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Executives

Marvin Sims - Vice President IR

Rich Daly - CEO

Dan Sheldon - CFO

Analysts

Ian Zaffino - Oppenheimer

Tien-Tsin Huang - JPMorgan

Stefan Mykytiuk - Pike Place Capital

Broadridge Financial Solutions Inc. (BR) F3Q08 (Qtr End 03/31/08) Earnings Call May 8, 2008 8:30 AM ET

Operator

Good morning. My name is Carol, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Broadridge Financial Solutions Third Quarter Fiscal Year 2008 Earnings Call. I would like to inform.

I would like to inform you that this conference is being recorded, and that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (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. Good morning everyone, and welcome to the Broadridge quarterly earnings call and webcast for the third quarter of fiscal year 2008. I am Marvin Sims, Vice President of Investor Relations. This morning I am here with Rich Daly, Chief Executive Officer for Broadridge and Dan Sheldon, Chief Financial Officer for Broadridge.

I am sure everyone by now has had the opportunity to review the earnings release we issued earlier this morning. The news release and the slide presentation that will accompany 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 will discuss some forward-looking statements that involve risk, and these risks are discussed here on Slide 1 and in our periodic filings with the SEC. During the review of our financial results, to provide the appropriate point-to-point comparison between fiscal '08 and fiscal '07, all pretax and net earnings numbers discussed throughout the presentation are non-GAAP, and exclude one-time transition expenses and interest on new debt. The actual GAAP reported numbers in comparison are also listed.

During the review of our segment results, again for the appropriate point-to-point comparison for year-to-date revenues and operating profits, we'll discuss adjusted numbers that reflect a change in the methodology that occurred in the third quarter of fiscal year 2007, with the interest segment allocation between the clearing and outsourcing segment and the other two segments. A reconciliation to the GAAP numbers is available on the presentation appendix as well as in the press release.

Now let’s turn to next slide and review today’s agenda. Rich Daly will start today’s meetings with his opening remarks and provide you with a summary of the financial results for the quarter and a discussion on a few key topics. Dan Sheldon will then review the financial results in further detail for both the quarter and year-to-date. Rich will then return and review the fiscal 2008 guidance, and provide his summary before we head in to Q&A part of the call. After Q&A, Rich will provide his closing comments.

Now please turn to the next slide for Rich’s opening comments, and I will now turn the call over to Rich Daly. Rich?

Rich Daly

Thanks Marvin. Good morning. This morning as part of my opening remarks, I will discuss the following topics. First, the financial results for the quarter, then a business overview for each of the business segments, where I will touch on general performance, and some of the relevant key business drivers of each segment. Then after Dan’s financial update on the quarter, I will discuss the increase in our financial EPS guidance range and the factors behind the improvement.

Let me start by saying that our third quarter financial results are in line with our expectations. Given our strong year-to-date results and clear view of our fourth and largest quarter for both revenues and profit, we are able to raise our full year guidance range even in a difficult time for the market we serve. Our latest EPS guidance range is $1.35 to $1.45, which is up from our previous range of $1.30 to a $1.40. These are non-GAAP numbers, as they exclude one-time transition expenses of $0.06. For the quarter, we had revenue growth of 1%. In the largest segment, Investor Communications Solutions, we are able to grow over the client loss we disclosed last year, and then our Securities Processing Solutions and Clearing segments were able to generate solid new business growth, but not enough to grow over the previously disclosed loss of TD Waterhouse from last fiscal year.

Our net earnings for the quarter, despite being down 13%, were in line with our expectations. Year-to-date net earnings are up 17%, which is ahead of our original plan. Dan will talk more in his financial review about the details, and I will talk more in my segment discussions about how our strategy will drive these key metrics, as we move forward.

Our closed sales were $48 million for the quarter and $116 million for the first three quarters. This more than doubled last year's third quarter amount, and is ahead of last year's year-to-date amount by 43%. The breakout between recurring and non-recurring revenue is 55% and 45% respectively, up 52% for recurring and 48% from non-recurring from last year. There continues to be negative advice on financial markets in terms of assessing the current economic environment. But, by any measure, our industry has slowed.

However, historically, Broadridge has been a lagging indicator and we've yet to see any material negative effects. Our sales pipeline remains very strong, particularly the opportunities and outsourcing. As I always say, we are not in control of the markets, but we are in control of our business.

I will address sales in more detail when I talk about the business segments.

Before I start my business segment review, I'd like to address the recent change to our credit rating by Standard & Poor's. During the last quarter, both S&P and Moody's completed their reviews of Broadridge. Moody's reaffirmed our investment grade credit rating and S&P down rated us to below investment grade with a negative outlook. We are disappointed that S&P downgrade us, and the reason for the downgrade was the appearance of increased risk appetite in our Clearing business.

In early April, we issued a press release describing a $380 million staggered trade transaction, with a counter-party rated A+ by S&P that impacted our second quarter debt levels, and that may have led S&P to believe we are increasing our risk appetite.

Dan will go into more detail on the risk management policies in our Clearing business. However, we have assured both of our rating agencies that we won't do any staggered settlement transactions greater than seven days for more than $20 million in the future. We want to be a low risk broker dealer both in perception and reality.

Now let's move on to business segment review. I will start with our largest segment, Investor Communications Solutions. The ICS segment is over 70% of the revenue and profits of Broadridge. This is a great business. The core business isn't only performing well, but it's extending its market leadership with its capabilities around Notice and Access.

The ICS business year-to-date has been able to grow over 4% revenue loss from the previously disclosed client loss and generate revenue growth of 1%. We continue to drive margin expansion in this segment. Recurring revenue core of our ICS segment, which is 70% of the full year revenue, continues to see very little impact from any market noise around it. And the only significant lagging indicator we see could be event-driven revenue.

So far this year, mutual fund proxy event-driven is higher than our original plan, despite the increased expectations coming into fiscal year 2008. M&A and proxy contest are lower than our original plans, despite the lowered expectations we had coming into the fiscal year. Overall, event-driven revenue is coming in at just about our original plan of flat for the year.

Despite its slight volatility, historically event driven revenue over multiple year periods has grown. We will continue to gain market share and add new products. All of which have given us a CAGR of greater than 15% over the last five years. I am confident that event-driven revenue will grow at a rate higher than our overall communication segment over any multi-year time frame.

When I look into the near future, event-driven revenue is the most challenging piece of the communication segment to forecast. The normal lead time between closing the sale and converting it to revenue can be anywhere from one day to six months, so there is not much pipeline. Remember, this is the story behind event-driven revenue in almost every marker, including rate markets.

ICS sales for the years have been very strong. This quarter, we landed a large mutual fund proxy event sale. We added over 200 new registered proxy issuers and we've added Notice and Access services with an annualized sales value of $14 million. Notice and Access has strengthened our industry leadership position.

Going forward implementation of any other new and evolving corporate governance strengths most likely will require Broadridge's unique format. I will now talk in more detail about Notice and Access. The proxy season pretty much behind us, we have more visibility into our Notice and Access results, and I can provide you with a more meaningful update.

Notice and Access began as a voluntary program effective July 1, 2007. The SEC then made into that availability materials for large accelerated file as mandatory effective January 1, 2008.

Issuers can still choose to distribute proxy materials in hard copy to their shareholders. As first we adapted early, as with the high-tech companies. Now we are seeing a much broader segment of issuers adopting Notice and Access. We are estimating a 25% adoption rate for this fiscal year 2008.

I want to note that both participation by retail shareholders, is down by over 70%. This is slightly higher than what we had originally anticipated. In addition, issuers have taken varied approaches in using Notice and Access. Some issuers are using Notice and Access for all shareholders and others are using a hybrid approach, where for example they may use Notice and Access for shareholders only less than a 1000 shares, but continued to distribute hard copy to larger holders.

Now let's talk about our securities processing solution segment. Overall rest of business has performed better than we anticipated for the year.

In the first half of fiscal '08, trading activity enabled us to grow over the previously disclosed loss of TD Waterhouse as a client. Now trading activity has leveled off, but the second half of our year is still in line with our original expectations. This quarter trading activity provided a modest revenue contribution as trade per day increased by 4%.

In Securities Processing Solutions, fixed income and particularly equity trade processing provide us the best earnings upside from any incremental new client revenue. Contracts with existing clients provide limited upside and downside based on market activity. The current market environment provides new client opportunities and some consolidation challenges. In any event, it will take quite a while before either has any material impact on Broadridge. Some names, Bear J.P. Morgan, Wachovia AG Edwards and CIBC Oppenheimer will all play out over the next months and years.

In every takes with our clients and prospects are emergent like the firms I just mentioned, were just looking for increase control, functionality or efficiencies, Broadridge has a very strong value proposition. That there a lot of leadership change going on this space as well. Never in my 30 year career, can I remember this much change in senior level leadership.

As cost pressures become more of reality on Wall Street, we intend to leverage the current environment and create more opportunities for our processing entities. I do like although in term prospects.

Our optimism is well founded, based on our ability to successfully implement complex new clients, the most recent being Royal Bank of Canada last month. We successful rolled out our enhanced retail processing and new wealth management solutions. They provide a seamless integration of RBC’s global retail and institutional operation onto one consolidated platform.

We now process for RBC in the US, Canada, London, Australia, and Singapore. The consolidation of these operations onto a single platform has been for most entities an elusive goal. There are many retail and institutional firms that merged over a decade ago; they still have no plans to merge these complex platforms. As a result, they still are realizing the material efficiency available to them. We believe our enhanced retail offering along with our strong institutional platform will open-up new market opportunities and will allow us to more effectively compete in this market.

Now, let’s talk about our last segment. Clearing and Outsourcing, which while it is lower, represents just 5% of our revenue despite of the long-term strategy for Securities Processing business. Our Clearing and Outsourcing segment operations are in line with our expectations for the fiscal year except for the financial impact related to interest rate reductions. Over the next three years, we are expecting Clearing and Outsourcing to double its size to new revenue growth for Broadridge.

Now I will spend a few minutes talking about the strategy for clearing business and its importance to us as a financial processor. We are in the clearing business to generate more transaction for our processing segments, particularly for Securities Processing Solutions and Investor Communication Solution as well. Entering the Clearing business, gave us the ability to create a unique processing model. We are the only entity that has live clients for self clearing broker dealers that outsource their clearing functions to us. That’s what we call clearing and outsourcing.

We have four clients live on outsourcing. They are eTrade both at US and Canadian business, CIBC, West LB and a small German Bank, LBBW. We signed two new clients that are in the process of receiving standard regulatory approval. Those clients are our Key Banc and Credit Suisse, Canada. And lastly we have a large fully disclosed clearing client converting to self-clearing outsourcing as they originally intended when they first became our client.

Creating a list of targets including large firms that have expressed an interest in understanding more about outsourcing, we size the market conservatively at $500 million in an annual revenue. Outsourcing is a processing model, and will not create balance sheet activity or have any other risk associated would be in a clearing broker dealer.

However, it can't work unless we have the assets and skill sets from the clearing piece of Ridge. On April 9th, American Bank had published an article noting the large size of the outsourcing opportunity and the high level of complexity required to compete. Also in April the ATA [ph] Group, a consulting firm on IT businesses and regulatory issues in the financial services industry wrote an article that despite another entities push into the self-clearing outsourcing market. This is Ridge clearing's market rules.

That’s the strategy for the business that is today 5% of our revenue and has the potential to double its size and contribute a $100 million in revenue growth to all of Broadridge over the next three years. Let’s now talk briefly about our appetite for acquisitions.

One year ago we said that unless something exceptional came up, we would tuck-ins in the $25 million to $35 million range. Later we signaled that we would extend the $25 million to $35 million tuck-in range to a higher range as we accelerated debt repayment. We saw a market roll-up opportunity in the clearing space. However, in light of the credit rating focus on clearing, and the fact that virtually no one is running a clearing business as conservatively as we are, this is off the table for now. Thus far, we've only done one acquisition of $6 million. Regardless we won’t do a deal simply for the sake of doing a deal.

I will now turn the call over the Dan for his review of the financials for the quarter.

Dan Sheldon

Thanks Rich. I am on Slide 6. First I would like to point out that at the end of Q3 we've recognized approximately 65% of our revenues and approximately 50% of our earnings for the full year. This is typical given the seasonality in our business especially around our equity proxy season in the fourth quarter. Our revenue growth of 1% for the quarter from sales, losses and internal growth was in line with our expectations. And year-to-date we are at 4% revenue growth and we benefited from the internal growth that Rich mentioned in the first half primarily from equity trade per day.

We are expecting a stronger fourth quarter than originally anticipated due to positive growth in the equity proxy stock records, noticed an access and continued growth in the other investor communications revenues. We are forecasting revenue growth for the year to be between 2% and 4%. And I will go in to more detail when reviewing the segments.

With respect to pretax margins for the quarter, they are down 2.2 points. The decrease is primarily related to the two large client losses we previously disclosed, which impact all three segments as well as incremental investments including the expensing a founder grant that our Board approved in lat February. Our pretax margins year-to-date are up 140 basis points to 13.4%, and we expect to end the year between 15.8 to 16.5.

Let’s move to looking at the segments. I am now on Slide 7. I want to draw your attention to the chart we have provided at the top of the page. You can see that year-to-date we've recognized about 60% of our full year revenues and this is typical in any given year as the fourth quarter contribution from equity proxies kicks in. We've also broken out fee revenues from distribution revenue, so that you can see the impact each has on the revenues.

Looking at year-to-date fee revenues, they are 2% and expected to be in the 3% to 5% range. And this after the grow over from the large client loss we've previously discussed, which impacted year-to-date by four percentage point and full year by 2 percentage point. The anniversary date by the way, of this client loss, is at the end of our Q3.

We have broken our fee revenue growth into recurring and event to help you better understand where the total fee revenue growth is coming from, from both year-to-date and for the year. With respect to our recurring fees, they are up year-to-date and will also be up for the full year. We have benefited from internal growth in mutual fund interims, statements, and fulfillment. We are also very happy that the equity proxy stock record growth that was negative in the first half is forecasted to be positive in the fourth quarter. And finally, the $14 million in sales from Notice and Access activity, Rich mentioned, will greatly impact the fourth quarter.

Focusing now on event-driven revenues, we're down for the quarter and are expected to be flat or down in the fourth quarter. Although we had strong mutual fund registered proxy sales this year, the revenue benefit from mutual funds may not be enough to offset the other event-driven revenues, which are in decline in equity proxy contest and M&A.

As Rich described earlier, even-driven revenues can be up or down in any one year, but over any extended period of time, have always grown given our increasing market share in new product.

With respect to distribution revenues, they are flat year-to-date and will be slightly up or down for the year. As we've discussed before, these revenues are very difficult to predict given the large clients can choose different ways to deliver materials and not necessary the same year-over-year.

In this segment our year-to-date margins are up 180 basis points due to the combination of expense controls and distribution fees. Given year-to-date results in Q4 activity, we're forecasting margin improvements for both the fourth quarter and therefore the full year.

Let's move on to slide eight, Securities Processing. Revenues for the quarter are down 4% given the negative net new business, which is heavily impacted by the loss of TD, which was previously disclosed. Net new business has been negative 4% year-to-date, and expected to be the same for the rest of the year, as the TD anniversary date is at the end of our fiscal year. As we forecasted, equity trades per day for the quarter of $2.5 million are up only 4% over the last year and therefore provided very little revenue contribution to the quarter. We are forecasting the fourth quarter trades per day to remain flat at $2.5 million.

We are pleased that fixed income trades per day growth, is at 19% and year-to-date about the same. Our fourth quarter expectations are to see continued growth in the 15% to 25% range. We expect revenues for the year to be flat to 1%, given the strong first half driven by the trades per day and the weaker second half due to the little growth contribution from trades per day and the impact of the TD loss.

With respect to margins, as expected, are down to 28% for the quarter due to the loss of TD and our new product investments. Also, as previously discussed, our Q4 margins will be in the low-20 ranges, given the full impact of the $5 million in R&D expenses, coming back now that the successful RBC conversion has taken place. Margins for the year will be from 26% to 27%.

In FY '07, we had margins in this segment of 28% and we are exiting FY'08 at the low-20. We've made the right new product investments in this segment and expect future periods to show margin expansions, as we add new revenue from new sales.

Let's move to slide nine. With respect to Clearing and Outsourcing, revenues for the quarter are down 1%. We are very pleased with the continued double-digit sales contributions to revenue, and we did sign two new outsourcing deals as well as five new clearing deals.

We expect sale contributions to revenue to remain double digit for Q4. TD is the primary driver behind our loss, and the anniversary date of this loss is the beginning of next year. Besides TD, we have not had any other outsourcing losses since inception, as well our Clearing business has over 90% client retention rate.

Looking at internal growth, it is slightly down. Clearing and Other Fees contribute about 3% to 5% to the overall revenue growth. However, we are negatively impacted by the decline in the fed funds rate, as the change in rates directly impacts our $250 million in net capital in this business. When rates rise, we benefit, when they decline, we don't.

Having said that, we've benefited with less interest expense on our term loan given the declines in LIBOR also during this year. In essence the way I look at it, the negative impact in interest income in our Clearing and Outsourcing has been offset by the positive impact and less interest expense in Other, related to our long-term debt.

Revenue for this segment growth is expected now to be around 3% to 4% for the year. Given $4 million in loss net interest income, operating losses are now forecasted to be around minus $4 million to minus $5 million.

Moving onto the other section, revenues for the quarter are flat, as expected, and year-to-date of $8 million is due to termination fees we benefited from in the first half and we don't expect any additional termination fees for the remainder of the year. FY '08 has been an extraordinary year for termination fees, as we usually only see $1 million to $2 million a year in termination fees.

As previously disclosed, interest and one-time transition expenses are in line with our expectations for the year, and one-time transition expenses are expected to be around $14 million for the year. Corporate expense of $10 million for the quarter, include $4 million for Founder Grants and remainder with the combination of investments and corporate expenses, which are at the levels we have disclosed before. With respect to FX for the quarter, it continues to have a positive impact to our revenues and earnings and year-to-date contributed $19 million in revenue and $8 million in pretax earnings.

Let's move on to slide 10 and talk about our cash flows. As we have done before, we show consolidated Broadridge free cash flow as well as break out our Clearing and Outsourcing and all other segments, as this is how we do look-in manage the business. With respect to Clearing and Outsourcing, you will see the three lines, we show here in the body and additional information to pick how we finance the operations and how they change since June.

You can see that operating activities generated an additional $251 million, which resulted from fewer customer debits to finance, and greater cash available within customer credit accounts to use in financing. As a result, our short-term borrowings are down from June by just over $90 million and cash available for lending is up just over $160 million.

Focusing on the next column, which is labeled all other segments. This is the column that truly to picks our free cash flows from operations and what we have available in cash to invest or finance the business after our CapEx and intangibles. We are very pleased with the $177 million free cash flow after nine months and we look to continue to build cash flows, as we move into Q4 with around 50% of our earnings yet to come.

We expect $50 million to $70 million in additional free cash flow in the fourth quarter. Although, Q4 is a strong earnings generator, our largest cash inflow period is the first quarter given the timing of the collections of the receivables. As we discussed before, we think our sources and uses of cash flow, take as the follows.

Depreciation and amortization will be between $50 million and $60 million this year, and equally, we have invested about $50 million to $60 million in CapEx and intangibles. Stock comp will be approximately $35 million this year including the expensing of $7 million in Founder Grants.

Working capital will normally increase with revenue however in any period or quarter, will fluctuate given the level of accounts receivable collections. So, given the above, our remaining cash flow we use to pay down dividend, investment in business through acquisitions and pay down debt or build our cash position in a short-term

Finally, as Rich mentioned we are disappointed that S&P downgraded us and the reason for the downgrade was an apparent increase in risk appetite in our clearing business given the $380 million staggered trade that Rich discussed.

As disclosed in our press release on April 18, our risk management practices in clearing are excellent. Four points I would make. We restrict the amount of credit extended to both individual and professional investors to announce much lower than permitted by Federal regulation. Second, all loans are fully collateralized by high quality, readily marketable securities, we do not accept at any collateral, any exotic or liquid mortgage-backed derivative instruments.

Third, we do not maintain an inventory of securities to be offered for sales to our client, and none of our capital is exposed to market fluctuation in proprietary trading accounts. And fourth and most important, since the time we acquired the business we have experienced no losses due to errors or credit policies.

We will continue to work with S&P to assure them that we don’t have an increased risk appetite, and that our risk management controls, both in our clearing business and throughout Broadridge have been and will continue to be excellent. As Rich mentioned earlier we have assured both S&P and Moody’s that we won’t do any staggered settlement transactions greater than seven days or for more than $20 million in the future.

I would also point out that none of our bank client have been negatively impacted due to the S&P down break. Rich back to you

Rich Daly

Thanks, Dan. As I mentioned during my opening remarks we have increased both the low-end and high-end of our EPS guidance range by $0.05 to a range of $1.35 to $1.45, from our previous EPS guidance range of $1.30 to $1.40. These are non-GAAP numbers as they exclude one-time transition expenses.

Our fourth quarter is our biggest quarter and makes up approximately 50% of earnings, and we are seeing stronger growth potential in our recurring revenues coming from the core business from our investor communications solutions segment. This view and where we are year-to-date in terms of our financial performance, gives us the confidence to raise our range.

Going into our fourth quarter, the only key variables will be event-driven activities and trading volumes. If you recall, we started our fiscal year 2008, we rolled out an EPS guidance excluding one-time transition expenses in the range of a $1.17 to a $1.25 and now we are at $1.35 to $1.45. This has been a very good year.

Before me summarize before we go into the Q&A part of the call. It’s been one year since Broadridge was spun-off from ADT. During that year we have raised our guidance twice, we expanded our strategic planning efforts and resources. We've also proven the viability of our clearing outsourcing model, which now has several new clients. We generated more cash and paid off more debt more quickly than we originally anticipated, and we still anticipate an additional $50 million to $70 million in free cash flow in the fourth quarter. Our Q3 results are directly in line with our expectations, and we are well-positioned for the rest of the fiscal year to deliver earnings per share within our new higher guidance range.

The biggest piece of our business, the Investor Communications segment is growing with better recurring revenues and is better off today than it was a year ago. We have taken the uncertainty of notice and access, and turned it into a positive for gaining more market share and improving earnings. We were able to achieve our Q3 results, despite the difficult times in the market we serve. And the noise in the general market has not affected us to date. The business for the most part is trending as expected.

We successfully completed the implementation for RBC, and help them consolidate their retail and institutional securities processing onto one platform. Many firms have put retail and institutional together under the investment banking umbrella, but a decade later they still don’t have them working together on a single platform. Due to lot of change going on the market we serve, and despite some delays that these changes are creating, they should create more opportunities when the dust settles. We have achieved all this in a marketing environment that hasn’t been viewed positively by anyone. I want to take this opportunity to thanks our highly engaged associates for Broadridge’s performance during our inaugural year.

I will now turn the call over to Carol, the operator for the Q&A part of the call. Carol.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question will come from the line of Ian Zaffino with Oppenheimer.

Ian Zaffino - Oppenheimer

Hi, good morning. Very good quarter gentleman.

Rich Daly

Thank you.

Ian Zaffino - Oppenheimer

Two questions here. I wanted to just focus in on your comments about no share buybacks for the remainder of this year. This year ends next month, so I don't think we'll see anything in the next month. But what about booking out maybe in this calendar year, what your thoughts are as far as share buybacks?

Rich Daly

Sure Ian. We originally said that we weren’t planning to do it for this year. We are sticking with that plan. As we put together our '09 plan and share that with out Board, I am sure this topic will come up, and beyond that I don't have any further comment.

Ian Zaffino - Oppenheimer

Okay. And can you give us an idea of or I guess speck of an idea, you are throwing off over $3 of free cash flow that's not too shabby. And then the other question on rating agency side, your commitments to the rating agencies as far as the size and days of the staggered loans. Is there an opportunity to be upgraded again, given that these promises or is this just something that we are going to have to wait how it plays out?

Rich Daly

Well we certainly don’t have any ability in to comment on behalf of the rating agencies, we are committed to run this as a processing business and leverage the skill set of Ridge to create more transactions.

Ian Zaffino - Oppenheimer

Okay.

Rich Daly

Not too many transactions of the nature we did in the staggered trade going forward makes goods. There is no reason for us to do that, it doesn’t add to the value we're looking to create in clearing, and so it was an easy decision to eliminate that going forward. We will continue to run this conservatively, and hope that is viewed positively by the agencies as we go forward.

Dan Sheldon

Yeah, Rich, I would add to that piece. We did mentioned and we will too continue to work with the agencies to make sure that everybody understands exactly how we do operate and why we do believe that we run a conservative, well disciplined risk management.

Ian Zaffino - Oppenheimer

Okay. So just to be clear, the rating agencies haven't done anything yet, given this new commitment you've made?

Dan Sheldon

At this point in time nothing.

Ian Zaffino - Oppenheimer

Okay, all right, thank you very much, good quarter again.

Operator

Our next question will come from the line of Tien-Tsin Huang with JPMorgan.

Tien-Tsin Huang - JPMorgan

Thanks, great job on the call. Question on guidance, I guess what specific metrics are you looking at that gives you confidence to raise guidance going in to 4Q. Heard a lot of different things, maybe you can just rank for us the metrics in terms of importance?

Rich Daly

Tien-Tsin good morning, yes.

Tien-Tsin Huang - JPMorgan

Good morning.

Rich Daly

First of all, we have our year-to-date performance and being where we are in May, we have pretty good view in to the fourth quarter, particularly proxy season, and where we sandwich stock record and those types of initiatives. So, it's really the year-to-date performance, and the clear view we have in to proxy season that gives us the confidence to believe that the new range we've set is appropriate.

Tien-Tsin Huang - JPMorgan

Okay, fair, good. Then, your goal to double the size on the Clearing and Outsourcing front, how much of that do you expect to come organically versus inorganically?

Rich Daly

The size and the growth that we expect to double there, we expect to come organically through outsourcing primarily.

Tien-Tsin Huang - JPMorgan

Okay, so primarily through organic growth. And then just lastly, and then just, in general, it sounds like the sales performance has been great, sounds like the pipeline is good. I'm just curious, have you seen any change in the sales cycle at all? How is the fourth quarter shaping up so far in terms of new sales? What are your conversations like with your end clients?

Rich Daly

I thought that I had mentioned, and if I didn't, I apologize that the changes in management absolutely we believe are delaying certain decisions. With that said though, we've had good results, and very good momentum.

Tien-Tsin Huang - JPMorgan

Got it. Very good, thanks.

Rich Daly

Thank you.

Operator

Our next question will come from the line of Stefan Mykytiuk, with Pike Place Capital.

Stefan Mykytiuk - Pike Place Capital

Hi, good morning. A couple of questions. First off, I think you said the Founders' Grant of options in the quarter was $4 million, is that the right number?

Dan Sheldon

Seven.

Stefan Mykytiuk - Pike Place Capital

Seven?

Dan Sheldon

(inaudible). Okay. In this quarter, we expensed $4 million. The grand total for the year will be $7 million.

Stefan Mykytiuk - Pike Place Capital

Okay. So there will be another piece in the fourth quarter?

Dan Sheldon

In the fourth quarter, yes.

Stefan Mykytiuk - Pike Place Capital

And where on the consolidated results -- consolidated P&L, is that in SG&A then?

Dan Sheldon

Yes it is.

Stefan Mykytiuk - Pike Place Capital

Okay. And then you said in the segment, it's down on that other?

Dan Sheldon

Yes, it is, right that's exact way to look at it.

Stefan Mykytiuk - Pike Place Capital

Okay. And then the same thing on the transition expenses, is that the same thing?

Dan Sheldon

Yes. They both in, on the basis of financials and the SG&A and then they are other in the segment fees.

Stefan Mykytiuk - Pike Place Capital

Okay. And where the transition expenses, they are still on other piece in the fourth quarter then?

Dan Sheldon

Yeah, there is a final piece that will ramp up to the final 14, and then it disappears next year.

Stefan Mykytiuk - Pike Place Capital

Okay. And then how about on the spending on new R&D and new product generation, is that showing up in cost of net revenues or is that in SG&A?

Dan Sheldon

The piece that's out in the field that we've talked about, where the field is building up, is in the cost of revenues, and then the piece that Rich has often talked about the incremental $10 million is what goes into the SG&A.

Stefan Mykytiuk - Pike Place Capital

Okay. And again in the segment, that's in other?

Dan Sheldon

Yes.

Stefan Mykytiuk - Pike Place Capital

Okay. And Rich maybe can you just comment on how new product development is going, and I think you had the workforce solution that you introduced a couple quarters ago, just give us some update on how that product or other new products are being received?

Rich Daly

Sure, at the time of the spin, we were committed to expand our efforts beyond any other time in my previous almost 20 year, 10 year for the organization. Most importantly, we drove the process much deeper into the organization. The team initially teed up 45 potential areas. We embedded that down to 15 which were in the process of flushing out and pursuing and the workflow would be considered one of those, as an example.

Stefan Mykytiuk - Pike Place Capital

Okay. I mean those are, how many workflow was out, you are selling that actively correct?

Rich Daly

That's correct. And their expansions to the work flow even beyond the pieces that we're currently selling.

Stefan Mykytiuk - Pike Place Capital

Okay.

Rich Daly

So the way to think about it is, we're really looking to leverage the distribution channel we have, leverage the trusted relationships we have with our client. And in all cases, we're communicating with clients as they think about new things they need to address, whether it'd be the service fee business or related to regulatory. Rather than build it once only for themselves, think about building it with us, all right and creating a better industry solution. That is the type of activities that we're actively pursuing. The intent is to enable to support their continued growth rate of four to six and ideally over time and time being not next year in terms it relates to new initiatives raise at growth rate.

Stefan Mykytiuk - Pike Place Capital

That's the overall revenue growth, potentially you're seeing?

Rich Daly

Right. For this year by the way, I mean, when you think about it, you thought, you heard about RBC was part of our wealth management. RBC was very important to that piece of it, so that piece is already started to generate some of the revenue. And as we mentioned a year ago, we had increased some of our Notice and Access investment in our Investor Communication, and that's helped drive the $14 million in Notice and Access, as well as help us to get the 4 million which is really $4 million in revenue but over 200 clients additional to the registered side.

Stefan Mykytiuk - Pike Place Capital

Okay, terrific. Well, keep up the good work. Thanks very much.

Rich Daly

Thank you.

Operator

(Operator Instructions) Sir, I'm showing that we have no further questions. Do you have any closing remarks?

Rich Daly

Thanks, Carol. Well, I want to thank everyone for their participation today and we certainly look forward to meeting and speaking with you in the near future. Thanks so much.

Operator

This concludes today's Broadridge Financial Solutions Inc. third quarter fiscal 2008 earnings conference call. Thank you for your participation. You may now disconnect.

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