Broadridge Financial Solutions, Inc. (BR)

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Broadridge Financial Solutions, Inc. (BR)

F1Q09 Earnings Call

November 6, 2008 8:30 am ET

Executives

Marvin Sims – Vice President, Investor Relations

Rich Daly – Chief Executive Officer

Dan Sheldon – Vice President and Chief Financial Officer

Analysts

Ian Zaffino - Oppenheimer & Co.

Anurag Rana - KeyBanc Capital Markets

David Togut - First Manhattan

Tien-Tsin Huang - J.P. Morgan

Maharth Kapur - Credit Suisse

Presentation

Operator

Good morning. This is [Carol] and I will be your conference facilitator today. (Operator Instructions)

I will now turn the conference over to Marvin Sims, Vice President of Investor Relations. Please go ahead, sir.

Marvin Sims

Thank you, Carol. Good morning, everyone, and welcome to the Broadridge quarterly earnings call and webcast for the first quarter of the fiscal year 2009.

I'm Marvin Sims, Vice President of Investor Relations. 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 earlier this morning. The news release and slide presentation that accompanied today's earnings call and webcast can be found on the Investor Relations homepage of our website at Broadridge.com.

Before we begin, I would like to remind everyone that during today's conference call we'll discuss some forward-looking statements that involve risks. These risks are discussed here on Slide 1 and in our periodic filings with the SEC.

Now let's turn to the next slide to 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 quarter, followed by a discussion on a few key topics. Dan Sheldon will then review the first quarter results in further detail, including a review of the cash flows for the quarter. Rich will then return and summarize the fiscal year 2009 guidance 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 next slide and I'll turn the call over to Rich Daly. Rich?

Rich Daly

Thanks, Marvin. Good morning, everyone.

This morning I'll talk about a few topics: First, a summary of our first quarter financial results and the reaffirmation of our 2009 fiscal year nonGAAP EPS guidance; next, a general overview of the current market dynamics and how to put these dynamics into context at Broadridge as well as a discussion on the resiliency of our business. As part of this, I'll also talk about our clients and the recent industry consolidations and how we think it could affect Broadridge's overall revenue. Then, our strong cash flows and the thinking around our capital allocation strategy, and we'll end with Q&A. There is a lot we need to cover, so let's start.

Overall, I'm pleased with our first quarter results, especially given the current environment. Our revenues for the quarter were up 5%. Net earnings, while better than anticipated, were down 1% as a result of the grow-over items related to last year's corporate build and investment spend, as we forecasted during our first quarter fiscal '08 earnings call. Again, both the revenue and earnings metrics are slightly better than what was contemplated in our guidance due to higher trade volumes in late September.

Included in these results is a gain that resulted from a partial redemption of our bonds. This gain on our bond redemption is another benefit versus our overall original plan performance for the first quarter.

As we look forward for the remainder of the fiscal year, we're reaffirming our full year guidance for EPS to be in the range of $1.45 to $1.55, which excludes the benefit of $0.04 for the onetime gain on the partial redemption of our bonds. We're anticipating revenue growth of zero to 3%, which is slightly down from our previous growth guidance of 2% to 4%, primarily as a result of FX and event-driven activities.

Despite the challenging markets, the business fundamentals and our operating units continue to be solid and are generating positive results. Overall, our anticipated level of transactions remains in the full year guidance range we communicated back in August.

We're in an unprecedented market environment but, whether the Dow is at 12,000 or 4,000, there's always transaction activity, and our revenue is based primarily on transactions and not on assets under management or market performance.

The resiliency of our overall business model is clearest in our Investor Communications business, which accounts for 70% of our revenue and earnings. In this segment, equity proxy services, the shares of publicly traded companies, will always need corporate governance services. Share ownership can shift from individual investors to institutional holders or vice versa, and if institutions hold a greater percentage of shares outstanding, it could result in fewer holders overall.

On the other hand, if hedge funds and mutual funds reduce their holdings and the shares are absorbed by individual investors, this would result in a greater number of overall holders as individual investors tend to have much smaller positions, thus requiring more holders.

In either illustration, we don't believe this will create a material difference. Historically, it never has.

On the mutual fund side, people may move out of equity funds into other asset classes, such as bond funds or money funds, but these institutions are still required to furnish semiannual and annual reports as well as proxies from time to time. Investors will still need to get their account statements. The statements may contain less transaction detail, but again, this won't create a material impact.

In Securities Processing and Ridge with regard to trading volumes, investors still trade. In a downward cycle trading activity can initially spike in the short-term, but it typically drops back down to a lower level that grows at a slower rate until we head back into an upward market. In an upward market cycle, trading volume growth typically is not as volatile and there's a more consistent growth rate in trading activity.

Read the rest of this transcript for free on seekingalpha.com