DST Systems (DST)

Q3 2011 Earnings Call

November 02, 2011 8:30 am ET


Kenneth V. Hager - Chief Financial Officer, Vice President, Treasurer and Member of Proxy Committee

Thomas A. McDonnell - Chief Executive Officer and Director

Stephen C. Hooley - President, Chief Operating Officer and Member of Proxy Committee


Peter J. Heckmann - Avondale Partners, LLC, Research Division

David Togut - Evercore Partners Inc., Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division



Good morning, and welcome to the DST Systems Third Quarter Financial Results Conference Call. [Operator Instructions] Now I would like to turn the conference over to our host, Mr. Tom McDonnell. Please go ahead, sir.

Thomas A. McDonnell

Thank you, and good morning. We appreciate you joining our earnings call this morning. With me here today are Steve Hooley, our President and COO; and Ken Hager, the company's CFO.

Before beginning, I'd like to remind everyone that in the course of our conference call today, we will make forward-looking statements regarding DST or some of its businesses and such statements are based on our views as of today, and actual results could differ materially from the forecasted results. There could be a number of factors affecting those future results, including risk factors set forth in our latest annual and quarterly reports, which we file with the SEC.

All such factors should be considered in evaluating any forward-looking statements that we may make. Since you have access to our detailed earnings release, we will focus our comments on those items that we think are most significant.

This morning, we made an additional announcement regarding our Board of Directors strategic review process. Before we review our third quarter financial results, I'd like to take a moment to discuss this announcement and our business plan to create additional value for the shareowners.

As you know in August, we announced that our board had retained independent financial and legal advisers to assist in an ongoing review of the company's business plan, its assets and its investment portfolio. With the assistance of our advisers, the board engaged in a comprehensive review process and our Board of Directors unanimously determined that continuing to execute the company's business plan and strategy is in the best interest of DST and all of its shareowners.

Our board is confident that the company's focus on 5 key industry verticals: asset management, brokerage, retirement, insurance and healthcare, as well as the development and delivery of customer communications through both print and electronic media, will enhance that shareowner value.

Our growth strategy is to leverage our technology-differentiated solutions to support our customers' information management, business process and customer relationship needs. We're committed to driving future growth by continuing to increase scale, efficiencies and competitiveness as well as expanding our product and service offerings. We will, of course, continue to explore synergistic acquisitions, strategic partnerships and additional investments in areas that enhance the company's existing technology offerings or to create new solutions that meet customer needs.

As I will discuss shortly in more detail, we recently completed the acquisition of ALPS Holdings, Inc., which broadens the range of products and services DST offers to the investment management and brokerage industries, including a suite of asset servicing and asset gathering solutions. Through this ongoing review, our board concurred with management's plan as reviewed by advisers, which identified strategic opportunities to further strengthen our business, adjust our capital structure and create value for the shareowners. These opportunities include, among others, the monetization of certain of our non-operating assets and investments. The consideration of that monetization will be subject to market timing, pricing and the potential of tax-efficient transactions.

Enhancing the outlook and performance of certain business units through additional investments and strategic partnerships, returning capital to the shareowners through additional share repurchases, those will be undertaken where excess cash from operations and monetization proceeds are not needed to pay down debt or to service other obligations, or where we believe that we can generate a greater return by growing the business organically through acquisitions or forming strategic partnerships.

And also we intend to improve the transparency and frequency of communications with our shareowners and analysts, including providing additional information regarding our unconsolidated affiliates and passive investments, such as our real estate assets.

As you probably have seen from our third quarter earnings release, this effort to provide that transparency is already underway. Separately, DST has had a long and, we believe, successful history of returning capital to shareowners through significant share repurchases and the recent initiation of a semiannual cash dividend that was instituted in 2010. Since January 1, 2005, we repurchased approximately 46.2 million shares, and that represents approximately 51% of the shares at the beginning of that period that were outstanding, and that was for a total consideration of approximately $2.7 billion.

During the third quarter of 2011 and through the end of October, we repurchased 2.5 million shares and that was for an aggregate consideration of $112.9 million. In order to continue this strategy, our board has authorized an additional share repurchase program of 2 million shares of common stock. The new share repurchase program will become effective on January 1, 2012, and run through December 31, 2013. We are pleased with the progress made so far on our comprehensive review, and we hope to achieve additional value for our shareowners through these ongoing and focused efforts.

Growth will continue to be related and driven by a disciplined acquisition strategy to expand our presence in the markets we currently serve as well as markets that are adjacent to the current ones. And to that end, I'd like to spend a little time discussing the strategic acquisitions we have completed recently.

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