Broadridge Financial Solutions Inc (BR) 2011 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Broadridge Financial Solutions first quarter fiscal year 2011 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 speaker's 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 first quarter of fiscal year 2011.

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 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'd like to remind everyone that we've also included a copy of the key metrics on Pages 23 and 24 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 call, we'll discuss some forward-looking statements regarding Broadridge that involve risk.

These risks are discussed here on Slide No.

1, 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 the risk factors faced by our business.

Before we begin, I'd like to point out to everyone that as a result of our Penson transaction we closed in the fourth quarter of fiscal year 2010, the clearing business is now shown as discontinued operations and our remaining outsourcing business is now part of the Security Processing Solutions 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, No.

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 first quarter of fiscal year 2011 followed by a discussion of a few key topics.

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

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

Now please turn to the Slide No.

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 overview of our financial performance, followed by a review of our closed sales performance and the sales pipeline.

Then I'll provide an update on our key strategic initiatives and then a detailed regulatory update.

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

Let's start on Slide No.

4.

Overall, I'm satisfied with our first quarter results.

All of the results were lower than the last year primarily due to the expanded reduction in event-driven revenues expected reduction -- excuse me.

Our recurring revenue closed sales were up 94% and we maintained a recurring revenue retention rate of 98%.

The revenue decline was primarily due to lower event-driven revenues partially offset by revenues from net new business and acquisitions.

You need to keep in mind that due to the seasonal nature of our business, the first quarter is historically the quarter that contributes the least amount to our annual results and it is way too early to assume that event-driven revenues will not rebound to the level needed or even beyond that.

Diluted earnings per share from continuing operations were down from last year, as expected, primarily due to the decline in event-driven revenues, coupled with costs related to our strategic initiatives and acquisitions.

We acquired NewRiver during the quarter.

NewRiver is a leader in mutual fund electronic investor disclosure solutions and was an important supplier for Broadridge for nearly a decade.

This acquisition will strengthen our capabilities as the industry leader in compliance communications and intelligent document fulfillment.

NewRiver's data warehouse of regulatory disclosure documents and productivity tools will enable Broadridge to offer additional solutions to its brokerage, mutual fund, variable annuity and retirement plan clients.

Furthermore, the integration of additional data technology accelerates Broadridge's overall e-strategy with a broader set of solutions to assist our clients in the transformation from paper to electronic document delivery.

We repurchased approximately 4.5 million during the quarter at an average purchase price of $20.91.

Under our existing approved repurchase plans, we have Board authorization to repurchase approximately 11.8 million shares.

Now let's move to Slide No.

5.

Closed sales for the quarter were 24 million.

While closed sales were down 21% as compared with the first quarter of fiscal year 2010, I am very pleased that our recurring revenue sales were up 94%.

Closed sales in our Securities Processing segment are off to a very strong start and they are more than double the amount they were for the first quarter of last year.

Recurring revenue sales are also off to a strong start in our Investor Communications segment, as they were up almost 30%.

Event-driven sales were down as compared with last year, as anticipated, due to the very strong first quarter event-driven sales in fiscal year 2010.

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

We are reaffirming our closed-sales guidance for fiscal year 2011.

We expect closed sales in the range of 160 to 215 million which 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 move to Slide 6.

During fiscal year 2010, we signed three strategic initiatives.

All three are in the process of being implemented and each of them impacts our fiscal year 2011 results.

All three are currently on track for their planned implementation.

In October 2009, we signed a seven-year 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.

For the first two years of the agreement, we will utilize Morgan Stanley Smith Barney's facility in providing our services and in fiscal year 2012, we will transition to our facility.

During the last 12 months, we have continually exceeded the agreed-upon service level standards and we are on track to achieve our revenue and profitability goals.

In November 2009, we announced that we were exiting the clearing business and had entered into an agreement with Penson Worldwide that provided for the sale of our clearing client contracts.

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

We closed the transaction this past June 25 and announced the execution of an 11-year global outsourcing services contract that is expected to generate 50 to 55 million in annual revenue when all of Penson's clients are converted onto Broadridge's Securities Processing platform.

The transaction is progressing on plan and we anticipate that the earnings for the outsourcing business will be at breakeven or better as we exit fiscal year 2011.

In April 2010, Broadridge and IBM announced an information technology services agreement under which IBM will provide Broadridge with data center and information processing services.

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

The data center conversion is in the early stages of implementation and is proceeding as planned.

Broadridge and IBM also signed a business alliance agreement in April.

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

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

The Combined Solutions Suite will enable firms to outsource more of their non-core technology and operations functions to IBM and Broadridge.

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

Now let's turn to the regulatory update on Slide 7.

The Securities and Exchange Commission issued its concept release on the US proxy system in July.

The concept release was seeking public input on three major topics -- first, ensuring the accuracy, transparency and efficiency of the voting process; second, enhancing shareholder communication and participation; and third, addressing the relationship between voting power and economic interests.

The Comment period closed on October 20.

We believe the current system works well.

However, we encourage periodic evaluation of the system with a view towards enhancement.

Broadridge submitted three comment letters and also submitted a summary letter.

Our first comment letter addressed vote accuracy.

Accuracy, reliability and transparency should be central consideration in any discussion regarding shareholder communications and proxy voting.

This is particularly important in light of the complex requirements and, at times, different interests of the various participants in the proxy process, including shareholders, corporate issuers, brokers, banks, transfer agents and regulators.

In this regard, there are significant benefits including higher levels of participation from a voting process that is operated by reliable and neutral third parties.

It's a given that if shareholders do not believe the proxy process is impartial, they will be less likely to participate because no one wants to play a game that lacks clear rules or where the referee is also one of the contestants.

Broadridge helped achieve goals of vote accuracy, process integrity and transparency, and it consistently has been found to be extremely reliable.

The aspects of the US proxy system administered by Broadridge has been reviewed on numerous occasions over the past 10 years.

On every occasion, Broadridge's systems and processes were found to be reliable and accurate.

Broadridge's systems and processes undergo extensive testing and regular independent review.

As a practical matter, the investment Broadridge makes in process, performance and transparency benefit virtually all participants.

The aspects of the US proxy system administered by Broadridge are tested and reported on regularly by internationally recognized firms such as Deloitte & Touche and Grant Thornton, as well as other respected independent third parties.

Some examples include a big four accounts report on vote accuracy is provided on a quarterly basis attesting to at least a 99%-plus voting accuracy rate and a separate SAS-70 type two annual review of compliance with all New York Stock Exchange and SEC proxy rules.

As with any process, there is always room for improvement and Broadridge is committed to contributing to such improvement.

We believe several technological opportunities could improve the US proxy system as a whole.

One example is end-to-end vote combination, which is provided by Broadridge where we are both the registered account processor and overall tabulator for over 1,000 issuers today.

We can expand this application to all issuers and can readily achieve this without changing shareholder privacy rules.

Another example of a technological opportunity is expanding industry-wide independent testing and reporting beyond Broadridge for all industry participants, most importantly, all tabulators, for systems accuracy and process performance.

This would engender even greater levels of integrity, confidence and trust.

Our second comment letter addressed process efficiency.

The US proxy system was not designed in isolation.

It supports the needs of the most efficient and liquid markets in the world, and ever-evolving and expanding regulatory requirements.

Broadridge's systems and technologies which support the current industry clearance and settlement environment create numerous significant efficiencies and conveniences for all constituencies involved in the proxy process.

Some have argued that if they were simply provided with a list of an issue of shareholders, they could duplicate what Broadridge does.

That is just not possible.

The current Street clearance and selling process has fluid [reconciling] items and omnibus relationships at any point in time which significantly complicates the proxy distribution and voting process.

The current Street clearance and settlement process is regarded as the most robust in the world and allows levels of participation at multiples of any other system in existence.

The current proxy process was designed to support this and any recommendations that fail to recognize the role of the Depository Trust and Clearing Corporation, any participating broker and bank nominees, will be digging a black hole.

I would encourage anyone with additional interest or concerns regarding the accuracy and efficiency of the current process to review Depository Trust Comment Letter regarding the SEC's concept release dated October 25, 2010, which accurately details how many of the criticisms of the current process are either not well founded or are factually incorrect.

In their conclusion, Depository Trust states, quote, "We believe the current proxy system functions well," end quote.

We have invested over 1 billion in systems, technology and processing for shareholder communications and proxy voting over the past decade.

The infrastructure Broadridge provides is state-of-the-art.

Every issuer, large and small, is afforded an advanced technology infrastructure; every participant, including custodian banks, broker-dealers, institutional investors, and individual investors, as well as large and small corporate issuers, is afforded robust information security and management.

Corporate issuers are afforded numerous efficiencies and conveniences of technological innovation and processes that exceed the requirements of applicable proxy rules, and the majority of these are provided to issuers at no additional cost.

As a practical matter, the plumbing as a whole benefits from Broadridge's commitment to the investments in technology and service operations necessary to effectively support evolving proxy regulations and to create levels of scale and integration that saves issuers and other partners (inaudible) significant ongoing expense.

Corporate governance cannot happen without the system that Broadridge has built.

Our systems connect the vast majority of active investors with the vast majority of active registrants with incredible levels of accuracy and cost efficiency.

As we have discussed in prior presentations, we estimate that Broadridge today saves issuers approximately 1 billion annually in paper and postage costs through our extensive investments in technology.

The total annual fees paid by issuers for Street proxy services today are approximately 500 million or half the amount they save.

That is why I confidently state if someone would be willing to build it for free and run it for free, on day one, it would only cost the industry $0.5 billion more than it does today.

The proxy delivery and voting systems in place today to beneficial shareholders are a result of significant private-sector investment.

Broadridge is committed to making the significant ongoing investments necessary to maintain and build upon the extraordinary level of efficiency afforded to participants in the US proxy system.

Our proxy processing system is supported by over 150 dedicated programmers who are continually improving and enhancing the system without any regulations requiring it.

The execution of this vision has created a significant chasm between where Broadridge is today and others who want to eliminate today's Street environment, but they can't even verbally pontificate what it would be.

Our third comment letter addressed voting participation.

Effective participation requires a position of communications and voting in ways that reflect beneficial shareholder preferences and choices.

Broadridge's systems accurately and consistently tracks and applies shareholder delivery preferences to all investments and investor accounts.

For example, if you sign up once for e-delivery, every other investment in your account that you have today, or in the future, can be delivered via e-delivery.

Issuers are afforded a variety of methods to communicate.

Shareholders are provided a variety of methods to vote without sacrificing privacy preferences.

The technologies and processing applied to beneficial shareholder communications result in voting rates that are higher than those of registered shareholders.

Overall voting rates among beneficial shareholders are high.

However, voting participation among retail shareholders remains a technological opportunity.

Broadridge and nominees have recently implemented several technologies that provide additional methods of communication that have the potential to foster greater participation.

Broadridge has pioneered the client-directed voting solution being considered by the SEC in the concept release, a tangible example of Broadridge innovations raised investor participation.

We're continuing to explore other options such as enhanced broker internet platforms, investor-to-investor social networking [indications], and pre-establish individual investor voting instructions similar to those used by institutional investors.

Additional technologies are always being explored.

But potentially most significant is Broadridge has developed a unique social network solution that we are highly confident would increase levels of participation, transparency and efficiency beyond what is viewed as attainable today.

Through this unique social network, management can communicate with [searches]; 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 investors could participate on an information playing field more level than anything ever discussed, but certainly desired.

In our final comment letter, I summarize our three previous comment letters and suggested that the hundreds of comment letters that have been submitted to be classified into three groups.

First, there are some that believe the SEC should move the process back 45 years to when it was a direct issuer to investor 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.

For example, a conceptual proxy reform plan is vigorously promoted by some service providers who want a bigger piece of the pie irrespective of the fact that the most impacted broker trade association, the most impacted issuer trade association, and the industry's clearing utility, along with leading economists regard it as flawed and economically incoherent, and indicates even if it could be executed, it would result in higher cost to issuers, shareholders and nominees.

Second, there are other participants that recognize that the US proxy system is fundamentally sound and that the system as a whole may benefit from certain tweaks for incremental improvements.

Finally, there are those like Broadridge that recognize that the US proxy system is on the cusp of vast changes in the world around us in demographics and technology.

Technologies that address the needs of a highly mobile society and that create appropriate environments for social networking hold transformative potential.

These can be made possible and make possible levels of participation, transparency and efficiency beyond what is viewed as attainable today.

Broadridge is confident that it can make these possibilities a reality and as always, will verify its success and accuracy through leading independent audit-firm reviews.

For the past two decades, Broadridge has continually identified ways to improve the proxy system's accuracy and efficiency and implemented these process improvements.

The most significant thing you should take comfort in, of everything I just said, are the comment letters from the leading broker trade association, the securities industry and financial markets association, the leading issuer trade association on this subject, the Society of Corporate Secretaries and Government Professionals, and of course, Depository Trust.

All support the current environment which leaves open only the question of how quickly Broadridge will be able to further advance the process and what will be the fair return for our shareholders.

It's a when question, not an if.

I'll now turn the call over to Dan who'll go into more detail about the first quarter of fiscal year 2011 financial results, as well as our full-year guidance.

Dan?

Thanks, Rich.

I'm now on Slide 8, revenue drivers.

Rich has already mentioned that historically, Q1 is our lowest revenue and earnings quarter.

Having said that, for the quarter we were pleased with our net new business growth and contributions from sales and losses are in line with our expectations.

We're forecasting, as Rich mentioned, 160 to 215 million in closed sales this year, of which 110 to 150 million relate to recurring sales.

Historically, about 25 to 30% of this value has impacted the current year, so most of the 3 to 4% contribution to revenue for the year we're looking for comes from prior year closed sales, or in other words, sales already closed.

With respect to the forecasted loss rate of 1%, or more appropriately, the approximately 99% client revenue retention rate, we've not been made aware of any new large client losses at this time.

So we expect we'll achieve our forecast.

The internal growth in Q1 was at the lower end of our expectations.

We experienced a pickup from the prior year with respect to all internal growth drivers except equity trade volumes and I'll discuss in more detail upon reviewing the segment.

Event-driven revenues all in the investor communications space were expected to be down in Q1 and I'll give more insight when reviewing the ICS segment.

Distribution revenues, which are primarily postage, are directly tied to event-driven activity in the first quarter.

Acquisitions this year should contribute over 3 points of growth and most of it coming from Penson and City Networks in the securities processing space and primarily NewRiver in the investor communications space.

FX has been favorable and we're looking for it to continue for the rest of the year.

And margins were down for the quarter due to the falloff in higher margin event-driven activity, as well as the conversions of Penson and Morgan Stanley Smith Barney.

On a full-year basis, these same items, along with the IBM [ITL] conversion cost of between 5 million to 10 million negatively impacts margins this year by almost 300 basis points.

The good news is that event-driven should at some point return and the other strategic initiatives, except for IBM, are accretive as we move into fiscal year '12 and IBM in fiscal year '13.

As we stated in August, and I refer you to Slide 22 in the Appendix, that the first half of fiscal year '11 would be significantly below the fiscal year '10 revenue and earnings due to the above-mentioned items.

So let's move to the next couple of slides where I'll go a little deeper into revenue and margins for the segments.

I'm now on Slide 9, investor communications, and for details, Slide 23, which has a key stats I'll be referencing.

As expected, total revenues and margins were down for the quarter and as previously discussed, will be down for the second quarter as well, primarily due to the falloff in event-driven mutual fund proxy activity.

With respect to reoccurring revenues, the quarter and expectations for the full year remain positive in that revenue drivers expected to contribute positively to growth for the year.

We picked up 3 points of revenue growth from sales and are looking to continue this rate given our pipeline where we expect to add 40 to 50 million to revenue for the year, of which almost 60% has already been sold.

Client revenue retention rates remain over 99%.

Stock record growth for both equities and interims were up over the prior year.

We experienced a very strong quarter with interims, up 11% of which mutual funds contributed 9 points and ETFs 2 points.

Equities are flat to last year, but this is positive news in that last year at this time, they were down 7 percentage points.

Our acquisition of NewRiver in September will add a point to revenue and is accretive this year, even with transition expenses.

Although not pointed out in this slide, both access data and the stock transfer agent acquisitions are performing at our expectations and represent over 10% of our expected recurring sales contributions to revenue I mentioned just before.

Now, for the elephant in the room, and by elephant, I mean it's great when it's up, but it's tough when it's down.

Event-driven revenues were expected to be down this quarter.

Mutual fund proxies had the biggest impact for proxy contest and specials, as well as corporate actions were down year-over-year.

Total event-driven revenues came in just under 40 million for the quarter and we're forecasting full-year revenues to be between 220 to 230 million.

Our focus is primarily on mutual fund proxies, as we move through the rest of the year, as both mutual fund supplementals and pre-sale fulfillments look to be running at our estimated rate and we're expecting contest and specials to pick up as M&A activity increases.

In August, I shared with you that our historical experience for mutual fund proxies was at the high end, 100 million per year, and at the low end, 50 million per year.

With Q1 at 6 million, some might just do an extrapolation and get very concerned.

I don't extrapolate for two reasons.

First, [orders] have never extrapolated.

Just look at last year when we blew away even our expectations in the second quarter and there's years of history to support extrapolations are not a good (inaudible).

Second, there are larger deals in the pipeline that give me some comfort we should see better results over the next few quarters.

We have lowered our midpoint by 10 million to 65 million with the same plus or minus 5 million in the ranges.

Net-net, it comes down to we're one quarter of the year and way too soon to draw realistic conclusions for this fiscal year.

We'll look in February to better update you.

Margins, as expected, were down in Q1 by just over 500 basis points and negatively impacted by the reduction in the event-driven fees which cost us almost 400 basis points and the impact from the Morgan Stanley Smith Barney conversion, which cost us another 150 basis points.

We're still forecasting a 20 to 60-basis points improvement for the year.

I'd like to move to Slide 10, securities processing and the key stats are again on Slide 24.

Q1 revenues were in line with our expectations with growth primarily coming from new sales and the two acquisitions, Penson and City Networks, offset by the carryover losses related to the Bank of America which accounted for the majority of the losses.

As you remember, this is a loss that started two years ago.

The two acquisitions added 9 points of growth in Q1 and expected to add about 10 points for the year.

Net new business, which is sales less losses, slightly negative in Q1 and will be in Q2, but begins to build in the second half.

Closed sales from last year and the first quarter of this year are being implemented and the losses begin to have less impact, as hitting their anniversary date.

So for the full year, we're expecting net new business to contribute 1 to 2 points to revenue growth.

Again, we've not been made aware of any new large losses.

Internal growth for the quarter, slightly positive, impacted from some higher non-trade revenues and a pickup in fixed income trades of 7% growth, but this was offset by a negative 3% impact from the equity trade volume.

Margins for the quarter were in line with expectations and essentially unchanged from the prior year when you exclude the impact from the acquisitions, primarily the Penson conversion.

We still expect to be at a breakeven run rate as we exit our fourth quarter of this year for the outsourcing business and should therefore pick up 14 to 16 million in EBIT in fiscal year '12 over fiscal year '11 forecast.

Full-year guidance at the high and low ranges for revenue and EBIT are all tied to internal growth being flat for the year or up around 4 percentage points driven by equity volumes.

During October, we did see a slight improvement in equity trade volumes and we will reevaluate at the end of Q2.

Moving to Slide 11, our full-year continuing operations guidance -- we are reaffirming our guidance that we shared with you in August for revenue growth in the range of 1 to 4%, and as mentioned, the biggest open question is around an expected rebound in event-driven revenues which we'll monitor over the next few months; closed sales at 160 to 250 million with recurring in the range of 110 to 150 million; margins of 14.6 to 15.2% and earnings per share of $1.55 to $1.65; free cash flow in the range of approximately 170 to 220 million with 75 million in one-time activity from the reversal of significant positive working capital at the end of fiscal year '10 and the additional capital from Morgan Stanley Smith Barney, IBM and Penson implementations, which we did share with you back in August.

And our guidance does not include the effect of any future acquisitions, additional debt or share repurchases except what's required to hit our 128 to 130 million weighted average outstanding share guidance.

Rich, I'll now turn it back to you.

Thanks, Dan.

Please turn to Slide 12.

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.

The business's recurring revenues still remains a lagging indicator in this difficult economy, but is [charting] past to new clients and product opportunities.

Across our product set, we have very good momentum, both in new product generation and successful sales execution.

For example, we entered into the mutual fund electronic disclosure solution space with the acquisition of NewRiver.

We are disrupting the stock transfer agency business with the acquisition of StockTrans and we recently announced an enhanced mutual fund proxy solicitation solution.

Finally, even though the market conditions are difficult, we reaffirmed our full-year guidance for both earnings and closed sales.

The SEC issued its concept release in July and the comment period has ended.

Many have asked what the potential impact is on Broadridge.

Notice and access, and many other changes, have historically had a positive to neutral financial impact on Broadridge.

We are uniquely positioned to implement any process changes that the SEC chooses to implement.

Today we are indispensable partner of the process and we intend to continue to add more value in the future.

By connecting the overwhelming majority of active investors to the overwhelming majority of active custodians, and investing heavily to enable governance to take place beyond what the regulations require, Broadridge has put itself in an indispensable position which we are confident will evolve to the benefit of issuers, for investors, regulators and our shareholders.

The key broker, issuer and clearing corporation's comment letters support this view.

Virtually all of our past success and future opportunities can be tied to culture.

Culture matters.

We have tangible proof of having the most engaged associates in our space.

We have consistently been recognized by independent organizations of having an engaged and motivated workforce.

Our existing business model and management are positioned to execute on our current communications and processing product set and build or buy additional mission-critical functionality, as the industry's number one trusted [fund].

Broadridge is financially strong.

We pay a meaningful dividend and we have opportunistically repurchased shares over the last two years.

We have strong free cash flows and a low debt ratio that affords us the flexibility to look for strategic acquisition opportunities that will enhance our business.

I would like to take this opportunity to personally thank our dedicated associates who worked so hard to ensure our success.

We have the best associates in the industry and I sincerely appreciate all they do to make Broadridge number one in all we do.

I'll now turn the call over to Susan, the operator, and I welcome your questions.

(Operator Instructions).

Your first question comes from the line of Peter Heckman with Avondale.

Good morning, gentlemen.

Can you hear me?

Good morning.

Oh, good.

Hey, listen, I guess based on the research that I've done, it's clear that Broadridge is doing a very good job in the proxy process, and I think you come to the conclusion that any major overhaul of the system would involve expense and risk.

Now, that said, it appears that the SEC can lower costs for issuers by 20 or 30% with the stroke of a pen though by reducing the regulated fee structure and it's been 10 years since they've done that.

In that time, there's been significant advances in automation, as well as a lot of proxies have gone electronic.

So what do you see there?

What do you see in terms of likelihood of a reduction in the regulated fee structure, and can you give us some idea of the magnitude and the timing of when that might occur?

Sure.

First of all, Pete, this -- even though from possibly your perspective, this is a current dialogue.

For me, this has been a dialogue I've participated in now for three-plus decades.

So the first thing you need to recognize here is the stroke of the pen of the SEC changes the broker fees.

Broadridge charges a [broke-rate] fee for the vast majority of what we do outside of the broker's fee.

So we charge them a fee for services.

If that fee for service is less than the SEC's approved fee, the broker is entitled to retain, and does retain, that difference, but if the SEC lowers that fee, for the vast majority of what we do, it doesn't change our fee or our contract.

Now, that's a technical, legal definition.

Practically, it does have some impact in terms of our negotiations with those clients going forward, but here's the real thing you need to be thinking about.

There's no one who can represent that the fees are overstated with any real support.

Registered fees run in a multiple of what Street fees run in, okay?

In the free market, we charge a multiple of what we charge in the Street environment.

The New York Stock Exchange, who has the most oversight in this role before it gets to the SEC, is paying us -- call it 10 times on the registered side per account than what they're paying us on the Street side, and they're doing that voluntarily versus using the services of their transfer agent.

Now, we have been a very good corporate citizen in enabling corporate governance, transparency, efficiency, accuracy, to get to extraordinarily high levels, but our job here is to represent our shareholders and create shareholder value.

When you have three fees, okay, that cover dozens and dozens of functions, most of which don't have fees associated, and many of which, if not the majority, don't have a regulation requiring it, when we sit down at the table, okay, we're looking to be appropriate, but someone just saying, "Well, gee, I can't prove to you that the rates are too high." As a matter of fact, there's tangible proof the rates are artificially low, but we're going to arbitrarily lower them.

In regard to protecting our shareholders, we have an obligation to say, "Well, we have to look at other things like things we're doing today that aren't covered by regulation." I don't expect it to get to that.

Our approach has been let's talk about the total cost of the process and the total cost of the process includes that billion dollars we already saved people, and there's close to another billion we can take out with technology.

Now, most business people would say, you know what?

If it's a half a million in fees, and we increased it 100 or 200 million, and you could save me another billion, that's a pretty good deal.

That's really the way I'm looking at the world.

There's opportunity both from a cost point of view, an investor participation point of view, but the execution and implementation on those technologies cost real money, and our shareholders are entitled to a return.

Okay.

I appreciate your insights.

Can you give us an idea of what the timing might be for when the SEC might come out with some conclusions?

We are hoping and we are -- I think the SEC is doing an extraordinarily good job here.

They are teeing up the opportunity to apply technology.

Before you make any changes, it's always appropriate to say does what we have today work and work well?

So I think they asked all the right questions.

I think they've gone through the right process, and overall, I'm very pleased with the comment letters they got back, particularly as I pointed out in the call, the comment letters that matter the most.

So I am hopeful that the SEC is going to view this the way we do, that there's an opportunity with the technologies available today, to go out and implement these technologies to really create those transformative benefits.

I mean, a social network where investors can talk to other investors, boards can truly understand what shareholders' views are, and represent shareholders and not be as impacted trying to represent public sentiment is really what capitalism is about, and I think can have transformative benefits -- forget about Broadridge.

I'm talking about to our markets overall.

So I'm hopeful the SEC will hear this as a unique technological opportunity and move faster rather than slower, but history says that these can move at a wide range of speeds.

Okay.

All right.

Thank you.

Your next question comes from the line of Lee Cooperman with Omega Advisors.

Good morning.

Thank you very much.

Appreciate your comprehensive rundown as always.

Just I want to focus in on share count and the strategy behind the buyback.

On July 30, according to SEC filing, you had 126,733,000 shares outstanding and I was wondering what is the share count presently?

And you mentioned your authorization, but it wasn't clear to me what is left on your authorization, so that would be the first question.

What is exactly the share count presently and maybe add to that the dilutive effect of options outstanding, and what is the status of the current authorization in terms of what is left?

The second question really is as important, or more important, and that is the number of companies in the last half a dozen years have made serious miscalculations in their repurchase positions, and they've turned out to be, in retrospect, bad positions.

And I'm just curious, how comfortable are you in your decision to channel the money we're channeling into repurchase, if this is the right decision for those shareholders like myself that are not selling, and therefore, enlarging our ownership of the Company?

And to give you a little hint of my view in this area, and we've discussed in the past, it only makes sense if you're buying back shares at a significant discount to what a strategic or financial borrower would pay for the whole business, or what you believe the business is worth based upon a, say, five-year budget that you have for Broadridge in your mind in terms of growth expectations?

So it's kind of both areas, if you can kind of elaborate on them.

Okay.

Lee, I'm going to split the first question with Dan.

I may have dropped a word I intended to use, so we have 11.8 million additional shares available (inaudible) at this point in time.

Yes, I dropped the word "additional" and I apologize for that.

On the income back to the share count, but let me continue on the second part of your question which is a CEO, my confidence in repurchasing.

I'm going to give you two points here that give me great confidence about Broadridge's future and our ability to create value or support your question with two points.

The first is when we look at what we did with IBM, what we did with Penson, what we did with Morgan Stanley, we've made clear decisions to make investments today that although they are either hurting us today, or not contributing today, they're going to start to give us meaningful benefit in '12 and beyond, right?

I also believe at some point in time, although our lagging indicator, we're going to catch up with a better economy, all right?

But most importantly, when most of you have modeled out '12 and beyond, it's certainly a positive view based on what we know today.

I'll tell you one other thing, Lee, because you and I have had this conversation.

When I look at the potential of acquisitions, whether it be tuck-in or other, if the team comes to me with a -- I'll call it a nice, modest return of 15%, my comment here is not interested; I'll go buy back shares, okay, because I'm confident in our ability on the path we're on to create value.

I look at transactions going forward as a way to accelerate that, not just as a same old-same old.

So when we repurchase shares, we believe we're doing the right thing in the long-term interest of our shareholders, as you know, which I happen to be one, and as you know, I haven't sold any shares.

Thank you.

I appreciate that comment.

(Inaudible).

Now back to the videotape.

Dan, what have you got?

Yes.

So at the end of the quarter, we'll be at 125 -- [call it] .5 million shares and then there's 3 million shares where we call the provision aspect for the stock options and restricted shares.

So unless you guys stop buying, you already, within your guidance, you've got 11.8 million left to go.

Yes, that's pretty much the way to look at it.

Let's just say we're about 1 million to 2 million short of our goals because if you look at the 128 to 130, you have to know that also in February and March of every single year, we have more shares that come out.

Okay.

And this -- you may not want to respond to this, but if the stock was trading tomorrow at below the average price you paid, if somebody wanted to sell you 11.8 million shares, would you -- do you have the financial resources and the appetite to buy it?

Lee, as I told you in the past, I'm not going to tell you what the price is.

You told me the price.

You disclosed what your price you've paid to date, so I think --

I told you based -- and I'm not going to tell you when I'm going to do it as well.

I certainly don't want to enable anyone to ever front-run us, okay?

So my position is on what we do, we give you a clear view of what we did, why we did it, and why we believed it was the right thing.

And I'm going to leave it at that.

Got you.

Okay, thanks.

Your next question comes from the line of Jim Kissane with Bank of American Merrill Lynch.

Hey, Rich and Dan, and Rich, thanks for all the color on all the stuff with the SEC.

Dan, just a quick question on the event-driven and kind of pushing you on your visibility there, so the 220 to 230 million, how much of that is actually dependent on M&A activity picking up in the balance of the year because it sounds like you've got pretty good visibility on the mutual fund side.

Yes, on the mutual fund side, I'll tell you that on the M&A side, there's another 20 to go.

There's another 15 to 20 million.

We're thinking that there's going to be 20 to 25 million for the year, and we came in about $4 million this last quarter.

Okay.

And if you go to Slide 22, it looks like the grow-over in the first quarter was bigger than you had originally thought.

What happened there?

Now, I'm sorry, I missed it in the last slide for the fourth quarter.

Yes.

So the way to think about that is where you see the -- we'll call it the mutual fund.

In the mutual fund space, it was greater than what we had thought.

Okay.

So it was activity from last year or was it activity that didn't come through this year?

No, it's activity that did not come through this year because we already knew what we weren't going to pick up and that's what we weren't going to pick up in the prior year primarily was going to hit us in the second quarter.

And we knew that it was going to be light anyway in the first quarter and it came in lighter than what we had said and we (inaudible) -- as we said, we have a low point and a high point.

We were hoping it would come in the middle and it came in at the low point.

Okay, great.

And this is Rich.

Having done this for a long, long time, the window that we get to see how far out event-driven is going to happen is only about 60 days.

So I've been a hero and I've been a goat many times in my career over the event-driven activity, but as I've said, and it's worth repeating here, I really like event-driven activity because it's a very good CAGR over any period of time.

It's just in any particular quarter, you can feel really, really good or really, really bad, okay, but it really isn't tied to the performance of the business.

Mutual fund positions, for the record, are also still continuing to grow and it's slightly above 10%, so my confidence in event-driven revenue and that CAGR continuing as we go forward is very high.

I just can't tell you in which specific quarter.

Okay.

And Rich, can you touch on the M&A pipeline, and I guess is 15% the hurdle rate that you've got to generate?

And in that context how does the pipeline look?

Okay.

I'll give you two views here, Jim.

There are certain deals that we do that are so strategic, all right, that it's the 15% is a good number, but you'd view them as being pretty small, okay?

And I'll call it at the smaller end of a tuck-in.

If we're talking about spending at the higher end of a tuck-in, or even a little beyond that, I'm not accepting 15%.

I'll buy back shares, okay?

So it's about creating accelerated revenue growth, not just a little bit above what we have the ability to do.

And just to point out there too, when we're looking at larger deals, we call these larger tuck-ins, we would absolutely be looking for -- also besides a higher hurdle rate, we'd be looking for accretion.

Okay, excellent.

Thank you.

(Operator Instructions).

Your next question comes from the line of David Togut with Evercore Partners.

Good morning, Rich and Dan.

Good morning.

Rich, what do you expect the SEC's final recommendation to be?

I'm going to answer that slightly differently because I haven't received a call making me a commissioner as of this moment.

The opportunity for the SEC to apply technology and address so many things that in reality, the 143 new regulations don't address in terms of transparency, is extraordinary.

Think about what technology happens here in terms of the world we live in.

Think about the way we get information; think about the way we disseminate information.

The SEC has the opportunity to provide this to investors and in particular around the social network, this would be the only meaningful network I'm aware of where only shareholders would be on, and when you were speaking to another shareholder on the network, whether it be investor-to-investor, management-to-investor, or Board-to-investor, okay, you would be doing it highly confident that you were talking to a true investor.

So we can achieve in our social network what we can't achieve for our kids when they think they're talking to another 13-year-old and could be talking to someone who isn't a 13-year-old.

So I think the opportunity is here.

I'm hopeful that the SEC will view it the same way and I'm very, very encouraged by the way they positioned their concept release.

What is your sense for the retail investors and when do you think the retail investor comes back to the market?

We've had a few moments of encouragement over the last six months.

The [flash] crash killed the first one, okay?

And subsequent to that, there's been points here as well.

I always say that's a question I'm thinking that in your job, you've got better insight to than I have in my job, all right?

I do talk a lot to clients.

What I'm encouraged by is that they're talking about other products, all right, more actively that involve communication products and processing capabilities as well, like 401Ks, annuities, etc., etc.

So think about this.

This has in a really bad environment and we're at a 98%-plus retention rate on our recurring revenue.

When I said at the end that we're still a lagging indicator, what we're not getting is the normal couple of point benefit from our recurring revenue, but we're certainly retaining our recurring revenue.

I think we're well positioned and at some point in time, the markets have to come back unless people are going to be investing at less than 1% and putting kids through college, saving retirement and buying houses.

Thank you.

Your next question comes from the line of Tien-Tsin Huang with JPMorgan.

Thanks a lot.

Also appreciate all the disclosure.

Just on the event-driven revenues, just a follow-up to Jim's question, just need a little more color on the pipeline.

It sounds like there are some large mutual fund deals in the pipeline.

So I'm curious, should we expect those decisions to be made sooner in the fiscal year rather than later?

I'm just trying to get a better sense of when that might come through.

Okay.

So I'll start the answer to that and then I'm going to pass it over to Rich.

When you think about what's left of the year and I'm breaking both between the mutual funds and the overall event-driven, that generates about on the total event-driven another 100 to 190 million to hit our goals for the guidance we've given.

By the way, and this excludes last year's huge large two deals, we've averaged between 180 and 190 only one year and that was back in 2009.

As we see it, we're dropped off 20 million from that number.

So that's the worst we've ever seen.

Right.

Going back to the mutual funds, what I would say to you is that I would expect we'll start hearing some news in the second quarter that'll carry into the third and fourth quarter.

So I look at the second quarter and say, "Do I hope it's up a little bit?" We're tracking, we know some deals that are in there, but I think it's going to be more heavily weighted towards -- when we get back together in February and talk, we'll have a much clearer idea as far as what deals were out there and what actually got closed because the thing we have to remember too is -- and again, I want this to come across positively -- is we hear a lot of noise out there and talk, and people will then say "I'm going to go forward with it," or they may say, "I'm going to put it on hold," or they come in, just as they did last year in the second quarter and say, "Well, we've decided to add all of our funds," versus just a few they might have been discussing.

What I will tell you is there's nothing in the pipeline, and that's why we've pulled it out of this year's guidance, anywhere near the I-shares that we talked about last year, okay, more other one-time large deals.

What we're thinking when we talk about larger deals are somewhere between 1 million to 2 million in revenue.

Rich?

Okay.

So there are two -- Dan, I completely agree with everything you said, and even though here at my level, at the sales level, at the sales commissions level, you're never comfortable until it's behind you historically because of all of the varied (inaudible) all of the funds out there.

It's only about a third of the funds that will participate at any point in time, but beyond that, there are two additional hedges which really should give you long-term comfort, okay, just not any particular quarter comfort.

The two hedges are that the number of positions is growing, so when the job does happen, okay, it should be up 11% just from last year of the same job at the same time.

The other piece is one of the key product initiatives I mentioned is that we have a new mutual fund solicitation product which is a proxy predictor model where we have a very small percentage of mutual fund solicitation.

We think we're going to be able to enhance our revenues significantly from that because we have a value proposition to the marketplace which will get them to perform faster, less anxiety than they have today, and it's really in the Broadridge model.

We're just deploying technology to make the process that much more efficient.

So again, on a quarter-to-quarter basis, until in any given year, we're over the goal line, we're all going to have some degree of anxiety, okay?

When you step back and look at the business fundamentals, all right, it's really something that should be growing, and consistently growing, over any period of time.

Understood, understood.

The SEC stuff obviously, a lot of questions have been asked already.

I guess I'll just ask just the social network solution.

I'm curious, what are the regulators -- what is their response to this product?

I mean, it seems like it cures a lot of the issues that are out there that some folks have, so -- I know you talked about it at length, but what is their response to it?

I've actually had conversations directly -- and I've just gone through my mind -- I'm relatively certainly with every commissioner, and of course, Mary, the Chair, Mary Shapiro.

Right.

There are -- when you roll out something like that, there's always, wow, this could be transformative, but like any change, there are things that you say, well, gee, maybe this could create too much dialogue; maybe this would allow inappropriate dialogue, all right?

And there's a lot -- I believe that the upside is so overwhelming and that through technology, we can manage many of the concerns that have been raised to us, so -- but the real benefit, Tien-Tsin, is it's -- by taking out $1 billion is great, okay?

And it could lead -- it certainly would get us closer to taking out the next billion, but if you think about the overall markets, okay, $1 billion versus all of the trillions of investments out there is not the meaningful thing.

The meaningful thing here is everybody talks about the last financial crisis, the financial crisis before that, Sarbanes-Oxley, the 143 new regulations, and they always talk about transparency, okay?

Where is the transparency in any of that?

It's regulation, okay?

This would create transparency that would be available to shareholders, that would be available to management, and would be available to Boards.

So think about if something goes wrong in the world today, how quickly the world knows, okay, or if something goes right in the world today, how quickly the world knows through social networking technologies, Twitter, etc.

We're applying the same technology except if someone made the statement you'd make it only as a shareholder and if you made a statement, we would know who you are and you would be accountable, and if you made a deliberate false and misleading statement, you would be held accountable.

That is so far behind -- beyond any other network out there.

So as you know, I'm very pumped about this.

I will say I put this in the when, not if, category because the benefits are so overwhelming and the world is already here.

We're just trying to get corporate communications at the level where the rest of the world already went to.

Okay, appreciate that.

Thanks.

(Operator Instructions).

Your next question comes from the line of Justin Hughes with Philadelphia Financial.

Good morning.

I think we've touched on this a little bit, but I just wanted to follow up on last quarter, you guys were pointing to $0.33 of grow-overs and then this quarter, you're pointing to 39.

Why has that increased?

And then second of all, you've maintained guidance.

So I just want to understand what's making up that $0.06 difference?

Is it the buyback or is it that the pipeline has improved in the last three months?

I'll give you the answer to the first one, which is the first quarter and the lower number is primarily due to lower than what we said or thought was going to happen in August, okay, primarily event-driven.

That's what driving the difference.

When we say why aren't we changing our guidance, we'll give you two pieces there.

One is it (inaudible) to do with the share buyback, but very little.

Most of it has to do with -- you heard us talk about NewRiver, the acquisition.

Well, I also mentioned that NewRiver is accretive.

So therefore, that helped pick up some of our business there, as well as very importantly, as with most companies, you go in there and you look and you say, "Okay, we think there's some risk." You're going to take some of your expenses and maybe some of your expenses that you wanted to do, but you're not going to do, so we pulled those back in the remaining three quarters.

That's how we're still holding to the guidance.

And very importantly, we're still looking at this and saying on event-driven, we believe we'll still pick up in the remaining three quarters 160 to 180 million of revenue which historically, has been there.

Yes, and of course, it also the relative size of the first quarter versus Broadridge overall.

Okay.

So it's 60 to 80 million of event-driven revenue in the last three quarters of the year that you didn't have before and that's what's going to offset it?

Yes, directionally, I'd say you're right.

I'd have to (inaudible).

What I'm saying is if you look at history, we generated 160 to 180 -- 180 to 190 million.

So therefore, we're saying we think that's what's going to repeat itself, and therefore, it's not really higher than the prior years.

Okay.

Is it higher than Q1?

The answer is yes.

Okay.

And then my last question is a lot of us have seen the results out of Penson recently and especially last quarter.

If Penson were to sell -- let's just say they were acquired by a larger competitor -- what happens with your contract and your relationship with them?

Well, we would expect very little since we have a 10-year contract.

Okay.

So --

And the contract recognizes the importance of the relationship between Penson and us, and the acquirer would be in a position where they would need to address the vast majority of the aspect of the contract.

So they'd have to buy you out of it.

There's no change in control provision in the contract?

That's right.

Okay.

Thank you.

Effectively, that's right.

Thanks.

(Operator Instructions).

You have a follow-up question from the line of Peter Heckman with Avondale.

Hi, thanks for taking another question.

I'm also -- I'm going to have to do some work here on these grow-overs.

It's a little bit confusing.

Just from a guidance perspective in the second quarter, the consensus is currently $0.19.

Is that kind of within a range of what you're comfortable with?

What I'm saying is the way to look at this is to say that we said in the first half we weren't going to see much growth and you had to back out then what we showed on the grow-overs.

So that's how I would answer that question.

Okay.

So last year, you did 30 -- well, I'll have to -- so you're basically thinking whatever you did last year, take out $0.23 and that's where we should be?

And we'll plus or minus to that depending upon whether we see a pickup or somewhat of a slowdown.

That's the right way to look at it.

Okay.

All right.

I appreciate it.

At this time, we have no further questions.

I will now turn the call back to Mr.

Rich Daly.

Well, we certainly thank you for all your questions.

Dan, Rick and I expect and look forward to seeing you in the future.

I'm going to encourage you all to choose to have a good day, although at Lake Success, it will be a good day, but a wet and cold one.

Thanks so much.

This concludes today's Broadridge Financial Solutions Inc.

first quarter fiscal year 2011 earnings conference call.

Thank you for your participation.

You may now disconnect.