We are very pleased that had the SEC has captured all of the issues in one document for discussion.

We applaud the SEC's vision to recognize that there is an opportunity to make the process better with the proven technologies of today.

The concept release is seeking public input on three major topics.

First, ensuring the accuracy, transparency, and efficiency of the voting process.

Second is enhancing shareholder communications, and participation.

And the third is addressing the relationship between voting power and economic interest.

We are in the process of reviewing the details of the release and working with interested parties in preparing formal comments, and we will be responding within 90 days of the July 14 issuance of the concept release date.

It is too early in the process for us to make a determination as to whether there will be any modifications made to the current proxy process.

And if so, what impact, if any, this will have on Broadridge.

However, we welcome this opportunity to create even greater levels of technology-driven efficiency, transparency and participation in shareholder communications and proxy voting.

There were numerous proxy system enhancements discussed in the concept release and Broadridge is committed to implementing any enhancements that are slated for implementation.

Broadridge is focused on creating value and enabling companies to be more efficient.

We will enable companies to meet the new business requirements of any new regulatory requirements.

In particular, we believe that the opportunities around investor to investor communications will enable boards, managements and shareholders to have greater transparency than ever anticipated before.

It could also accelerate taking out another $1 billion and paper and postage costs from the proxy system.

As you will recall from prior presentations, Broadridge today saves issuers approximately $1 billion annually in paper and postage costs through our extensive investment in technology.

The total annual fees paid by issuers for street proxy services today are approximately $500 million.

As I have said before, any time you save a buyer twice the amount in costs that they pay in fees, that is a very strong value proposition.

We are not aware of anything raised in the SEC's concept release that addresses how the industry can still save this $1 billion without utilizing Broadridge's communications infrastructure.

Any enhancements ultimately approved by the SEC, will need to be built, maintained and they will need to work flawlessly.

Someone has to get paid regardless of who does it.

We believe that Broadridge is well positioned to lead this effort.

We view end to end confirmation as a natural extension of the existing system and we already provide this for some of the companies that we already process on behalf of for both registered and street holders.

Client directed voting is an opportunity to get more participants involved in the process and have a better view of all shareholder views in the proxy voting process.

We have already built a pilot for this.

It would need to be rolled out, maintained and made bulletproof like everything else we do.

There is a cost and we believe there should be a fair return.

Proxy access if implemented by the SEC would require meaningful development, maintenance and testing, all of which would have economic considerations.

We believe there will be a discussion about the existing fee structure, and we are eager to have those conversations given what issuers pay Broadridge on average in the unregulated market is over two times the average fee that issuers pay in the regulated market for the street side.

I believe that the regulators and Broadridge would love to see this evolve into a free market but it is complicated.

When you look at the issues of the concept release, that relate directly to our business model, you really can net it down pretty simply as follows -- there are some that believe the SEC should move the process back 45 years to when it was a direct investor to issuer model, despite the fact that street ownership was created to fix the scalability and accuracy issues of that model, at a time when volumes were a small percentage of what they are today.

There are some that believe the status quo is acceptable and there are some like us that believe the model should be driven forward using the latest technologies to enable more transparency and confidence than any new regulations can achieve through end-to-end confirmation in a social network, connecting shareholder to shareholder with access to management and boards who want this access.

The social network for investors would not only have anonymity but accountability because behind the scenes every investor would be known and held accountable for false and misleading statements.

Through this unique social network, management could communicate with shareholders virtually and instantly at a lower cost than anything being discussed or envisioned today.

Boards could have a clearer understanding of investor views and only investor views on issues like compensation and be able to segregate those views from overall public sentiment.

Even if there were hundreds of thousands of investor comments, through the latest sentiment technology, managements and boards would be able to instantly understand the directional sentiment of investors on key issues.

Investors could participate on an information playing field more level than anything ever discussed but certainly desired.

Although everyone seems to be using the word transparency, I am not aware of anything being discussed in any regulation that creates levels of transparency like this would create for shareholders, management and boards.

The bottom line is that we believe we are uniquely positioned to enable the SEC to effectively implement the enhancements above and other opportunities to use technology to improve the efficiency and effectiveness of investor communications.

I will now turn the call over to Dan, who will go into more detail about the fourth quarter and the full year of fiscal 2010 financial results as well as our fiscal year 2011 guidance.

Dan?

Thanks, Rich.

I am now on slide eight -- Broadridge's fiscal year 2010 results, and fiscal year 2011 forecast.

We exited the fourth quarter with revenue growth of 5% and market-driven activity from equity trade volumes and stock record positions virtually flat but improved from earlier quarters.

It does appear the worst is behind us as for two quarters now these activities have remained virtually flat or have somewhat improved.

So we ended the year with revenue growth of 7% and 4 points of that growth coming from two large mutual fund proxy jobs we discussed before.

EBIT was flat due to the revenue mix, and increased investments including the Morgan Stanley Smith Barney.

Revenues in fiscal year 2011 are projected to be up between 1% to 4% but all coming in the second half.

As in the first half, it is negatively impacted from the fall off of those two mutual fund proxy jobs and some other mutual fund proxy activity which we have discussed before and you can see the impact in the first half in the chart below.

EBIT and earnings per share in the first half are expected to be down significantly due to the strategic investment and mutual fund grow overs we just talked about but I expect during the second half to see both EBIT and earnings per share expansion due primarily to contributions from new sales, Penson and Morgan Stanley benefit, and some recovery in the market-driven activity as well as the grow overs for the most part behind us.

We view fiscal year 2011 as a transitional year, given the level of strategic investments and the mutual fund grow over.

However, our use of cash to repurchase shares puts our non-GAAP earnings per share at par with last year at the low end of our guidance and growth of 6% at the high end.

The chart at the bottom not only highlights the mutual fund grow over items but addresses the impact to both revenues and EBIT from our strategic investments.

To the right, are the future positive EBIT contributions that show in fiscal year 2012 we are expecting that the incremental IBM conversion expense of $15 million to $20 million should be offset by the benefit we expect from the full year Penson and Morgan Stanley businesses.

Then, in fiscal year 2013 we're expecting a pick up of around $40 million to $45 million to EBIT as we get the full benefit from the IBM $25 million a year, recurring savings, as well as the pick up from the one-time charges incurred in fiscal year 2012.

Let's move to the next slide and review our revenue drivers.

Taking out the 4 point impact -- it's on slide nine revenue drivers -- we shared this slide with you last quarter, and I have added our ranges for fiscal year 2011.

As already mentioned, we are expecting 1% to 4% total revenues.

Taking out the 4 point impact from both fiscal year 2010 and 2011 for the large mutual fund proxy jobs, our revenue would reflect a more typical trend out of the recession for us of 3% in fiscal year 2010, growing to 5% to 8% in fiscal year 2011.

Moving on to closed sales, recurring sales are expected to contribute 3% to 4% given the level of sales last year, and our expectations for this year, we would expect to see the 3% to 4% move closer to a 5% contribution, in fiscal year 2012 and 2013 assuming we also continue to grow sales each year.

We have included a closed sales to revenue you conversion chart in the appendix to help you better understand when closed sales become recurring revenue.

Losses expected to be around 1%, and we haven't been made aware of any large losses to date.

I have yellowed the internal growth and event-driven to make a point about both revenues and margins.

For the last two years, and in fiscal year 2011, these two revenue drivers have moved opposite each other.

Our five year case shows both had a positive contribution to revenue.

When the markets return to growth for an extended period of time, we believe these two drivers will again move in the same direction.

And not only have a positive impact to overall revenue growth, but a positive impact to margins like they did in our fiscal years 2005 through 2008 as contributions to margins from these revenues are greater than 60%.

I will address distribution, acquisitions and FX in the next few slides.

So let's move on to slide 10, investor communications.

As I go through the segment as Rick mentioned, you may find it helpful to also look at the key stat slides which start on slide 20.

Here we ended fiscal year 2010 below our revenue and margin estimates but due to lower overall proxy activity in the fourth quarter as well as a distribution revenue mix.

Having said that, the business still ended the year with 9% revenue growth and even without the unique mutual fund proxy activity with 4% growth.

With respect to fiscal year 2011, revenue growth of negative 2% to a positive 1%, I think a bit more than 3% to 6% without the one-time mutual fund proxy activity.

This business weathered the recession with only a 3% loss back in fiscal year 2009 and given fiscal year 2010 and 2011 projections without the mutual fund proxy activity is driving back to the mid single digit growth level.

Closed sales are expected to drive about 3 points and retention rate of 99% continue to ensure that net new business remains positive with positive margin contributions in this business.

Internal growth virtually flat but up a little in the second half and that's related to changes positively in stock record growth.

Event-driven I've already addressed the impact of the two large jobs in fiscal year 2010 and we are forecasting some additional M&A and mutual fund proxy activity in the second half.

There is one other point I would like to make on mutual fund proxy.

The midpoint of our range this year, fiscal year 2011 for mutual fund proxies is around $75 million.

And this assumes we will return to a compounded annual growth of around 10% given both the growth in the market and our desire to gain share.

The low and high end of our range has about $3 million to $5 million up or down from this.

However, what can happen here and it is highly dependent on just a few clients is that we could actually be significantly higher like we were in fiscal year 2010 at $150 million or lower like fiscal year 2009 at $55 million from our midpoint.

We are not aware of anything yet that could drive such a large variance up or down but feel it is important to address as we give you guidance ranges.

Let's move to slide 11.

Securities processing solutions.

This is the combined business unit including outsourcing and we'll, at Q1, begin to address the combined businesses here with breaks out of revenues for trade, nontrade and outsourcing on the key staff pages.

However to help with the transition, we'll for one last time review securities processing and outsourcing separately.

So let's move to slide 12.

This is the equity and fixed income processing or the old as we call it SPS segment.

We ended FY 2010 ahead of our estimates due to one-time T&M activity and as already mentioned trade volumes were flat in Q4 for both equities and fixed incomes but improved from earlier quarters.

For fiscal year 2011 revenues from closed sales expected to drive 4% to 5% to overall revenue growth and this is consistent with the last few years and over 70% already sold from our prior year periods -- fiscal year 2009 and 2010.

With respect to losses, they will negatively impact revenues by 4% and just over 50% of this is from the Bank of America/Merrill Lynch which has almost completely deconverted at this time.

Internal growth here just like in investor communications is highly dependent on retail activity.

The low end of our guidance assumes virtually flat volumes from our Q4 fiscal year 2010 step off of approximately $1.6 million equity trades per day.

And at the high end a 4% increase over this $1.6 million.

Concessions look to have leveled off at 2% of revenues and this is down from the nearly 4% we experienced during fiscal year 2010 and the recession.

City Networks will add another 4 points of growth this year with some EBIT dilution due to integration costs and one-time accounting treatments in the first year.

It is cash flow neutral the first year and we expect cash flow positive as we move into fiscal year 2012.

The margins in these businesses have been negatively impacted primarily from the loss business and concessions we experienced during the recession as well as lower trade volumes.

When the retail markets return to higher levels of growth and we continue to drive new sales at levels greater than losses and concessions, then we can expect to see margin improvement in this business.

Moving to slide 13, outsourcing and Penson.

Conversions of both the Penson deals and new businesses are going very well.

We had expected to see a larger negative impact to EBIT but we were aided by the ability to take some transition costs in the fiscal year 2010 discontinued operations as well as quicker conversions for Penson Phase 2 as well as new sales.

As Rich mentioned, we are also on track to exit fiscal year 2011 with a run rate of approximately $90 million in annualized revenues and EBIT at break even or better.

Let's move on to slide 14, other and FX.

We don't expect big changes in FX.

The low and high end of our corporate expense is in investments, is primarily related to the range of $5 million to $10 million for transitioning to the new IBM IPO platform we've discussed before.

Let's move to slide 15, and I will follow up with the guidance.

Revenue growth range of between 1% to 4% and high end assumes market driven activity for trade volumes and stock record growth start to make a recovery in the second half of the year.

Closed sales for the year of $160 million to $215 million.

Earnings before interest and taxes, EBIT nonGAAP margins at 14.8% to 15.2% and again the high end benefiting by the return of market activity.

Diluted earnings per share from continuing operations in the range of $1.55 to $1.65 with diluted weighted average shares in the range of 128 million to 130 million.

Expected ending cash position of around $450 million and this is before any additional future acquisitions or change in debt levels as well as any additional share repurchases beyond what it takes to achieve our guidance of 128 million to 130 million diluted shares outstanding by year-end.

We also expect free cash flow in the range of $170 million to $220 million and this includes the anticipated $45 million increase in CapEx and software as well as incremental capitalized implementation expenses related to the IBM and Penson deals.

By the way, there is also a detailed cash flow schedule in the appendix on slide 22 to help with the year-over-year comparisons.

And finally, you will see our last bullet assumes mutual fund proxies come in around $75 million but if we experience a really robust or malaise year, then our guidance range at both ends could be higher or lower as we discussed in the investor communications section.

Rich, back to you.

Thank, Dan.

Please turn to page 16.

Before we go into the Q&A part of the call, let me summarize and leave you with a few more thoughts on how I feel about where we are and Broadridge's future.

I am satisfied with our overall results for fiscal year 2010, as our revenue and earnings per share from continuing operations were in line with expectations.

In particular, I'm satisfied with our ability to achieve our results during these challenging business and market conditions.

We had strong revenue growth of 7% but just over half of this growth was due to unplanned event-driven mutual fund proxies, while market driven recurring revenues continued to be impacted by the lack of individual investor confidence which is demonstrated by the lack of individual investor inflows into the market and the $3 trillion plus of an individual investor cash, earning near zero on the sidelines.

We signed numerous strategic deals during the year and we achieved record closed sales results.

This area remains the highlight of our performance and while some of the strategic deals will have a negative impact on fiscal year 2011 earnings, they were all excellent long-term strategic opportunities that we believe will lead to strong revenue and earnings growth beyond fiscal year 2011.

Consistent with our history, we had excellent client retention.

This year, we were recognized as being the number one best large company to work for in New York State.

As a result of our dedicated and engaged work force.

I believe our excellent client satisfaction and retention rates are directly correlated with engaged associates.

Overall, we believe there will be opportunities that come from the SEC's proxy concept release, and we are well positioned to enable the SEC to accelerate the technological evolution of investor communications.

I want to repeat our commitment to use our strong free cash flow to create shareholder value.

As I have stated in the past ,we will use our cash for strategic acquisitions that create profitable revenue growth, opportunistically repurchase shares and maintain a meaningful dividend yield.

With cash being freed up as a result of the Penson transaction, we repurchased approximately 10 million shares since our last earnings call at a cash outlay of approximately $190 million.

During the last 12 months we have repurchased approximately [116] million shares of Broadridge common stock at a cash outlay of approximately $330 million.

In addition, last night our board authorized an additional 10 million shares for repurchase.

Even with these significant share repurchases, we still have a sufficient amount of cash and borrowing capacity available to invest in our business.

Fiscal year 2010 was a challenging but successful year.

Our strategic and sales execution was excellent.

We have positioned Broadridge for a modest fiscal year 2011 as we have made investments and strategic opportunities which will have a negative impact on earnings in fiscal year 2011.

However, we believe the Penson transaction, the Morgan Stanley Smith Barney agreement and the IBM agreements will all consistently add value and contribute to strong revenue and earnings growth.

And, if our market segment sees an end to this recession, we expect to take Broadridge to an even higher level.

The bottom line is that in fiscal year 2010 we invested in our future.

I believe that when the markets stabilize, as they always have, Broadridge will be well positioned to sustainably raise its revenue growth rate.

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

I'll now turn the call over to the operator for the q-and-a part of the call.

Monica?

(Operator Instructions).

We will pause for just a moment to compile the Q&A roster.

And your first question comes from the line of James Kissane.

Thanks, guys.

Good job.

Dan, just want to confirm that the IBM costs are included in guidance for fiscal 2011 and when they're incurred, will you be breaking them out pretty specifically for us?

Yes, Jim, that is correct.

And they are in the guidance I've given to you and they're that $5 million to $10 million I just talked about.

And we will be breaking it up.

Okay.

Excellent.

And Rich, just in terms of your expectations on the SEC study, how did the study kind of, pan out?

Well Jim, I probably went into more detail in this than anything else on the call.

So I was particularly pleased that the issues are on the table and I have been particularly pleased beyond what I have covered in the call the way the SEC rolled it out to the public.

So you have the Director of [Corpson], Meredith Cross, being quoted, the next day in the Wall Street Journal saying that the system generally works.

And you have on the New York Stock Exchange had a panel on this.

And if you go to NewYorkstockexchange.com and click on events, you can click on this panel and in there the Assistant Director of Corpson, is quoted as saying things like, generally he believes it works better than the national election process.

So I believe in this concept study, but I was very pleased about all of the issues are out there including that the system works and works well compared to any other election process but there's an opportunity to improve and things like end to end confirmation we have been urging regulators to implement for years and things like a shareholder to shareholder network is something that really could revolutionize the process.

And through our extensive investments in technology we are extraordinarily well positioned to make these things happen.

That's great and do you think working group will wait until this is all resolved or will they address pricing before then?

Do you have any sense?

Well, the fact that it is a complete review you can't have a complete review of anything without addressing costs.

I believe that, as I pointed out here, in the unregulated markets, we've proven that in a free market we get to charge the issuers, on average, more than twice what they're paying the brokerage community and the regulated market.

So it is pretty tough to say that the current environment creates pricing higher than what a free market would create.

The real issue is with all of these potential changes going on, there's going to need to be a fair dialogue in where as new things need be implemented, there's a recognition of that, and there's a recognition that it is going to take a cost, that needs work right and there needs to be a fair return.

So, we are going into this with a very open mind.

We think the SEC did a good job getting the issues on the table and we're going to work with them to be part of the solution.

And I would like to believe that this is going to go forward on a positive basis.

Thank you.

If I can get one last question, Rich, do you think the IBM transaction slows your ability to add new outsourcing contracts, will clients wait until the transition is done?

Or can they -- be put on your applications and then just moved onto, the IBM servers, pretty easily so it doesn't slow down, conversion of the pipeline?

Jim, that's a great question, and thanks for raising it as well.

Let me put it in context for you.

This is really take two for our team at Broadridge because right before the spin and right before we even anticipated the spin, we went from a separate brokerage data center into a joint data center with a ADP and for ADP overall.

So all of the work that we need to go through, we have actually done once before.

We did it very successfully.

We implemented a number of clients during that process and we didn't have one blip.

So we have the same associates who already have the experience, we have all the data and metrics to show clients, so right now we don't anticipate this to inhibit our sales process in anyway.

And more importantly, we don't anticipate it to slow down our ability to implement in any way.

Yes, but I just add to, by the way, during that time, we were both selling and implementing very large clients.

Yes.

Excellent.

Thank you.

And there is a question from the line of Ian Zaffino.

Thank you very much.

Very encouraging to hear about the buy back.

But what you've really essentially just done is taken all of the cash that you have freed up from the sale of the business and channelled that back to buying back shares.

And I think that's great but I think even before the sale of that business, you were arguably underlevered, what are you thinking now even though you did this big buy back and I think that's great.

Where are you now as thoughts on your capital structure given how much cash flow you produce per year?

Thanks.

All right , Ian.

Thank you.

This is going be a repeat of our position.

We are committed to use our strong cash position to create shareholder value.

We think the best way to do that is if we can successfully identify at an acceptable price, strategic tuck ins.

Beyond that, we would look to buy back opportunistically, all right, and of course continue to maintain a meaningful dividend.

So our position remains the same.

We will always evaluate these things although we believe that having an investment grade rating is -- gives us strategic advantage particularly as we go to close large strategic transactions, all right, and we do intend to maintain that.

We do not believe that levering up for the sake of levering up just to buy back is something that you should expect us to do.

At the same time, we don't expect to hoard cash as we go forward but the priorities would be first to create profitable revenue growth, opportunistically buy back and of course the dividend, which is a

Okay.

All right.

Thank you.

(Operator Instructions).

There's a question from the line of Tien-Tsin Huang.

Can you hear me?

Yes.

Good morning.

Hi, Tien-Tsin here.

I just want to ask as a follow up to Ian's question about the buy backs, I guess the incremental buy backs from here will depend on our acquisition appetite and pipeline, so, I'm curious, what's the latest on the M&A front and should we expect that to pick up versus 2010 here, Rich or what are you seeing out there?

Tien-Tsin , as you have seen, we have consistently expressed the desire, but we have also demonstrated that our cash doesn't burn a whole in our pocket, so the criteria is that it needs to make strategic sense and that it needs to be at the right price.

So those filters will not go away and that criteria will remain in place.

If we can identify an acceptable price transaction that we believe will create greater shareholder value, we will do it, okay.

If we can't get them done at an acceptable price, we don't intend to hoard cash.

So as the year progresses we will keep you posted.

There are always things that are out there, okay.

Are they available is always a question and then are they available at an acceptable price is an even bigger question.

We're going to remain diligent on both the strategic fit and an acceptable

Okay.

Fair enough.

The -- I wanted to ask about the sales targets and the revenue conversion, all of that disclosure is terrific by the way.

The sales target of $160 million to $215 million this year, a little surprised at the low end is below what you closed in fiscal 2010, and your comment that deals slipped into this year, so can you elaborate on that?

Did some of the deals fall out of the pipeline, or are we just assuming they're kicked out even further?

Sure.

No, it is not that they're really going to change in terms of the quality or pipeline or the momentum we have.

What Dan and I, when we were kicking this around because the large deals can have us go through the high end of the range or fall below the low end and because the timing can fall one fiscal year too the next, we thought it was the right thing to express that although your confidence and sales and that our CAGR will continue to grow over any period of time when you average the years, that there's a recognition that we are looking to do more larger deals, and that the timing of that we don't control to the degree we would like to.

But simply a matter of recognizing the importance of larger deals, you shouldn't read anything into this, in terms of our confidence.

I believe that the success we are having and enabling our clients to do so well.

So for example, the -- when I said Morgan Stanley Smith Barney was met with rave reviewed, there are other people in the industry who are aware of those rave reviews, this is something that's being viewed as being done better than the previous vendor and done better then when they did it in house.

So we are very confident that we are building momentum but we are not confident that we can control the timing of large deals one year to the next.

Yes, Rich, What I would add on to that piece, Tien-Tsin, you talk about the $160 million to $216 million.

Be thinking of that as what we will call the recurring and the event driven.

So the event driven is around the range we have there of $50 million to $65 million.

And that's been pretty predictable.

And you look at the other piece which should be the recurring.

I want you think about that as okay, $110 million to $150 million.

But when you think even about the low end, $110 million will still drive 5% growth into our revenues.

I think that's the biggest thing, and anything north of that and we definitely work them in the pipeline but that's already showing progress, and what we are trying to do moving forward above your traditional 3% to 4% growth from sales.

Okay.

That make sense, the follow up to that though, the closed sales revenue conversion, you gave a chart here in the back, you are showing it to be slower than usual in terms of the conversion in fiscal 2011 what's driving that, is it just again like you said the size of the deals being bigger and more complex?

Absolutely.

Okay.

So nothing more than that.

Yes, it's nothing more than that and that's the reason we did give you the slides to just share with everybody.

Like what we're talking about right now.

We had a great year last year.

We're expecting to have a solid and good year this year, that's why I mentioned there you are only seeing the 3% to 4% kind of contribution to overall revenue growth from sales, but as we move forward you're going to get additional points just because those conversions will finally come through.

Okay.

That's good to know.

Last question, I promise, just as a follow up to Jim's question on the regulation side, I am just trying to -- and I know it is too early to size the impact but in the past you have been very confident and right that Broadridge can adapt to any of the changes that you see on the regulatory side.

So, I am just curious if you feel the same way this time around, are the proposals like the reevaluation of the fees, the central data aggregator, things like that, does it seem more ambitious or potentially more damaging than expected?

Any color there would be great.

Well, what I am going to encourage you and others on the call to do and again the New York Stock Exchange website NYSE.com, under events, click on events and go to the August 4 event, all right, where they had a panel the evolving world of governess and proxy matters When you talk about the central data network and you have I will read to you a couple l of quotes, all right.

So this is from Brian Breheny, Deputy Director of Legal and Regulatory policy.

Now these are his quotes and he has his disclaimer up front saying his opinion and not the opinion of the SEC.

But remember this is somebody who's full-time job was this concept release for the last year plus.

"As a general matter which is -- this is the quote, "as a general matter which is commented on in the release and was brought up at the commissions open meeting, the system generally works well.

" Okay.

If the SEC in the release is talking about working well and putting these things out there for comment, it is difficult to think that they're going to throw out a system that saves $1 billion and that they're otherwise referring to is having more competence and integrity, and I'm reading a quote, "I have more confidence and integrity of this process than I have in some national elections.

" All right.

So you should reach your own conclusion.

We think that it's going to be an evolution.

We think that a revolution is going to take $1 billion in savings out, plus put all of the integrity and accuracy at risk.

All right.

If it went to go that path and there was a need for a data hub, we already have the data hub in place but we do not expect to see it go down that path, even though if it did we are extremely well positioned.

What we think is that it is likely that it will be enhanced with things like say on pay need to be addressed, access to the proxy need to be addressed, end to end confirmation we will push very hard to add that level of integrity and if there's an opportunity to roll out a social network, connecting investor to investor with accountability and anonymity that would be an extraordinary transparency opportunity that would make our markets even more enviable to the rest of the world.

And we are well positioned to aid that to happen as well.

So what you should be reading in here is we think there's an opportunity to take the huge investment, the $1 billion plus that we have in technology and leverage that to the benefit of issuers, investors, managements and boards.

Yes.

Okay.

No, I tend to agree.

So thanks for that.

Thanks, Rich.

Thanks, Dan.

There's a question from the line of [Stephan Montatuic].

Good morning.

Good morning.

A couple of questions.

I guess first off, Dan, on Slide eight you have the P&L impact from the remainder of Morgan Stanley Smith Barney, the bringing on changing over to IBM and then, the Penson, and that is only in total those three are just $14 million of drag on, on EBIT for year?

Yes, because what's really happening is Penson like we said were able to put those costs et cetera into FY 2010 discounts so that greatly helped them.

That's right way to look at it.

Okay.

And is Morgan Stanley Smith Barney slipping to positive at some point during the year as well then?

It is going start making a contribution in the second half but the biggest contribution comes when it's all fully converted next November.

And remember, that conversion is tied to their conversion.

So that's in November of 2011 it's fully converted and then that's when you get to 20% margins on the $40 something million of revenues?

Yes, once it is fully converted so we will call it a net later in the first half.

We would be expecting then to see the full 20%, but up to that point, it is still going to coming in with revenue but at least not a huge negative to the bottom line as it was in 2010.

Okay.

And then what you are highlighting here is that the, on the -- so in fiscal 2012, Morgan Stanley Smith Barney is positive, Penson goes, is basically break even, to maybe positive and then IBM is this, the 50, it is still a drag on the P&L basis?

It is, but because we get the pick up, when we say Penson is break even, remember that business right now, the business itself running at below cost, about a $15 million negative drag.

So you take that, plus the Morgan Stanley pick up, that will offset as we look at it now, the idea of incremental.

Okay.

So those go to neutral.

Okay so the 14 goes.

Then you get the big pick up because you don't have any of the expenses going on, you're getting all the benefit of IBM in fiscal year 2013.

Right.

Okay.

So when we look at the fiscal 2012, so do margins move back towards the 16% to 17% operate something I know it is a long way out but what I am saying is by fiscal 2012 margins start to improve and go back towards historical levels as opposed to where we are in fiscal 2011?

Yes.

That's way to think about it.

We are all waiting though on and again there's people out there that think that our stock records and are the trade volumes going to return to the levels.

We think we have been somewhat conservative in our view, but we really need that to kick in as well to get back to those levels.

Okay.

I get it.

And then lastly it was encouraging to see the buy back pace just to make sure I understand, you've got now after what you bought in July what is it 13.8 million fully authorized now?

Yes.

Okay.

And what -- so what do you think it -- what do you think shares outstanding will be for the first quarter of fiscal -- the September quarter?

What are diluted shares outstanding going to look like then?

128 million to 130 million.

128 million to 130 million.

So does the 128 million capture the 2.8 million -- the 128 in shares outstanding in the guidance the low end of the range, does that capture the 2.5 million that you bought back in July or not.

Yes, so the way to think about it, Stephan, it's a great question.

When you go back to the cash flow, we are really saying that during next year we are going to buy back, okay, at least that remaining, call it, 3.8 million shares which would have used up the entire Penson that we said was going to free up $240 million of capital.

Okay?

Okay.

There are no --

Okay.

Thanks.

There are no further questions at this time.

Okay.

I wanted to wait a second to see if there was any other questions.

Well, we certainly appreciate the time you took today to have the call with us.

As always, Dan, Rick and I thank you for your participation and I am going to choose to have a great day.

I hope you do the same.

Thanks so much.

Ladies and gentlemen, this does conclude today's conference call.

You may now disconnect.