Broadridge Financial Solutions Inc (BR) 2011 Q4 法說會逐字稿

Good morning.

At this time I would like to welcome everyone to the Broadridge Financial Solutions fourth quarter and fiscal 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 speakers' remarks.

(Operator Instructions).

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 fourth quarter of fiscal year 2011.

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

I'm sure by now everyone has had the opportunity to read the earnings release we issued.

The news release and slide presentation that accompanies today's earnings call and webcast can be found on the Investor Relations home page of our website broadridge.com.

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

These risks are summarized here on slide number 1.

We encourage participants to refer to our SEC filings, including our annual report on Form 10-K for a complete discussion of forward-looking statements and the risk factors faced by our business.

Before we begin, I would like to point out to everyone that as a result of the Penson transaction that 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 securities 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.

As previously disclosed, we entered into an Information Technology services agreement with IBM in March 2010 under which IBM will provide us with data center services.

Beginning with this earnings announcement we will include our results reported on a non-GAAP basis which excludes the impact of the costs related to our data center migration to IBM.

These costs are significant and we believe this information helps investors understand the effect of the migration on our reported results.

Now let's turn to slide number 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 fourth quarter and fiscal year 2011, followed by a discussion of a few key topics.

Dan Sheldon will then review the fourth quarter and fiscal year 2011 financial results and the fiscal year 2012 financial guidance in further detail.

Rich will then return and provide his overall summary and some closing thoughts before we head into a question-and-answer part of the call.

Now please turn to slide number 3, 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 fiscal year 2011 financial highlights.

Then I will discuss our fiscal year 2012 guidance, followed by a review of our closed sales performance.

And then, an acquisition update before I turn it over to Dan.

After Dan provides you more of the financial and guidance details, I will wrap it up with my closing comments during which I will highlight many of the initiatives that give us confidence to create shareholder value beyond this year into fiscal year 2013, and beyond.

Let's start on slide 4.

Our fiscal year 2011 financial highlights.

Overall, I am satisfied with our fourth quarter financial results, but disappointed with the full-year results because of the previously discussed decline in event driven revenue from their unprecedented high volume levels in fiscal year 2010 to their start low-volume levels in fiscal year 2011.

The decline in event-driven revenue drove an overall decline of 2% in total revenue despite all other revenue drivers having headed in the right direction.

Recurring revenues were up 13% as a result of our successful acquisitions, the Penson Outsourcing Services conversion, strong recurring revenue closed sales results, and internal growth.

Long-term recurring revenue and related recurring revenue sales will be the primary component of creating long-term shareholder value.

Event-driven revenue in fiscal year 2010 offset the weak economic environment by adding a benefit of approximately $0.18 per share more than we had planned.

In fiscal year 2011, the lower than anticipated event-driven revenues and related distribution revenue cost us approximately $0.25 per share versus what we planned.

Even though last year was our lowest activity ever we are not planning for an increase in fiscal year 2012.

When event-driven revenues come back to more normal levels our plan will be viewed as being conservative, but given it's almost entirely out of our control we don't want to disappoint again.

Our diluted earnings per share from continuing operations were $1.37 per share non-GAAP and $1.34 GAAP for the fiscal year-ended 2011.

During the quarter, we incurred IBM data center migration costs of approximately $0.03 per share.

Dan will provide you with more detailed information in a few minutes.

Again, our decrease in earnings per share from fiscal year 2010 was directly related to the decrease in event-driven revenues.

During the year we opportunistically bought back 8.7 million shares of Broadridge stock at an average price of approximately $21.83 per share.

These purchases got us to $128 million weighted average shares guidance that we provided at the beginning of the year.

Now let's move to slide number 5.

We anticipate strong revenue growth of 8% to 10% in fiscal year 2012.

The majority of the growth will come from recurring revenues as we have assumed no growth in event-driven revenues.

We expect the growth will come primarily from our recurring revenue closed sale and acquisitions.

Also, we are anticipating only modest volume internal growth as we continue to be cautious in our expectations for trade growth and limited stock record growth.

The recent market environment supports this, hopefully, conservative view.

We expect fully diluted earnings per share before continuing operations to be in the range of $1.50 to $1.60, excluding the impact of the IBM migration costs.

As anyone who has followed us knows, our efforts are focused on creating long-term shareholder value, and we have been consistently looking out to fiscal year 2013, and beyond.

Our fiscal year 2012 plan still has us on the path to achieve our long-term shareholder value goals beginning in fiscal year 2012, with much more in 2013, and beyond.

Free cash flow, excluding the IBM migration costs, should be approximately $225 million plus or minus $35 million due to potential variations in working capital and conversion costs.

This is a strong free cash flow business.

The Company's Board of Directors declared a quarterly dividend of $0.16 per share payable October 3, 2011.

The annual dividend was increased approximately 7%, to $0.64 per share.

This will be the fourth year in a row that we have increased our dividend payout.

Let's turn to slide 6.

Closed sales for the year were $134 million.

Our recurring revenue closed sales of $113 million were the second highest in our history.

While our recurring revenue closed sales were slightly lower than last year we are still pleased with our sales results given the quality of sales that have taken place.

Our securities processing segment sales were 25% compared with fiscal year 2010 due to an increase in deals greater than $5 million.

While investor communication recurring revenue closed sales were down approximately $15 million, last year's results included the $40 million Morgan Stanley Smith Barney contract.

We feel good about our recurring revenue closed sales results.

Our pipeline is strong and we have many large opportunities that we are presently pursuing.

For fiscal year 2012, we expect recurring revenue closed sales in the range of $110 million to $150 million.

Total closed sales, which include event-driven, are expected to be in the range of $135 million to $175 million.

However, we will focus our future discussions on recurring revenue closed sales as we believe that recurring revenue closed sales are the best measure of our future revenue growth potential.

Now let's move to slide 7, where I will provide you with an acquisition update.

Over the last 3 years, we have made 5 $15 million plus acquisitions in which we've spent approximately $370 million.

In fiscal year 2011, it has been our busiest year by far as we made 3 very successful acquisitions.

Last August we acquired NewRiver.

In December, we acquired Forefield, and in January we made our largest acquisition since our spinoff when we acquired it Matrix.

We did not set out to make fiscal year 2011 our busiest acquisition year ever.

It just happened based on the availability of high-quality entities that met our very high standards.

You should not expect us to have a repeat of this level of activity in fiscal year 2012.

The 5 acquisitions that I have identified contributed approximately $109 million to revenue, $16 million to EBITDA, and $3 million to earnings before taxes in fiscal year 2011.

They will contribute significantly more in fiscal year 2012 as 2 will close midyear and all have been fully converted onto our systems.

In fiscal year 2012, we anticipate our acquisitions will contribute approximately $182 million to revenue, $39 million to EBITDA and $22 million to earnings before taxes.

I am pleased with the financial performance of the acquisitions.

When we decide to acquire an entity we set very high hurdle rates and goals.

Our recent acquisitions are Matrix, NewRiver and Forefield are all performing better than their business plans, while Access Data and City Networks, are just slightly behind.

I anticipate that all 5 acquisitions will eventually exceed their business cases.

We utilize 4 primary key criteria in our acquisition strategy.

Number one; the acquisition must be accretive to growth, margin and earnings by year 2.

Number two; the transaction must generate an internal rate of return greater than 20%.

We understand that this is a very high hurdle rate especially given our weighted average cost of capital.

However, we know that acquisitions provide no guarantees, and we want to ensure acquisitions of price, recognizing risk, and also that we only focus on deals that leverage our brand, scalable infrastructure and skill set.

All of which enable greater returns.

Number three; our acquisition strategy is focused primarily on tuck-in sized businesses.

And number four; that we have the management capacity to successfully integrate the new entity.

Now I will turn the call over to Dan, who will go into more detail about fiscal year 2011 financial results as well as our fiscal year 2012 guidance.

Dan?

Thanks, Rich.

I am on slide 8.

In our earnings release we disclosed we are finalizing our estimates of the total cost we will incur in connection with the migration to IBM and expect those estimates to be finalized during Q1 of this fiscal year.

And, we still expect the completion of the migration off of the ADP and onto IBM by around the end of June 2012.

We believe our annual savings will still be around $25 million pretax, and that these savings will start during fiscal year 2013.

Our total migration costs are now estimated to be $95 million.

The first 2 bullets address what we discussed before as far as migration, P&L period expenses and capital expenditures to be deferred and amortized over the life of the 10 year service agreement.

Now that we are almost done with the migration planning, we believe that $85 million is about where we should end up, versus our previous estimates of around $75 million.

The approximately $10 million pulled forward is a result of us receiving and reviewing our final accounting treatment for all migration costs with the FCC on a pre-clear basis, and is determined that there are certain migration activities being performed by IBM that needed to be expensed up front versus part of a 10 year service agreement.

As we mentioned in the earnings release, the one-time migration costs are large and we are still finalizing.

At this time, the fiscal year 2011 P&L results were impacted by $0.03 per share, or approximately $6 million pretax.

And the fiscal year 2012 P&L impact will be approximately $0.16 per share, or $33 million pretax.

Slides 19, 20 and 24 in this deck provides the reconciliation from GAAP to non-GAAP for these migration cost impacts to our earnings for both fiscal year 2011 and 2012.

And, as we report throughout 2012 we will continue to show the ongoing business excluding the IBM migration costs as non-GAAP, and then reconcile back to GAAP including the IBM migration costs.

Our presentation today for the most part addresses the ongoing business non-GAAP.

Let's move to slide 9, revenue growth drivers.

We are forecasting 8% to 10% revenue growth for fiscal year 2012, 4 to 5 points from recurring revenue sales of which 60% was sold previously in fiscal years 2010 and 2011.

Retention is expected to be around 99% as we have not been made aware of any large client revenue losses.

Internal growth is expected to add up to 1 point, or be flat at the low end.

This is all driven primarily by what happens with trade volumes and stock record positions.

At our low end, trade volumes would pretty much stay where they are today at about 1.5 million trades per day, and at the high end would increase to the mid- to high-single digits.

With respect to stock records, the equity side we think is 1 point or 2, and as far as the mutual fund side, we still see the beneficial producing in the high- mid-single digit range.

Acquisitions providing another 2 points, and this is all carryover as new sales from acquisitions are reported in our recurring sales line above.

This brings our contributions from recurring revenue drivers from 5 points to 7 points, and as we have shared with you before and on slide 23, since the spend we have always had growth in recurring revenues.

And in fiscal year 2012 the growth is approximately 10%.

With respect to event-driven, we are keeping it as Rich mentioned, basically flat.

Do we expect to see improvements over the next 18 to 24 months?

Yes, but we are thinking in the first half of this fiscal year, which is fiscal year 2012, will probably mirror last year.

And if there is growth, we'll see it in the second half and moving into fiscal year 2013.

By the way, we worked with a Boston consulting group to analyze what is going on with mutual fund proxies and it included the following.

As we mentioned before, the decline in mutual fund proxies does not appear to be secular.

The funds truly have been focused on reducing the level activity given cost and cost focus, as well as what we will call shareholder fatigue, which means in the fiscal years 2008 and 2009 and into 2010, there was a tremendous amount of activity.

However, looking forward, we expect a return to the normalized historical averages of/in fiscal year 2007 and 2006, which would suggest a 2 point to 3 point contribution to revenue growth over the next few years.

But as I already mentioned, we probably won't see that until starting in the second half.

Finally, we also expect the activity here to be more volatile with large campaigns being infrequent and unpredictable like we saw in fiscal year 2010.

With respect to distribution revenues, they are expected to contribute 3 points of growth, of which a-third of this is coming from the pass-through fees, the 12b-1 like fees related to the Matrix business.

There are almost no profits on any of these distribution fees, as the growth here is not coming from our proxies in interims, but rather as I mentioned from the Matrix, fulfillments, and statements which do not provide profits on distribution revenues.

Given the revenue growth we are expecting EBIT margins, before the IBM migration cost, in the range of 13.8% to 14.4%, up from the 13.1% we experienced in fiscal year 2011.

The next 2 slides have data points related to each of the 2 segments.

I am not going in to review them at this time in interest of time, but they are here for your information for further follow-up.

Let's move to slide 12.

This is our guidance page for 12.

Quickly repeating what Rich stated earlier, revenue growth, 8% to 10%.

Recurring revenue closed sales, $110 million to $150 million.

EBIT growth before interest, taxes, and IBM migration costs of 13% to 20%.

Diluted earnings per share before the IBM migration cost of $1.50 to $1.60, and including the $0.16 dilution from the IBM migration, GAAP EPS of a $1.34 to $1.44.

Free cash flow, excluding the IBM migration costs, with a midpoint of approximately $225 million.

Slide 21 in the deck has additional information.

As well, this year and last year, we had $20 million to $30 million in capitalized conversion costs, not including IBM or any potential new business with Penson.

And as we continue to make large sales in our security processing space, you should continue to expect we will have a range of $20 million to $30 million per year.

That is all good news because it is generating significant revenue growth for us.

We are refinancing 100% of our outstanding debt with 5-year maturities.

We will renew our $500 million revolving credit facility, our $200 million draw on the revolver, and the $200 million term loan in Q1 of fiscal year 2012.

We expect our interest costs will increase $10 million to $15 million on an annualized basis.

And we are pleased to be increasing the dividend.

Let's move to slide 13.

As we exit 2012 and move into 2013, we would like you to be thinking the following.

We expect to exit fiscal year 2012 with diluted earnings per share of $1.50 to $1.60, without the IBM migration cost.

We've discussed the $25 million in savings, pretax, we expect from IBM, which on an annualized basis generate approximately $0.12.

We have also disclosed before the additional benefits we expect from the completion of Morgan Stanley/Smith Barney, and other restructuring, where we expect to benefit by approximately $0.06.

As mentioned before, the return of event-driven revenues to normalized historical levels would add another $30 million to $60 million in revenue, or $0.10 to $0.20, which includes both fees and postage.

And we expect recurring revenues to grow and margins to expand given the $110 million to $150 million in forecasted, recurring close sales, plus the carryover from fiscal years 2011 and 2012 for those year sales, a retention rate of 99%, and benefits from market-driven trade volumes in stock record growth, as well as contributions from possible future acquisitions.

Rich, at this point I will turn it back to you.

Please turn to page 14 for my summary wrap-up.

Fiscal year 2011 results are not reflective of a value creation progress that has transpired over the last 2 years.

Event-driven revenues were down meaningfully and masked our strong revenue returning growth.

Our recurring revenue closed sales were strong, the second highest in our history, and our client revenue retention rate continues to be excellent.

These are some of the reasons why I am so confident about Broadridge's future.

We have never had better recognition of the importance of what we do and the value we provide to the proxy process by the New York Stock Exchange and the SEC.

There's recently been clearly established that the free market for proxy fees is more than double what the New York Stock Exchange/SEC regulated proxy rates are.

This is a significant recognition accomplishment for Broadridge.

We have made 3 very successful acquisitions during the fiscal year.

They contributed to our revenue growth and we anticipate that they will contribute to meaningful revenue growth and earnings in fiscal year 2012, and beyond.

We continue to make excellent progress on our key initiatives.

The Morgan Stanley Smith Barney transaction contributed to revenue growth and earnings improvement in fiscal year 2011.

We made significant progress in the implementation of the Penson outsourcing agreement, and we anticipate it will be fully converted in the second quarter of our fiscal year.

Finally, we are beginning the implementation of our conversion to the IBM data center.

We plan to be fully converted around June 30, 2012.

I am confident about our future.

Since the spend, we've consistently been looking at our business model and pruning and changing underperforming businesses with a view that it is all about creating long-term shareholder value.

We really like the portfolio we have right now.

We like the portfolio because of the many opportunities it enables us to pursue.

Although we hope that the economic turmoil that our markets experienced over the past week or so will dissipate, we are confident we can grow our marketshares regardless.

However, our success and value creation will be even stronger, in better economic environments, particularly when our clients perform better.

Let's get back to our strong product portfolio.

Those of you that heard our Investor Day presentation in June, will remember we talked about being a market disruptor in $1billion equity transfer agency market.

We will do so by leveraging much of our world-class infrastructure that we built for the communications business, as well as our back office brokerage operations to create greater efficiency for issuers.

More importantly, we can create uniquely better alignment for issuers and their registered shareholders by allowing them to have the opportunity to move their registered accounts to street accounts, simply and easily if they choose to do so.

We already provide registered proxy services for more than 1,800 issuers, and if all of them were to convert to our transfer agency platform, it would be worth a minimum of $100 million in revenue.

As proof of our value proposition, we just recently signed Spectra Energy.

The market opportunity for our global and emerging products is almost $1 billion.

We have developed or acquired several new products and services over the last few years.

We provide numerous services including services for advisers, global proxy communications, tax reporting and outsourcing, and securities class actions.

To our global and emerging products, we are driving about 24% compounded annual growth rates with robust margins off of a revenue base of $75 million.

The 401-K market is a large and attractive market.

Matrix is an $80 million business growing at approximately 20% annually providing services in that space.

Through Matrix we provide the connectivity for over 130 third party administrators, and over 200 bank trusts, to do business with over 500 mutual fund families representing 25,000 different funds.

Under the Broadridge umbrella, with our relationships, our technology, our sales organization, we can support the course Matrix is on and take it to the next level.

It has 3 key areas of growth; organic growth, lift-outs and share expansion, and we have just begun to tap what we believe will be a terrific value proposition for the broker-dealer community.

Access Data provides us with the opportunity to grow data aggregation, management and reporting services.

Brokers have always made data available to their fund partners, but the process is extremely inefficient.

The markets desire for more insightful information is not currently being served.

Through Access Data, we bring technology and scale to this process through cleansing and normalizing data in a consistent manner which creates efficiencies for our clients.

We have recently entered into an agreement with Charles Schwab to expand our sales, reporting and data exchange capabilities that Schwab offers to its mutual fund partners.

Let me share with you why Schwab is a great opportunity.

In the first 10 years of existence, Access Data grew to 30 clients.

And in the past 2 years that we have owned it they have doubled to 60 clients.

By signing the deal with Schwab, we now have the opportunity to increase the population client to 600 on the Access Data platform.

Since we now have become the exclusive data aggregate for Schwab to service their fund partners.

We now have explicit authorization to provide our core product set of services to 600 mutual fund complexes using Schwab's data to enable Schwab and their fund partners to accurately meet both of their compliance responsibilities.

This opens the door for funds to hire Broadridge directly and capitalize on a host of data analytics that we can now offer to them to better understand the efficiencies of their relationship and the effectiveness of their relationship with Schwab and their [RRIs].

As we have said in the past, while we see the revenue opportunity by providing Schwab's fund partners these additional modules and services, this is not our end game.

As funds experience the benefit of our centralized industry approach for Schwab, we expect them to have great interest in seeing this approach taken with all of their broker distribution partners.

Due to the Schwab relationship, we will be able to tangibly prove to 600 fund families that for the Schwab piece of their business Broadridge can provide [fact 70 verified] 12b-1 breakpoint reviews with extensive market distribution analysis beyond anything they can create internally today at a lower cost, and absolute accuracy level unquestionably better than previously attainable.

We estimate the market for coordinating all data management including the applications that use this data is approximately $400 million to $500 million.

Earlier this year, Pitney Bowes announced that Broadridge would be their exclusive channel partner for investment industry content in a new digital mail service called Volly.

Digital mail is an emerging technology that aims to improve e-delivery rates by creating a single site that consumers can use to receive statements, bills and other documents across all consumer accounts.

We have the opportunity to turn more than 1.5 billion communications into electronic format.

Broadridge will exclusively market Volly at a digital platform, and Pitney Bowes will exclusively market Broadridge for investment related communications in the broker-dealer market.

The launch of Volly is scheduled for early next year and we believe it is a great opportunity to issuers and brokers to further reduce their cost.

Broadridge continues to lead in converting traditional paper communication into digital communications to the benefit of investors, financial institutions, and our shareholders.

We have the only live business process outsourcing solutions for brokerage back office clearance and settlement functions in the United States.

As thought leaders, we introduced that model.

Our portfolio of ASP and outsourcing capabilities had strong growth last year, including a new global investing offering for Schwab, which they announced in a press release on July 13.

We expect to both successfully execute the $75 million backlog of implementations, as well as adding significantly to new sales to it during fiscal year 2012.

In fixed income we serve the majority of large global banks to our long-term contracts.

The market side is approximately $200 million and we are experiencing low double-digit revenue growth.

We process approximately 55% of all fixed income trades, which equates to about $4 trillion in market value on an average day.

We play a very significant role in the settlement activities of the financial services industry every day.

Securities Processing Solutions is the right business with the right skill set to go out and add more revenue from existing clients to help them be more efficient and to expand the services they run through that model.

We had excellent closed sales results in fiscal year 2011, and we are having more discussions about significant opportunities with existing and new clients.

As you can see, we have a lot going on and we have a lot of opportunities.

We have never had this much opportunity to go out and execute on.

We are good at execution.

We have the right values, right people, and a proven track record of execution and success.

That's what we do.

That's our culture.

Finally, I want to reiterate our priorities for your cash.

We will continue to pay a meaningful dividend, look for strategic acquisition opportunities, and repurchase shares opportunistically.

However, maintaining our investment-grade credit rating is very important to us, and in particularly the markets we serve.

And we will continue to pursue a path that ensures we maintain that rating.

Before I take your questions, I would like to acknowledge the contributions of our Associates.

This has been a challenging year and our Associates have never worked harder or performed better.

I am proud of the effort they gave in fiscal year 2011, and I am looking forward to fiscal years 2012, 2013, and beyond when we believe our shareholders and Associates will both receive the respective returns and rewards they deserve.

I will now turn the call over to the operator, and as always we welcome your questions.

(Operator Instructions).

David Togut with Evercore.

Thank you.

Good morning, Rich and Dan.

If I am reading it right it looks like SPS hit the high-end of your recurring revenue, new sales guidance for the year, and ICS fell below.

If that is correct, if you could just walk through some of the dynamics of the new bookings to give us some insights into end market demand?

Sure.

On the SPS side it was our strongest year ever.

We had a number of large transactions.

We had a number of outsourcing transactions.

We feel very good about the pipeline.

We feel very good about the value proposition.

I think it would be of interest to read the Schwab Press Release on July 13.

We live in a global world, North American investors need to invest globally, and Broadridge is fairly unique in our ability to provide that offer into the market.

So on the SPS side, I would tell you that we feel good about last year and the opportunities we are looking at.

On the ICS side, we did anticipate doing a one larger transaction reporting transaction, which we still happen to be in discussions with, but it did not take place.

The processing yields are at higher incremental margin, and that's why overall even though it was our second highest year in recurring revenue sales, as Dan and I sort to the numbers, it was probably the highest year in margin and earnings contribution capability that we had and we look forward to 2012.

And we look forward to staying focused and giving you a clearer view Dave, on the recurring [piece here] because that's the part that's going to create the long-term value as we go forward.

Okay, just as a quick follow-up for Dan.

If you fully allocate the IBM migration costs in fiscal 2012, how would the expenses be allocated on an EBIT basis between ICS and SPS?

We are still going through that piece of it, so I would say to you we will get back to you at the end of Q1.

So stay tuned.

Obviously, we would think that a lot of the savings would go into the SPS business.

There is no question about it, but there's also no question that both businesses leverage that infrastructure more efficiently together, and dramatically more efficiently together, than they could possibly ever do it separately.

The key is if you look at the processing peaks that the communication business needs and things like [voting], versus the processing peaks that the processing business requires in market openings and the trade settlement activity, those peaks are very different and enable us to leverage our scale far better.

Thank you very much.

Jim Kissane, Bank of America Merrill Lynch.

Thank you very much.

Rich, does the guidance for closed sales in fiscal 2012, I assume that excludes mega deals like a the $22 million deal that you signed in fiscal 2011.

Just trying to get a sense, are there deals like that in the pipeline that you can potentially hit over the next 12 to 18 months?

We would anticipate in that range of $110 million to $150 million, so let's talk - - let's just use the midpoint here of $130 million.

$130 million would be a record year, and that would include large transactions.

We're probably anticipating greater than $25 million, could be a range of $35 million to $50 million in there.

But we are happy with the dialogue we are having right now in the marketplace, Jim.

Are there $20 plus million type deals in the pipeline?

There are.

There have been for a long time.

But what we do internally, and I'm not going to go into this level of detail of where the pipeline is.

But we go through on a very regular basis, at least monthly, and I go through that more on a personal basis, and we rate the likelihood of deals, okay, by the size of deal.

Okay?

So the probability of where we are in the sales cycle and what the hurdles are between where we are in closing.

So we feel good about the range of the $110 million to the $150 million, and we feel good about the contributions it will make to 2013, and beyond.

Jim, let me just add on to that piece because you and others have asked us the question, can you help us understand how you come up with your $110 million to $150 million?

So just put it in perspective.

This year as in prior year's about $65 million came from less than $5 million deals.

You've heard us talk before about $5 million and greater deals are what we've called the elephants.

And that was $45 million this year.

That's how you get to just over $110 million.

When you're looking forward, and as we look forward, we also note the acquisitions should be incremental at that, we also have some new products.

So when I talk about the $65 million of the past, you should be thinking much more in a range of $75 million to $100 million, which as I mentioned acquisitions and new products.

Then add on top of that for your low-end around $35 million and your high-end $50 million for deals greater than $5 million.

I don't want you to think that they're all $20 million deals.

They are greater than $5 million deals.

And, again, historically we had averaged $25 million.

And in the last two years, $45 million to $55 million.

I think that puts it in perspective.

That's very helpful.

In your slides you indicate that Access Data and City Networks are sort of running a little bit behind plan.

The Schwab deal brings lots of potential.

I'm just trying to get a sense to date what have been some of the challenges, especially given that you have stepped up the acquisition activity over the past couple of years.

In both of those transactions, Jim, I am very pleased we have these properties.

I think with the right owners, I think it meets the four criteria I laid out during the call.

I expect both of those transactions will are going to be - - to add meaningfully.

So Access Data running behind without Schwab my tone would be very different.

Access Data running slightly behind on its numbers, but where we are now building a relationship from the 30 fund families that the funds that Access Data dealt with when we acquired them to 600 now really provides us very, very meaningful opportunity.

I almost feel the same way I felt about proxy in the early days.

Once we've proved to people that something is so much better, we really have significant opportunity.

City Networks gives us a reconciliation capability, both in the US and Europe, which we did not have before.

Reconciliations is a big business.

Reconciliations is a big activity, particularly for that BPO activities.

So when you take our BPO capabilities and having that application capability, I feel good about the dialogue, the sales force momentum on that, and it wasn't that big of a transaction.

That is an easy transaction for us to get a very good return on given the small size that it was.

That one I am putting into what I hope is going to be a lay-up category.

Great.

Thank you.

(Operator Instructions).

Tien-Tsin Huang with JPMorgan.

Thanks, good morning.

I just wanted to ask if your fiscal 2012 guidance changed all internally since the Investor Day in response to all the weak market activities we have seen, and aside from the change in the IBM cost that you talked about there?

Really, our guidance has not changed because when we gave you the range of 6 to 9.

At the lower-end we weren't counting on a lot coming from the internal growth, call it like a point.

Okay, good to know.

And just a correlation of event-driven revenue with the direction of the stock market, I think flat.

Seems conservative for sure, I think that's the right thing to put in the guidance.

But I'm curious, could it move lower given weaker markets resetting lower recently, and - - this bad social mood that everyone has now with investing?

I'm just curious if that is still on the table as a risk?

There are two things that drive event-driven revenue; business opportunity and then regulatory needs.

The business opportunity is something that people can manage more than they can manage regulatory needs.

So we had a study done beyond all the work we have done this year to really get behind what drove all the prior transactions, and what's going on in the marketplace.

There is an economic desire to minimize costs by the industry given the challenges that the mutual fund industry's have.

There is not a secular change in the reasons that are driving the need to go to the market.

Historically, and I've had a lot of history that's going back well over two decades.

Historically, we have never been right on the terms, up or down.

But this is the lowest activity levels we have ever forecasted.

We have never had activity levels below where we are right now.

So although it is possible that it could go even lower, when you are dealing with low double-digits of activity, versus historical norms, call it in the low 20s.

In 2010 we were almost at 50% of activity, in all the possible positions.

There is a heck of a lot more upside here than there is downside.

I would put the downside into a normal manageable event, and I would put the upside into - - it could be very meaningful, but we don't want to be planning on it.

And we can get to the value creation that we need to get to by managing this through 2012 and just looking for normal activity when we get to 2013.

Understood.

That's helpful.

Your historical perspective is always - - more valuable than my view.

Just a last one, just sounds like acquisitions - - we shouldn't expect as much this year versus last year.

Should we assume then - - I know it's not in your guidance.

Should we assume more in the way of share repurchases?

When I laid out the use of our shareholders cash I was very, very focused in pointing out again dividends and expressing to the market our confidence and our strong cash flows and our very strong future.

We believed raising the dividend, and our Board believed raising the dividend, was the right thing to do.

I wanted to clearly signal so you read it exactly right that you should not expect the same level of acquisition activity this year as last year.

One, we don't believe that we will be as fortunate in the properties.

And two, we have a lot going on here and I want to be very, very careful about execution.

Three, in turn to the buybacks, this recent market activity is recent for all of us.

And we got to the share count that we believe was the right share count and that we signaled to you last year.

We are not providing any signaling in that regard at this point.

And we are certainly going to look very carefully to what is going on in these markets and what is in the best interest of our shareholders.

Yes, Rich, the only thing I would like to add onto that is our debt levels are very important to us as well.

We talked about investment grade.

Right now we are sitting at 1.9 to 1, and are limit is 2.

We are very aware of what we're allowed to do.

So, if you think back a year ago, we had well over $400 million of cash and significantly below the 2 to 1, we'll call it debt-to EBITDA ratio.

Sitting right now I just shared with you 1.9 is where we are with debt, and we've got about $240 plus million of cash on the balance sheet.

Yes, Dan, you're absolutely right.

And that's why when you go to that section, when I talked about the use of cash, I emphasized - - maintaining an investment grade is not an emotional thing for us.

These large transactions that we are talking with large clients about right now, without question, the dialogue in their organizations, by the way including yours Tien-Tsin, comes up that if they are going to rely on us for mission-critical services, they want to have a high-level of confidence in our ability to perform throughout all markets.

Understood.

Thanks so much.

Chris [Denak] with Zeller O'Neill.

Just one quick one on Penson.

They announced the extension of their relationship with you from 11 to 15 years.

Does that have any implications for you from a revenue earnings perspective?

Or how does the accounting work on that?

No, we are speaking, again, extending the contract isn't going to do anything with any kind of amortization, et cetera.

So the point of the matter is what we are looking for that is, it's a longer-term deal, as well as new opportunities we've talked about that Rich will speak to that they mentioned on their call.

I put what we're doing with Penson right now.

They announced a Letter of Intent to expand their relationship with us.

The size and services that we are talking about here, particularly in the BPO side, are very routine for us.

We're in what I would call the normal gab analysis that we go through to finalize terms.

And this is - - I would put it in the category as business as usual.

And it is not dissimilar to the conversations that we are having with many of our other existing clients looking at expanding services of BPO opportunities.

We don't at Broadridge announce Letters of Intent until we have a signed deal, a final deal, finalized.

I would expect us to be able to finalize this over the next 30 or 60 days, or so.

Okay, and then just one follow-up to that.

In your sales process, is that when you went to them and say, we can do more for you.

Or do you always do that?

Or did they say, what else can you do for us?

I will go any where, any time to explain to a client that we can do more for them.

That is SOP for us for sure.

Okay, got it.

Thanks very much.

(Operator Instructions) Peter Heckmann, Avondale Partners.

Good morning, gentlemen.

As far as the Penson conversion, I guess what we are looking at now is November, December, rather than more of a July-August final conversion.

Can you talk about what's taking a little bit longer?

As well I assume that some of your guidance for fiscal 2012 contemplates that the BPO outsourcing business will be running loses for relatively larger part of the year?

It won't be kind towards that breakeven that you want to get towards when you fully implemented the $55 million from Penson.

Is that correct?

It is correct.

Let me give you some context here, though, because there were two phases of Penson.

Phase 1 was the business which we sold them which is on our outsourcing platform right now.

Okay, and that's a little over $20 million.

And then in phase 2 there was Canada and the US pieces.

Canada was probably about 40% of that, about that, call it $12 million or $13 million.

And then the remaining US piece is a little more than $15 million or so, and that's the part that is going to be taking place in the second quarter.

So, a lot has transpired.

We with Penson and one of their clients who is converting off of their platform, which was an announced deal, everyone is aware of it.

They had a strong need to do that.

There were economic considerations between the three of us to allow that to happen.

And so, we delayed our conversion slightly to allow that conversion to take place prior to our final piece happening.

We have made a lot of progress and we expect the rest of the progress to go, I will call it fairly routinely, which is as always, there is always challenges.

But as I even pointed out in the script and in other places, execution is what we do.

We are very good at it.

It is our culture.

And I feel confident in our ability to end this transaction as planned in the second quarter.

Okay.

Thank you.

Dan, you went through it pretty quickly, and I was trying to catch up.

But the difference between the IBM cost and their timing and whether there would be expense to capitalize?

As you described at the June Analyst Day, versus now, what was the change there?

It sounds like some costs were pulled forward and some that were planned to be capitalized are going to be expensed.

Is that correct?

Yes, if you looked at the first two bullets where we said, it's now $85 million for what we normally would have thought about expensing capital, which we said before was going to be line $75 million.

That's just us refining our estimate.

It's that next piece where we talked about the fact that in our contracts with IBM, starting a year from now we were going to pay them every single year approximately $2 million for what they call transition fees.

And the SEC as well as our auditors, worked with us and said you're going to have to take part of that and absolutely recognize those expenses.

And that's that $10 million that we said was a bit of a surprise.

But we did everything ahead of time.

Instead of doing it just - - it's a big deal and we're just going to book the way we think it was, we actually went out and sought out advice on that.

So that's the only difference is the $10 million.

It's not $10 plus million, it's $10 million in total.

Yes, it's $10 million for that piece that we called pulled forward.

And I'm just sharing with everybody.

We used to tell you $75 million for capital and expenses.

That's now $85 million.

So the real answer is, it's $10 million and $10 million is $20 million.

And that $10 is not a cash cost in 2012?

It will be paid out over a period of years?

Yes, that's exactly the right way to look at it.

Great.

Thank you.

Now, when we get to 2013, in essence it's exactly the same with slightly less amortization because of some of the expense we're having up front here.

Great, that's helpful.

Thank you.

(Operator Instructions)Peter Dale with Omega.

Good morning, gentlemen.

Gentlemen, listen, it's a little bit along the follow-up along Penson's question, which is - - if I look at your free cash flow and it's about share buyback again.

If I look at the midpoint of the free cash flow number of $225 million, and then I look at dividend payments of about roughly $80 million.

I guess what I'm trying to get at here, gentlemen, is what - - how much cash you need to run the business?

Which then might be available, or what's left over to buy stock in the open market and share repurchase?

Can you help me with some guidance there?

Yes, Peter, it's Dan first, and then I'm going to turn it over to Rich.

On slide 21, what we tried to do is share with everyone what our cash flow, and you have it right down.

You've got the midpoint of $225 million, you've got about $80 million, let's call it for the dividends.

And that leaves the remainder, and we've always said that we have to always maintain $100 million.

That's what we've always said.

Part of that is locked up in capital, in what we call the ridge bridge business still.

As well as foreign cash that, unless we use the cash outside the United States, which you can't use to buy back shares because you would get a tax impact on that.

So be thinking that's why we have always said $100 million.

Understood.

Okay, fair enough.

Thank you very much.

Stephane [McAteer] with Pike Place Capital.

Yes, all my questions are asked.

Thank you.

Wow.

We have no further questions at this time.

I will now turn the call back over to Mr.

Daly.

Well, as always we want to thank you for your participating.

Dan, Rick and I do look forward to meeting with you in the near future.

And certainly in times like this we all need to choose to have a great day.

Thanks so much.

This concludes today's Broadridge Financial Solutions, Inc.

fourth quarter and fiscal year 2011 earnings conference call.

Thank you for your participating.

You may now disconnect.