Broadridge Financial Solutions' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Broadridge Financial Solutions (BR)

Q3 2012 Earnings Call

May 08, 2012 8:30 am ET

Executives

Richard G. Rodick - Former Vice President of Investor Relations and Treasurer

Richard J. Daly - Chief Executive Officer and Director

Dan Sheldon - Chief Financial Officer, Principal Accounting Officer and Vice President

Unknown Executive -

Analysts

Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division

Rayna Kumar - Evercore Partners Inc., Research Division

James F. Kissane - Crédit Suisse AG, Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good morning. My name is Marcus, and I'll be your conference facilitator. At this time, I'd like to welcome everyone to the Broadridge Financial Solutions Third Quarter Fiscal Year 2012 Earnings Conference Call. I would like to inform you that the call is being recorded. [Operator Instructions]

I would now like to turn the conference over to Rick Rodick, Vice President of Investor Relations. Please go ahead, sir.

Richard G. Rodick

Thank you. Good morning, everyone, and welcome to the Broadridge Quarterly Earnings Call and Webcast for the Third Quarter of Fiscal Year 2012. This morning, I'm 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 an opportunity to read the earnings release we issued this morning. That news release and slide presentation that accompanies today's earnings call and webcast can be found on Investor Relations homepage of our website at broadridge.com.

During today's conference call, we'll discuss some forward-looking statements regarding Broadridge that involve risks. These risks are summarized here on Slide #1, and 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'd like to point out to everyone that as a result of the Penson transaction we closed in the fourth quarter of fiscal year 2010, the Clearing business is now showed 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.

Our non-GAAP results exclude the impact of the Penson impairment charges and IBM migration costs. These one-time costs are significant, and we believe the non-GAAP information provides a better representation of our actual performance.

Now let's turn to Slide #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 highlights for the third quarter of fiscal year 2012, followed by a discussion of a few key topics. Dan Sheldon will then review the third quarter of fiscal year 2012 financial results in further detail. Rich will then return and provide his overall summary and some closing thoughts before we head into the question-and-answering part of the call.

Now please turn to Slide #3, and I'll turn the call over to Rich Daly. Rich?

Richard J. Daly

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 third quarter fiscal year 2012 financial highlights and guidance; then I'll discuss our closed sales performance. After Dan provides you more of the financial details, I'll wrap it up, as usual, with my closing comments.

Let's start on Slide 4, our third quarter fiscal year 2012 financial highlights. Overall, I'm satisfied with our third quarter financial results. While total revenues were up 4% for the quarter versus fiscal year 2011, recurring revenues were up 9%. The recurring revenue increase was a result of net new business, internal growth and acquisitions. Approximately 50% of the growth was organic and 50% was related to our recent acquisitions. Client revenue retention remained very strong at 99%. However, event-driven revenues declined slightly. Year-to-date revenues were up 8%, while recurring revenues were up 13%. The year-to-date revenue growth was attributable to the same factors that impacted the quarter.

I am pleased with our non-GAAP diluted earnings per share results. They were up 12% to $0.28 per share for the third quarter and 25% to $0.55 per share year-to-date as compared to the comparable periods in fiscal year 2011. This increase was driven primarily by the higher revenues and our focus on cost containment.

In the first quarter, we completed the balance of the Penson conversion such that 100% of Penson's accounts are now fully processing on our platform. Annual revenues under the original terms of the outsourcing services agreement are approximately $50 million.

The low interest rate environment continues to be a financial challenge to clearing firms. Penson announced on March 13, 2012, that it had entered into a Restructuring Support Agreement, or RSA, with Broadridge and several other debt holders. The RSA provides for proposed transactions related to the restructuring of Penson's debt, including the selling note held by Broadridge. Specifically, the RSA provides that Penson will launch an exchange offer by May 14, pursuant to which it will offer to exchange our seller note for newly issued shares of Penson. Careful analysis of this situation led to Broadridge recording a $21 million impairment charge in our other segment and other expenses in the consolidated statements of earnings at March 31, 2012. We will continue to monitor all of Penson's restructuring efforts with great interest.

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