Broadridge Financial Solutions, Inc. (BR)
F2Q09 Earnings Call
February 3, 2009 8:30 pm ET
Marvin Sims – Vice President, Investor Relations
Rich Daly – Chief Executive Officer
Dan Sheldon – Vice President and Chief Financial Officer
Ian Zaffino - Oppenheimer & Co.
Anurag Rana - KeyBanc Capital Markets
Tien-Tsin Huang - J.P. Morgan
[Stefan Sook] – No Company Listed
Previous Statements by BR
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I will now turn the conference over to Marvin Sims, Vice President of Investor Relations. Please go ahead Sir.
Good morning everyone and welcome to the Broadridge quarterly earnings call and web cast for the second quarter of the fiscal year 2009. I'm Marvin Sims, Vice President of Investor Relations. As usual this morning I am 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 web cast can be found on the Investor Relations homepage of our website at www.Broadridge.com.
Before we begin, I would like to remind everyone that during today's conference call we will 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 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 quarter, followed by a discussion on some key topics. Dan Sheldon will then review the second quarter results in further detail including a review of the cash flows for the quarter end. 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?
Thanks Marvin. Good morning everyone. I am now on slide number three. This morning I will talk about the following topics: A summary of our second quarter financial results and the reaffirmation of our 2009 fiscal year EPS guidance, a review of our sales performance, an update on the current market dynamics including industry consolidation and how to put these dynamics into context for Broadridge. Finally, after Dan’s financial update I will provide some concluding thoughts before Q&A.
So, let’s go to slide number four and start. Given the current market environment I am satisfied overall with our second quarter results. I am also pleased with our sales results, increased market share, liquidity and forecasted free cash flows. I will talk more about these points a little later.
Our Q2 performance was better than our expectations as we continued to experience strong trade volumes in our securities processing segment. Our revenues for the quarter were down 1%. However, operating revenue growth for the business segments excluding foreign exchange and other was up 2% and recurring fee revenues were up 7%. Event driven mutual fund proxies were down year-over-year as well as distribution revenues related to the increased adoption rate of notice and access. The increase in notice and access adoption rate lowers overall revenues but creates a positive offset in fee revenues at higher margins.
Reductions in distribution revenues replaced by recurring fee revenues at higher margins is the only time I am not upset with declining revenues.
Net earnings for the quarter are up 3% and were better than expected. Despite the anticipated expense rollovers we previously disclosed our earnings growth was primarily due to our trade revenue over performance and lower interest expense related to our lower debt level. Despite the challenging market conditions the business fundamentals continue to demonstrate resiliency as the core investor communications key recurring revenue drivers remain essentially unaffected by volatile market activity.
Mutual fund interim positions continue to grow and stock record growth for equities is better today than it was last year at this time. Given this, we continue to anticipate volume growth for the year in equity proxy’s. These factors are helping to offset much lower event driven mutual fund proxy activity.
As we look forward to the remainder of the fiscal year we are once again reaffirming our full year guidance for non-GAAP EPS to be in the range of $1.45 to $1.55 which excludes the benefit of $0.04 for the one-time gain on the purchase of our senior notes from our first quarter.
Therefore, we are also reaffirming our GAAP EPS of $1.49 to $1.59 which does include the $0.04. We are anticipating a revenue decline of minus 3% to flat which is down from our previous growth guidance of flat to 3% growth. The 3 point drop in both the low and high end of the guidance is primarily due to the FX in the second half, lower mutual fund proxy event driven activities and reduced distribution revenues resulting from higher notice and access adoption rates.
We are still expecting recurring revenue to grow in the second half of the fiscal year and on a full year basis a contribution of 3-4% towards overall revenue growth. Irrespective of the unfavorable impact from foreign exchange rates and product exchanges driving our lower revenue growth guidance for the year we still expect to generate free cash flows in the range of $210-250 million, where we have increased the lower end from our November guidance.