Broadridge Financial Solutions Inc. (NYSE:BR)
F1Q08 Earnings Call
November 07, 2007 8:30 am ET
Marvin Sims - IR
Rich Daly – CEO
Dan Sheldon – CFO
Ian Zaffino – Oppenheimer
Stefan Mykytiuk - Pike PlaceCapital
Tien-Tsin Huang - JP Morgan
I would like to welcome everyone to the Broadridge FinancialSolutions first quarter fiscal year 2008 earnings conference call. (OperatorInstructions) I will now turn the conference over to Marvin Sims, VicePresident of Investor Relations. Please go ahead, sir.
Good morning, everyone and welcome to Broadridge quarterlyearnings call and webcast for the first quarter of fiscal 2008. I am MarvinSims, Vice President of Investor Relations. This morning I am here with RichDaly, Chief Executive Officer for Broadridge and Dan Sheldon, Chief FinancialOfficer for Broadridge.
I am sure everyone has had the opportunity to review thenews release we issued earlier this morning. The news release and the slidepresentation that will accompany today’s earnings call and webcast can be foundon the Investor Relations home page of our website at Broadridge.com. We’vealso posted to our website the key revenue metrics that we mentioned during ourfourth quarter earnings call and an 8-K was filed this morning.
Before we begin, I would like to remind everyone that duringtoday’s conference call, we will discuss some forward-looking statements thatinvolved risks. These risks are discussed here on slide 1 and in our periodicfiles with the SEC.
During the review of our financial results to provide apoint-to-point comparison between fiscal '08 and fiscal '07, all pre-tax andnet earnings numbers discussed throughout the presentation are non-GAAP andexclude one-time transition expenses and interest on new debt. The actual GAAPreported numbers and comparisons are also listed.
During the review of our segment results, again for a point-to-pointcomparison for revenue and operating profits, we will discuss adjusted numbersthat reflect a change in the methodology that occurred in the third quarter offiscal 2007 for the interest segment allocation between clearing and outsourcingand the other two segments. Again, a reconciliation to the GAAP numbers isavailable in the presentation appendix as well as in the press release.
Now let's turn to the next slide and review today's agenda,Rich Daly will start today's meeting with his opening remarks and provide youwith a summary of the financial results for the quarter and discuss a few keytopics. Dan Sheldon will then review the financial results in further detail,and review cash flow performance. Rich will then return and review the fiscal2008 guidance and provide a summary before heading into the Q&A part of thecall. After Q&A, Rich will provide his closing comments.
Now please turn to the next slide for Rich’s openingcomments. With that, I'll now turn the call over to Rich Daly.
Thanks, Marvin. Good morning, everyone. This morning as partof my openings remarks, I'll discuss the following key topics: First, the resultsof our first quarter; next, the market conditions during the quarter; and thenan update on key topics and initiatives. After Dan's update, I'll discuss howour first quarter and the market conditions prompted us to raise our guidanceto a range of $1.30 to $1.40 versus our original guidance of a $1.17 to $1.25.
We believe it’s important for you to hear my update on whatdrove our first quarter financial results and the market conditions they occurredin; as well as Dan’s update to have a better context for understanding ourincreased guidance.
Let me start by saying that I am very pleased with ourresults and earnings and I am encouraged by the market activity that drove usabove our planned performance. It’s a strong start to fiscal year 2008,although the first quarter is generally only planned about 14% of our full yearearnings. We were even able to grow over the two client losses we previouslydisclosed. We continue to drive positive margin expansion, greatly impacted bytrading volume revenue falling to the bottom line and benefits from one-timeitems.
The primary components of our over-plan performance for thequarter were internal growth with significant growth in trading volume of 37%;also contributing were one-time items and even event-driven activity wasslightly above our plan. However, I want to point out that some of this over-planperformance was partially related to the delayed timing and ramping up ourinvestment spend and the public company infrastructure spend. I will talk moreinvestments later during my update on key topics and initiatives.
Relative to our expectation and coming off the summer months,I am also very pleased with our overall sales. The first quarter ishistorically the smallest contributor to our overall plan. Our sales for thequarter of $30 million are just over 25% of our full year plan; or recurringsales for the quarter making up 30% and event-driven sales making up thebalance. The net of this is that our recurring sales are in line with plan, andevent-driven sales are over-plan.
Now, we will always need to keep our financial performancein context with market conditions, and that market turns are difficult topredict. At the time we put together our plan, we were concerned aboutprojecting growth off of a record year of 30% growth in event-drivenrevenue. At the time we presented our fiscal2008 guidance on August 22, our concerns were compounded by the summer creditcrisis and its potential impact on the market and event-driven activity.
Here we are now, a quarter later, and our first quartertrading volume was up 37% and even event-driven results are slightly overplan. At Broadridge, we will always beconcerned about forecasting the upside or downside of market activity duringany short-term period. We are confident we can control our businesses. Werecognize we are not in control of the markets we serve.
Let’s move to key topics and initiatives, starting withclient retention. The best way I know to retain our existing revenue and grownew revenue is to provide the ultimate client-centric experience. We need toavoid being commoditized, so as our clients’ markets evolve, we must expand andreinvent our offering to create better and stronger value propositions.
Everyone of our P&L owners, and therefore the entireorganization, now have clear requirements that they understand their clients’strategy and how we fit into that strategy today, and more so in the future.
Now I will talk about investments and a small acquisition. Inthe quarter we completed a small acquisition for less than $6 million plus anearn-out by acquiring Finaplex. This acquisition provides us with someadditional wealth management capabilities. We have also included in our fiscal ‘08plan about $10 million an incremental investment to search out and begindevelopment of new products that will drive revenue growth in future years.
We expect this expense to be part of our ongoing run rate. Wehave a stringent approval criteria before any funds are dispersed. This has causedus to be behind our planned fiscal ‘08 spending levels, but we believe thiswill ultimately ensure that we invest these funds in the best opportunitieswith clear goals and clear accountability.
Now for quick update on the regulatory front. First, notice andaccess. We have successfully rolled out notice and access. Issuers have saved realmoney and the functionality we built works as planned; however, long-term issuerparticipation rates will be difficult to project. This is due to the unknownstatus of the ten-day vote for directors and other corporate governanceproposals that if incorporated into the proxy rules, will make notice andaccess less attractive to issuers. All of these results to-date have beenpresented to the SEC.
Next, XBRL . We continue to work with the SEC on developingthe taxonomies for the notice and proxy statement. We are proud to step up tothis leadership opportunity created by this new SEC initiative.
Next, a brief update on suppression incentive fees. Brokersand their trade association have been questioned on the appropriateness ofcharging suppression fees in certain situations. We participated with SIFMA andthe brokerage community in analyzing these fees and helping the New York Stock Exchangeand the SEC develop the reimbursement fee schedule. We remain confident in boththe value proposition and its direct tie-in to the requirements of the rule.
Other regulatory activities remain high. However, this isconsistent with our experience over the last two decades.
With that said, I will now turn the call over to Dan andwhen he's finished, I will be back to review our fiscal '08 guidance andprovide my closing comments before we head into the Q &A.
Thanks Rich. I am on slide 4. Our financial results for thequarter, our revenues grew 3% and without distribution fees, grew 7%. Of the3%, think of that as half the growth coming from the segments and the restcoming from our one-time contract termination fee, as well as the benefit fromFX.
The contributions, by the way, from sales and losses torevenues were in line with our expectations. With respect to internal growth,it was better than our expectations by $16 million and was driven primarily byincreased trade volumes in our securities processing and clearing andoutsourcing segments, and interim statements and event-driven mutual fund proxyactivity in our investor communications segment. I would also point out thatevent-driven sales are part of our internal growth as they don’t necessarilyrepeat each year.
Losses were in line with our expectations, including the twolarge client losses which impacted revenues by approximately $16 million.
Turning over to EPS before transition one-time expenses andinterest on new debt, it is up 48% and primarily driven by pre-tax earnings, solet me focus for a minute then on pre-tax earnings. They grew almost 50% thisquarter. Our over-plan internal growth of $16 million I just mentioned had anEBIT contribution of over 60%, which more than made up for our two large clientlosses with respect to EBIT.
We also benefited from the termination fees I mentioned andFX. I would also point out that our expense levels are below, as Rich mentioned,our planned rate due to a slower than anticipated ramp up of corporatestructure and incremental investments in the business. We also benefited fromour royalty expense dropping off to the tune of $11 million.
A couple of other points I would make on this page: ourestimated tax rate is 39% versus our guidance of 40%. We have analyzed our FIN 48requirements and implementation had little impact on our effective tax rate. Ourdebt now is $533 million, as we paid down an additional $85 million, and since thespin, have paid down $155 million.
As Richmentioned, our sales for the quarter were strong, were above last year andagain approximate 25% of our full year target.
As I mentioned last quarter, the rate of which sales convertto revenue in any fiscal year is about 50% with the carryover of the remaining50% going into the next fiscal year. Let me be a little bit more specific withrespect to event and recurring. Event-driven sales usually fall to revenuewithin the fiscal year that they are sold; and with respect to the recurringsales which primarily happen in our security processing and in our clearing andoutsourcing, they fall to the current year to about 20% with the carryover remainingat 80% until the next fiscal year. Hopefully that will help you with some ofthe modeling that you are all trying to do.
Let’s turn to pages 5 and 6 for a discussion of the segments. On slide 5 we will start off with investorcommunications. Revenues were down 3%, or if you take out the distribution fees,flat; and slightly above our plan. The loss of the previously disclosed largeclient decreased revenues by 3%. Our event-driven revenue were flat, but thedistribution fees related to these revenues were down year over year due to themix between pre-sorted bulk and first class.
Our recurring internal growth drove revenues up by 3% andhigher than our expectations for both interims and for some of the mutual fund,but lower for our equities. With respect to our margins, they were up 210 basispoints. The distribution fee mix change added 180 basis points, which I will comeback to in a second; and the product mix,as we would expect, added about 30 basis points.
Now back to the distribution fee contribution of 180 basispoints. We had, this period, more bulk presorted jobs in this quarter versus ayear ago in Q1, we had more first-class jobs. And if you remember what we’vetalked about before, we make profits on the bulk presorted activity which weshare with the issuers and others. There is no profit on first class. So thisis how you can have a decrease in total revenues for distribution fees, yethave an improved margin as far as contributions to EBIT.
With respect to notice and access, Rich already brought upwhere we are at. I’ll tell you it hadminimal impact to our results. Our distribution fees dropped by approximately$2 million and generated fees of less than $1 million. As predicted, there wasno significant negative impact to our earnings. By the way though, Q1 is by nomeans indicative of the year as proxies in this period in Q1 represent only 10%of our full year proxy revenues.
With respect to securities processing, revenues are up 10%which are above our plan and the increased revenues were primarily driven byinternal growth related to trade volume and for equities, was driven by just afew clients. As you can see by our sub-bullets, trade volumes in both equitiesand fixed income are up significantly. The way to think about internal growthin this segment is that for every 1% change in trade volumes this willtranslate into a range of $300,000 to $700,000 in incremental annual revenue;and depending upon the product and the client mix, that's where you get intothe range of the $300,000 to $700,000. This quarter, we are in the higher endof that range.
Now with respect to the 2.5 million trades per day, over thelast three quarters -- which was our last third quarter and fourth quarter, andincluding this first quarter -- trades as adjusted for sales and losses to giveus the true picture of internal growth has been relatively flat at that rate of2.5 million trades per day. Last year you'll remember we showed over 25% growthin trades over the prior year for the fiscal year, primarily all coming fromthe internal growth.
The impact to Q1 this year was a large increase in trade andtherefore the revenues. In Q2, there will be an increase as well. However, if tradesdon't increase beyond the 2.5 million before new sales and losses then thesecond half of our year will remain virtually flat.
With respect to revenue from new sales, the contribution was3% and we gained an additional 3% of growth from non-trade activity aroundprofessional services fees. These fees, by the way, fluctuate period to periodas they are specific to client projects. As previously disclosed, the loss ofTD Waterhouse cost us 6 percentage points.
Now, when we look at margins they are up 620 basis points. Whenyou think about internal growth from trade volumes, it always usually virtuallyfalls to the bottom line. By the way, our data center savings this quarteradded 120 basis points, which will continue through out the fiscal year.
Finally, although no impact to our margins in Q1, I wouldlike to make you aware that we capitalized both integration and implementationexpenses related to new business and then amortize these costs over thecontract life. Our FY08 plan contemplates about $5 million in incrementalexpense being added back to our cost structure in quarters 2 through 4 as someof our R&D personnel come off a large project where this costs werecapitalized. Currently we don’t see anything in this fiscal year as areplacement project for those personnel. This is normal in our business and we don’thire and fire experienced R&D personnel just due to timing of projects.
With that said, let’s turn to slide 6. With respect to clearing and outsourcing,revenues were up 13% and in line with our expectations. Sales are the majorgrowth driver and contributed 14% which was split 60% between clearing and 40% foroutsourcing. Although we lost TD as an outsourcing client, we gained two additionalclients this quarter. Losses were primarily related to the TD Waterhouse, andinternal growth contributed 9% and was pretty much driven by net interest andclearing fees.
With respect to margin improvements of the greater than $1million, they are absolutely in line with our expectations as we continue toleverage our infrastructure and drive towards breakeven this year.
Onto other, which is not really a segment but is our othercategory. Revenues all relate to one-time contract cancellation fees.
With respect to net expense of approximately $8 million,this is a combination of our interest expense of $8 million, our one-timetransition expenses of $2 million and these are offset by the one-time itemsthat we mention above in revenue, and the difference between allocations to oursegments and actual expenses.
With that said, let me go a little bit deeper into this area.Some of our corporate expenses are allocated to this segment. We have mentionedbefore that our incremental corporate expenses, as well as investments, wouldapproximate on an annual basis the fall-off of our royalty charge ofapproximately $35 million. We still expected this to be the case.
However, as Rich mentioned, our Q1 other expense run rate isbelow our planned levels due to slower than expected ramp up in corporateexpenses and investments. Our plan anticipates that each of the future quarterswill be approximately $6 million to $8 million higher than Q1’s expense rate. Allof the incremental spend is comprehended in our FY08 guidance and again, thisis inline with our original expectations communicated back in August.
With respect to FX, we continue to see the weakening of the USdollar and again this year contributed favorably to our results. As wementioned before, on a full year basis foreign revenues represent about 10% ofour consolidated revenues.
I would like to move on to slide 7, our cash flowperformance as well as the discussion of how we look at cash flows. Many of youhave asked us to talk about how we think about cash flows and how we definefree cash flow and our cash performance for the quarter during the calls.
The way we manage and analyze our cash flows is as follows:as you’d expect, we add back to net income depreciation and amortization,including other and stock-based compensation expense. We also aggregate our changes in workingcapital and analyze the changes which are usually changes in accountsreceivable and accrued liabilities related to those receivables.
The pluses or minuses each quarter, or year, are primarilydue to timing of collection and payment of liabilities, versus any real workingcapital requirements. I still estimate our real working capital needs toapproximate whatever we have in revenue growth in any specific year.
We then go on to specifically identify the changes in long-termassets and liabilities, as these changes are driven by implementation, deferredexpenses and any deferred revenue related to the contracts. The amortizationoffset is the other depreciation and amortization I mentioned above.
With respect to the clearing and outsourcing receivables andpayables, as well as any deposits with clearing organizations and segregatedcash due to regulatory requirements; these are listed within the cash flowprovided by operation activities.
We separate out our clearing business from our net cashprovided by operation activity and we do this for the following reasons. Wewant to know the free cash flows available for our use to investor finance in thenon-clearing and outsourcing businesses. And as we all know, the clearing and outsourcingbusiness is itself a self-financing operation and any funding needed by theorganization to finance margin debits is generated from customer payablecredits or third-party lending from our revolver.
We then go on to subtract our capital expenditures andintangibles to arrive at our definition of free cash flow. As we have mentionedbefore, our depreciation and amortization related to capital and intangibles isbasically an offset in any year.
As you can see from the chart, Broadridge generated strongcash flows this quarter. I would also point out that given seasonality in ourbusiness, over 70% of our profits are usually generated in the last twoquarters of our fiscal year and therefore our fourth and first quarters havethe greatest cash flows.
As I mentioned before, our long-term debt at the end of Q1is now down to $533 million. At this point, I will turn the meeting back over toRich Daly who will discuss our increase in financial guidance as well as theuses of our free cash flow.
Thanks, Dan. As I mentioned during my opening remarks, thestrong start to our current fiscal year has prompted us to raise our guidance.We are increasing our revenue guidance to a range of 1% to 4% and our dilutedEPS guidance before one-times for fiscal '08 from a range of $1.17 to $1.25 toa new range of $1.30 to $1.40.
In our new guidance, we are reflecting the benefits from thefirst quarter. The low end of the guidance assumes a slight fall off in tradevolumes and less event-driven revenue for the remainder of the year. The highend assumes slightly better trade volumes and modest event driven revenueincreases for the remainder of the year. Our guidance does not contemplate anymajor downturn in the markets we serve that could result in a significant dropin market activity.
With respect to free cash going forward, we will continue touse our strong cash flows to pay down debt, pay a dividend, acquire productsand businesses and at least for fiscal '08, we are not contemplating any sharebuybacks.
Let's summaries before we go into Q&A. We had a verysolid start to the fiscal year, with strong quarterly earnings driven byinternal growth and continued event-driven activity. As a result of this strongstart, we have increased our financial guidance. Markets are difficult topredict and activity in markets will create both upside as well as downside. Broadridge is in control if its business, butnot of the markets.
Our strong cash flows enable us to pay down debt to $533million. We are executing our growth strategy and will drive our service profitchain culture to provide the ultimate client-centric experience in ourindustry. This will ensure we are lined strategically with our clients.
Finally, we will continue to invest appropriately in ourbusiness for future growth that will drive greater shareholder value.
Now I will turn the call back over to Carol to open it upfor Q&A.
Your first question comes from Ian Zaffino – Oppenheimer.
Ian Zaffino –Oppenheimer
Very good quarter. My question would be on the clearing andoutsourcing business. You narrowed loss very nicely. How much of that isactually attributable to progress in that business in and of itself, or reallythe synergies that you’re getting from the other parts of your business as you havemelded in the CNO business into the rest of the company?
Great question. By the way, it’s coming from the businessitself. You’re talking, I believe, about how we look at the fact that we usedto have these cross charges and have any of those cross charges changedanything?
We now state the numbers we give you, we wiped all that out,so you are seeing a real period over period, the exact same kind of charge lastyear as this year coming from the SPS business, so therefore every piece ofleverage coming there, that $1 million improvement, is all being generated bythe business itself.
Ian Zaffino –Oppenheimer
Margins have improved very nicely this quarter. How are yougoing to continue to do that going forward? What type of initiatives are youlooking at, if you can talk to that, that would be great, thanks.
Are you speaking again to the clearing and outsourcingbusiness?
Ian Zaffino –Oppenheimer
I am talking about corporate-wide, two of the biggestinitiatives or whatever, and what would be the biggest areas of marginimprovement?
In all of our businesses, it’s a scale play. By having veryefficient infrastructures, the more volume we can put through thatinfrastructure we will almost always be able to create margin improvement. Wealways manage expenses very, very tightly and we expect to do that goingforward. It’s generating more sales activity across our existing products iswhat generates the best margin improvements for us.
Our next question will come from the line of Stefan Mykytiuk- Pike Place Capital.
Stefan Mykytiuk - Pike Place Capital
I was glad to see there were no articles on E*Trade thismorning in the Journal.
So were we.
Stefan Mykytiuk - Pike Place Capital
Can you just elaborate Rich, what’s the status of the of theboard study of long-term compensation for management? Any kind of view of whenthat will get wrapped up, so you guys can be tied side-to-side with theshareholders?
As I previously stated, we were very, very pleased with thediversity and the strength of the board we were able to put together. A newspin-off though, the company has actually spun before the board is legally inplace, so one of the first things the board did was identify their own outsidecomp consultant, which they have done. They have engaged him to understandwhere Broadridge is relative to its peers. We have an extensive CD&A, asyou will see in the notice and proxy statement, but my understanding is thatthe board work continues. I am not part of the comp committee, as one wouldexpect me not to be, but we believe that they will have more data certainly bythe end of the calendar year. That’s pretty much what I can tell you at thispoint.
Stefan Mykytiuk - Pike Place Capital
Keeping along the line of board-level discussions, youmentioned in your comments stock buybacks not contemplated for the fiscal year.It looks like you are on track to pay down this debt and get to your leveragetargets. Beyond that, is that something that you think would be a priority forfree cash flow? Buybacks, that is.
The priority for cash flow is to create value, so where weare right now is paying down debt certainly is a priority. We are looking toget to that stated goal of 1:1 debt-to-EBITDA.
We are committed to pay a dividend and we are committed touse our cash flows to improve the business whether that be through the tuck-inor product acquisitions or business acquisitions.
We absolutely will consider, as we go forward, whether ornot doing buybacks will create greater value than the other options we have. Atthis point in time, we don’t anticipate that to come into play in the currentfiscal year though.
Stefan Mykytiuk - Pike Place Capital
Just going one step further with that then, acquisitions. Arethere larger acquisitions out there that you’ve identified that you think arevery attractive and its just not the right price or the seller is not willingto sell yet? Or are there not really acquisition opportunities at this time?
We originally use the term tuck-ins for acquisitions. We usethe definition there of the $30 million to $35 million range. Because of ourstrong cash flows being slightly better than what we anticipated, we haven’tchanged our position on the type of transactions to do. Meaning, the tuck-inphilosophy is something that, it would be in a space that we would be confidentwe would be very good at. It would be executing within our sweet spot oftransaction processing and would be executing in our sweet spot to a clientbase that knows and respects us and will likely consider us for additionalservices.
Because of the strong cash flow though, we are willing tolook at a definition of tuck-in beinglarger than the $30 million to $35 million. Let me make this clear though; we arenot going out there specifically looking to do a deal for the sake of doing adeal. It would have to be something that meets what I’ll call a tuck-incriteria, and probably better said, tuck-in means something we would beconfident that we would have the skill set and the ability to execute well on.
Your next question comes from Tien-Tsin Huang - JP Morgan.
Tien-Tsin Huang - JPMorgan
Congrats on the results as well. Question about securities processing.Relative to our model, the securities business drove nearly all of the upsideand I am pretty surprised by the margins; specifically, the implied incrementalmargin as the profit increased by the amount as the revenue increase. It soundslike volume, incremental margins around the trade volume is very high. Anythingelse that drove that outcome that we should consider? It sounds like contracttermination fees are not in the segment.
Let me first comment on the securities processing piece.That business is virtually entirely computer-based, and therefore anyadditional activity that we process in that business will have very highmargins and we’ve experienced this type of contribution from better thanplanned volumes throughout our history.
I’ll let Dan comment, as he did during his update, on someother pieces that impacted us.
Thanks Rich. Just to be clear on that, you’re absolutelycorrect Tien, that we did not includeany termination or really any kind of one-times in our segment, because wethink that distorts the picture. So those will always be in the other. Nowcoming back to when you are thinking about the Trade Processing, once you getbeyond about 5%, 6% growth, in what we call trade processing, you cover yourfixed costs or any increase to those fix costs in the business.
So to that point, anything above that pretty much does fallto our bottom line. And in any given year we can always have what we callconcessions that might run a little bit higher than the prior year, a littlebit less than the prior year. But right now going forward anything that we callthe incremental piece above 5% or 6% should pretty much fall to the bottomline.
Tien-Tsin Huang - JPMorgan
I’m just thinking on a go forward basis, as we model out,obviously we know about the client loss so we assume some kind of growth rateon the organic. It feels like we should be assuming, like you said, somethingcloser to 80%, 90% incremental margin. Am I wrong in thinking that way, interms of aligning incremental revenue growth that just dropped through to thebottom line?
I’ll just give you an example, say that we’re going to grow10% of the internal growth for the trade volume, so just as an example. That first 5% really is eaten up in what wecall any of our what we’ll call incremental costs or fixed cost like meritincreases, other kinds of expenses like that. Then the remaining really fallsto the bottom line. I still look at it somewhere between a 50% and 75% in anaggregate.
Once I’ve gotten over my what I call fixed cost piece ofincremental, then it really all drops to the bottom line; so I still put it inthe 50% to 75%, I wouldn’t let it all drop.
For those of you on the call who heard us during the roadshow, our early presentations, when I described the securities processingbusiness, I’ve historically said the cost of that first transaction that goesthrough the system is really ugly. The cost of the last transactions goingthrough our systems, it’s difficult to find cost. So it’s a largeinfrastructure, significant systems and infrastructure cost upfront, but very,very, very scalable.
Tien-Tsin Huang - JPMorgan
That is the beauty of scale. Two other quick questions,maybe Dan if you can comment on stock comp going forward? What should we expect?If you could also comment on this pipeline for clearing and outsourcing. How isthat shaping up? Are there any changes in the broader demand environment?Thanks a lot.
How we think about stock comp. What we’ve really said outthere is that we have an expense rate of about $25 million. The way that wouldincrease over time is it is highly gauged to our stock price, and I think youunderstand what I mean there. So, if our stock price went up or down by 10%that is very much a factor in whether that stock comp would move up or down.It’s not a factor, the $25 million is not impacted by we are going to add morepeople necessarily to it or that we are giving more shares to people.
The derivative that drives that is the value of the stock. Thenyou have to figure out the value of that you have to put through as far as theexpense. Does that help you there?
Tien-Tsin Huang - JPMorgan
Got you. Yes.
Tien, I am sorry. Could you repeat the second part of thatquestion?
Tien-Tsin Huang - JPMorgan
If you can just broadly comment on pipeline for clearing andoutsourcing business, and if there has been any change in the demandenvironment given the economic backdrop?
Sure. I didn’t cover this in my comments, so I am gratefulto you to ask the question. I had stated in the past that we were pleased withour pipeline. We absolutely do remain pleased with the pipeline. We have putmore assets into identifying new activity for pipeline as we go forward, and Iam pleased with those efforts as well. So overall that’s why I used the termvery pleased because between the actual results and the pipeline, we arefeeling good right now about where we are with sales.
At this time, I am showing that we have no furtherquestions. I will now turn the call back for closing remarks to Mr. Daly.
Thank you. I want toend by saying that we first of all appreciate your participation. But mostimportantly I want to say that I am feeling good about Broadridge and about ourfuture. I am confident that we are on the right path and we will continue to beleaders in our markets.
Again I want to thank everyone for participating. Dan,Marvin and I look forward to speaking with all of you whether it be throughoutthe next quarter or after next quarter. Thanks again, and choose to have agreat day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!