Broadridge Financial Solutions, Inc. (BR) Q1 2012 Earnings Report, Transcript and Summary

Good morning. My name is Marcus, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Broadridge Financial Solutions First Quarter Fiscal Year 2012 Earnings Conference Call. I would like to inform you that this call is being recorded. [Operator Instructions] I would now like to turn the conference over to Rick Rodick, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to the Broadridge Quarterly Earnings Call and Webcast for the First 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 the opportunity to review the earnings release we issued. The news release and slide presentation that accompany today's earnings call and webcast can be found on the 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 shown as discontinued operations and our remaining Outsourcing business is now part of the Securities Processing Solutions segment. Also as the result of the reporting treatment of the Penson transaction the financial results discussed today will address continuing operations unless otherwise stated. As previously disclosed, we entered into an information technology services agreement with IBM in March 2010, under which IBM will provide us with the data center -- provide us with data center services. Our non-GAAP results exclude the impact of the costs the company expects to incur in connection with the migration of our data center to IBM. These costs are significant and we believe this information helps investors understand the effect of the migration on our reported results and 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 first quarter of fiscal year 2012, followed by a discussion of a few key topics. Dan Sheldon will then review the first 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-answer part of the call. Now please turn to Slide #3 and I'll turn the call over to Rich Daly. Rich?

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 fiscal first quarter year 2012 financial highlights and guidance; then I'll discuss our closed sales performance; followed by a review of our recent acquisition of Paladyne Systems; and then an update of our key activities. After Dan provides you more of the financial details, I'll wrap it up with my closing comments. Let's start on Slide #4, our first quarter fiscal year 2012 financial highlights. Overall, I'm pleased with our first quarter financial results. Our revenues were up 13% versus fiscal year 2011 as a result of our recent acquisitions, the Penson outsourcing agreement, internal growth, net new business and higher distribution revenues. Client revenue retention remained very strong at 99%. However, event-driven revenues remained weak, as anticipated in our original guidance for fiscal year 2012. I am very pleased to report that diluted non-GAAP earnings per share were up 50% over fiscal year 2011 results. This increase was driven primarily by higher trade volumes we experienced, in the first quarter and lower weighted average shares outstanding. Please keep in mind that due to this seasonal nature of our business, our first quarter makes the smallest quarterly contribution to our annual results. However, it always feels good to be ahead of expectations at any point in time. In early September, we acquired Paladyne Systems, a leading provider of buy-side technology solutions for the global investment management industry, for approximately $76 million. Paladyne is a rapidly growing provider of market-leading solutions to enable global multi-asset class investment managers and service providers to more effectively minimize the challenges on managing multiple prime brokers relationships, decrease the costs of integrating and running disparate solutions and improve consistency in data reporting. I will discuss Paladyne in more detail in a few moments. While we we're off to a solid start to the fiscal year, our first quarter earnings per share represent less than 10% of our full year and, therefore, it is still too early to determine if these trends will continue. Accordingly, we are only reaffirming our full year guidance at this time. We have taken our revenue guidance up slightly due to the Paladyne acquisition, but we are leaving our full year non-GAAP diluting -- diluted earnings per share guidance at $1.50 to $1.60 per share. Now let's turn to Slide 5. Recurring revenue closed sales were $20 million for the quarter versus $17 million for last year's quarter. Recurring revenue closed sales is the most important sales metric to follow. Our Investor Communications is off to a solid start, where recurring revenue closed sales more than doubling last year's first quarter. Overall, our total closed sales, which include both recurring revenue and event-driven revenue, are off to a good start. We had closed sales of $31 million in the first quarter, which were up almost 31% from the prior year. I am very pleased with our sales pipeline. We have good momentum and much of that is due to product expansion and our recent acquisitions. We are reaffirming our closed sales guidance for fiscal year 2012. We expect recurring revenue closed sales in the range of $110 million to $150 million. As I have said before, achievement of a higher end of the range will be dependent on the quantity of large deals signed. Let's turn to Slide 6. On September 8, we acquired Paladyne Systems for approximately $76 million. There is an additional earn-out opportunity of up to $15 million. However, in order for any earn-out to occur, the IRR would be in excess of 25%. Paladyne is a leading provider of buy-side technology solutions for the global investment management industry. This acquisition will generate approximately $26 million in revenue for the 10 months that it will be part of Broadridge in fiscal year 2012 and will be slightly dilutive. Paladyne will be accretive in fiscal year 2013. We were attracted to Paladyne because it was a profitable, scalable, recurring revenue model, high-growth business with a proven track record of success. Paladyne offers its products on an ASP basis to over 125 firms worldwide and approximately 25% of their clients are in Europe and Asia. Paladyne has about 160 associates and has offices in the United States, London, Hong Kong and St. Petersburg, Russia. Paladyne's current addressable market is greater than $3 billion, including over 2,000 hedge funds complexes and over 7,000 long-only asset managers. Our sales activity since the closing has been excellent, as we have added 7 new clients with approximately $700,000 in total annual revenues. This acquisition provides Broadridge with a buy-side platform that has a suite of products covering the front, middle and back office with demonstrated applicability to the buy-side and anticipated utility for the sell-side. The solution set offers a compelling value proposition to a wide spectrum of firms from small startups to some of the largest global asset managers. Paladyne significantly expands our capabilities in order management and portfolio management systems, derivative front- and middle-office capabilities, data aggregation, reference data management, pricing, data warehousing, posting and reporting. Many of the broker-dealers at Broadridge Services have prime brokerage, asset management, administration and custody divisions and will value Paladyne's well-established solutions in those areas. The Paladyne solutions are designed to allow clients to seamlessly integrate new asset classes into their business models, operate more efficiently and focus more time generating revenue rather than inefficient time reconciling their systems. Paladyne also provides us a strong foundation to offer additional new products and services to the market in the future. Okay, let's move to Slide 7, where I'll provide you with the key activities update. We continue to make good progress on the Morgan Stanley Smith Barney transaction. We've executed everything on our part and, accordingly, the economics as they relate to Broadridge have now turned and will be at the benefit we previously discussed beginning in Q2. We're gratified that the New York Stock Exchange and SEC have never had a better understanding of what we do and the value we provide to the proxy process. We're not aware of any proposed rules or legislation that would cause us to anticipate a decline in pricing. We are excited about our continuing dialogues with both the New York Stock Exchange and the SEC about new areas where we can add greater value to the communication needs of all shareholders, which will also benefit our shareholders. Our conversion to the IBM data center continues to progress very well. We anticipate that we will be on IBM's mainframes by our fiscal year end, with some remaining server activity being cleaned up throughout the first quarter of fiscal year 2013. We haven't finalized the cleanup scope, of course, but we anticipate that it will be well less than $10 million of one-time expense in fiscal year 2013, offsetting some of the approximately $25 million in annual savings. Again, this cleanup will only occur in fiscal year 2013. The implementation of the original Penson transaction is wrapping up and will be completed during Q2. The original Penson transaction will generate approximately $50 million in annual revenue. As Penson announced recently, we have amended our original agreement with them, and it will lead to the expansion of various services provided by Broadridge for Penson that will generate approximately $8 million in additional revenue for Broadridge. We anticipate implementing this new business over the next 24 months. Last year, our Securities Processing Solutions segment had excellent closed sales results. Those sales are converting to revenue as planned. $14 million converted during the last quarter of fiscal year 2011, $16 million has converted year-to-date in fiscal year 2012, and we expect an additional $22 million to convert during the balance of fiscal year 2012. These will be high margin revenues in the 30% to 60% range. Of course, new sales will be added to the backlog throughout the year, which when converted will add new revenue in fiscal year 2013 and beyond. Please remember, at Broadridge, the best act to follow is recurring revenue closed sales to gauge future opportunity given the wide range of products and implementation timelines we have. I'll now turn the call over to Dan, who will go into more detail about the first quarter's financial results.

Thanks, Rich. I'm on Slide 8, our fiscal year '12 financial highlights. Our GAAP revenue growth and earnings before taxes margin were both up for the quarter. As Rich mentioned, total revenues were up 13% and recurring revenues were up $45 million, representing a 16% growth for recurring revenues alone and half of that comes from our core business and the other half from acquisition. Our distribution revenues, up slightly and as anticipated, event-driven revenues were basically flat. GAAP earnings before income tax margin improved by 50 basis points and that, by the way, includes a 70-basis-point negative impact from $3 million in IBM migration costs. We still expect IBM migration costs to have a negative impact to our fiscal year '12 GAAP, EBIT and earnings per share of respectively $33 million for EBIT and $0.16 for EPS, as previously mentioned. Rich already addressed our revenue and non-GAAP EPS guidance. So on the free cash flow, which for the quarter was in line with our expectations, and we're expecting a full year with a midpoint of approximately $160 million or $235 million without IBM migration costs. As previously communicated, we completed our credit facilities by refinancing during Q1, and we'll pay down approximately $90 million in the next 3 quarters to maintain our 2:1 debt-to-EBITDAR ratios by fiscal year end, and we are considering moving $250 million to $300 million from variable to fixed debt in the future. Therefore, as expected, our priorities for cash for the next few quarters is on maintaining the appropriate debt level and on-boarding our new business which, this year, along with IBM, are a significant use of cash. Let's move to Slide 9, in Investor Communications business. The quarter was in line with our expectations for both revenue and margin growth, so we're still anticipating 5 to 6 points of revenue growth all coming from recurring revenues plus the related distribution activity that comes with those revenues, bringing total revenue growth to 9% to 10% for the year. We had a strong first quarter sales results which, along with the contributions from last year's sales, our acquisition and a continued 99% client revenue retention rate, are driving the growth. As anticipated, our event-driven revenues were about flat to last year and expect the same for the first half. We'll have a better view of the second half by the time we meet in February and, again, would expect to see some growth in event-driven during the second half of this year as we move into fiscal year '13. But as we've mentioned before, we think for the year, we'll still be around $140 million unless we see a pickup in the second half. Let's move to Slide 10, Securities Processing. Strong first quarter growth of 12% coming from net new business, acquisitions and a very big pickup in this summer from trade volumes especially in the month of August. As Rich mentioned, the Penson final platform conversion is expected to be completing Q2 and, therefore, expecting our Outsourcing business to be a profitable business in fiscal year '13 as we continue to onboard new sales. Some of you have probably seen the press release Penson put out on the additional new business they will be doing with us, as well as other previously announced actions to increase their capital levels and improve their cash flow. We continue to believe that Penson is executing on their key initiatives as they announced in August. However, Penson stock price since June continues to be significantly depressed. We marked to market our approximately $15 million in investment in the Penson stock every quarter and record any differences to equity as a temporary fluctuation. Given the significant volatility experienced in the Penson stock price, over the last few months and, by the way, the overall equity market, there is a continuing risk that a meaningful recovery in the Penson stock price may not occur and then other-than-temporary impairment may be recorded by us for the decline in the Penson stock price in future periods. Rich already mentioned, we're pleased to have Paladyne join Broadridge and look forward to continued contributions to our sales in the near future, as we've seen in the first few weeks that they've been with Broadridge. We have adjusted our guidance for revenue up and EBIT down slightly for the year due to the first year impact of bringing Paladyne on, which is adding, as Rich mentioned, approximately $26 million to revenue this year and dilutive to EBIT by approximately $4 million, all due to the amortization of intangibles and some integration expenses. We expect in fiscal year '13 to see approximately 30% revenue growth on this business, that is Paladyne, and 20% margins, pre-amortization expense for Paladyne. And we anticipate trade volumes for the remainder of the year will be in line with previous expectations as the anomaly in August doesn't seem to be continuing. So the high end of our revenue range represents trade volume growth in the mid- to high-single digits and at the low end of the range, flat to last year. Rich, I'll turn it back to you.

Thanks, Dan. Please turn to Page 11 for my summary wrap-up. We are off to a solid start in fiscal year 2012. I'm very pleased with the revenue growth and earnings results for the quarter. However, as I stated earlier, the first quarter makes the smallest contribution to our annual results due to the seasonal nature of our business. Of course, year-to-date, it really still feels good. While event-driven revenues remain a challenge, our recurring fee revenue continues to demonstrate healthy growth. That recurring fee revenue growth is being driven by the meaningful contributions from our recent acquisitions, improving market-driven volumes, both trade volumes and stock record growth, our consistent closed sales growth and our excellent 99% client revenue retention. I am also very pleased with our sales results for the first quarter. Between our first quarter results and our strong pipeline, we have continued confidence that we will achieve our strong closed sales guidance. Throughout all of Broadridge, we now have a complete portfolio of opportunities to pursue. Right now, we have more control over our destiny than ever before, so it's all about our ability to execute. Execution is a proven core competency of Broadridge, driven by the highest engaged and most tenured associates in our market. Across both of our segments, we are focused on integrating acquisitions, on-boarding closed sales, implementing strategic initiatives and flawlessly executing during fiscal year 2012. Given our full plate of activities to be executed successfully, as well as our current cash and debt position, we are not looking to do any additional meaningful acquisitions in the near term. In conclusion, given the continued progress discussed during this call, we remain confident in our fiscal year 2012 guidance of 9% to 11% revenue growth and non-GAAP diluted earnings per share of $1.50 to $1.60. By adding the value of these activities to the anticipated return of market-driven activities, including event-driven revenues, to their near-historical levels, any achievement of our recurring revenue closed sales plan, we believe the current fiscal year should be followed next year with about $2 per share in earnings in fiscal year 2013. My confidence in believing we will achieve our goals is driven by knowing our highly engaged associates are in line with the service profit chain and shareholder value creation. I cannot thank our associates enough for their continued hard work and commitment to excellence. We have a great team and we have a lot of exciting opportunities in front of us, and that is why I am confident in our ability to create greater value for our shareholders, customers and associates. I'll now turn the call over to Marcus, the operator, and we welcome your questions.

[Operator Instructions] Your first question comes from the line of David Togut with Evercore Partners.

Rich, what is your updated outlook for stock record growth in unit pricing over the next 12 to 18 months?

Dave, stock record growth, we have seen some trends of finally having some growth there, and I'm talking about on the equity side, and that's about 1%. On the mutual fund side, we're still continuing to see those positions grow both on traditional mutual funds, as well as the exchange funds. So it's too soon to say that it's turned, but it certainly feels more positive than it's felt in a long time. In terms of the unit pricing, again, I -- in every call because even though I really strongly disagree with any overhang on Broadridge as it relates to pricing in terms of the proxy world, every call I go out of my way to emphasize we're not aware of anything. All of the dialogues we're having really focus around the value we provide, how we can provide more value, what -- how that will benefit issues in mutual funds and the fact that as we provide new things going forward, we're going to need to establish fees to get paid for that effort we put in, costs we incur and value we provide.

What accounts for you more positive view on stock record growth? What factors have changed recently?

Well, if we measure the position of company by company very extensively, it's more than a good stat sample. I mean, we pull hundreds, if not thousands, of companies to measure as we had throughout the year. And in some cases, we get close to the end of the year, we have almost a complete view. So it's the growth of positions, same companies right now versus where we were a year ago.

Good. And just finally, it seems that your fiscal '13 guidance assumes the rebound in event-driven revenue, which is a departure from your approach to fiscal '12. What accounts for the change? And if event-driven revenue stays flat, what would be the impact on your fiscal '13 view?

Very good question. So we have always said when we talk about the momentum that we're building and then the total value that, that could bring to '13, we've always included a return to some historical level of the event-driven revenue. If that wasn't to be there, round numbers, think like 20%. If it was to be -- $0.20, excuse me. If it was to be at the same, I'll call it, historic low right now, that's low based on number of positions. Again, we had studies done by ourselves and studies that BCG helped us with us well, in going out there and surveying that market and understanding was there a secular change or is it just a cyclical event. Funds are managing costs because of these markets more capitally than I've experienced in my 30 years, this has been a tough period. At a point in time, they're going to need to address things like directors. At a point in time, they're going to need to address the things that they've always had to address like their investment models and when they need to go out to their shareholders. So we're not planning on the growth that we had historically seen on these numbers on average over the years, but we're looking to get back to the averages where we were 2-plus years ago. And to say that they'll stay at this level forever when there is no secular change that we are aware of, we think is undervaluing the overall value that Broadridge can create as we go forward.

Rich, what I'll add to that, David, is the way to think about it was we already know that we can look out 60 days and kind of know what's going on. We knew the first half, which is really -- our first half is for most mutual funds, their second half of the calendar year. So we knew there wasn't going to be a lot of activity. The point we're looking at -- and Rich already talked about the study we had done, et cetera, what we're looking at is saying we're not going to forecast right now, that we should be higher in the second half or, as I mentioned, would be at our $140 million for the year, but we're saying we should be seeing some uptick and then that will help us better gauge how we're going to think about fiscal year '13. But Rich is right on. It's approximately on a fee basis we need to have come back $60 million and that really generates, when you put on the post each and everything else about $0.20.

One other thing, if it doesn't come back at a point in time, we'd have to take a step back and say okay, even though there's no technical reason that any -- that we can find that any consultant can find or any law firms that service the mutual fund industry can tell us about because we spoke with all of them as well, all right? If it doesn't come back at a point in time, we're going to be looking at this differently. However, we have 2 hedges, even when it does come back. One is that the number of mutual fund positions is still growing, all right? So we don't even need the same percentage of positions to go out the proxy to get to the same number that we're trying to get to a couple of years back. Two, we believe that our offering in the mutual funds space, our optimal proxy offering, is a game changer for mutual funds to achieve quorum. Everyone knows retail investors don't vote at the percentages, that institutional investors vote at, and to get to 51% quorum is generally a tough task. Our optimal proxy product takes advantage of Broadridge's knowledge of how every investor votes. And therefore, rather than going out and selling fear, which is you better be ready to spend a lot of money to call a lot of investors, we go out with a clear knowledge with this new product of how their investors, their actual investors historically vote. So if John Doe never votes, even if he's at a large share position, we're not going to be making phone calls and running up expenses for those funds. If Mary Smith always votes, okay, even though her position may be smaller, okay, we're going to be going after her right away because we know that's likelihood of success. So we're going to be going out there with a model that -- a fixed price model, in essence, that will be higher than what most people would normally bid. But in reality, much lower than what funds normally actually pay. So between position growth and we think we're going to grow our share in solicitation, with a reasonable return, we can get to our historical levels of average revenue, all right, and still not have the market have a complete return.

[Operator Instructions] Your next question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: Just wanted to stay on that topic of event-driven. You mentioned 60 days of visibility. I guess, once the calendar year turns? Can things move pretty quickly? Meaning, will these mutual funds simply plan for their year and then make these decisions or should -- could there be a little bit of a lag before we see that?

The good news is that things can turn very quickly. The bad news is the lead time we have on understanding that is never that great. So in 2010, when we had the record year, we had no ability to anticipate that when we created our guidance for the year. So it is -- over any period of time, I believe that event-driven revenue is going to serve our shareholders well and create meaningful value. It's just very difficult to say how even it will be from year-to-year.

Yes, Rich, let me just add onto that piece because I know it's a top focus. In the past, we used to see 20% to, call it, 25% of all positions go out for proxy a year. Then we all saw what happened in '10, where 50% of all activity happened. And then we saw it drop to below 15% in '11. We're not -- neither Rich nor myself or even our business is sitting and trying to say something is fundamentally changed with any of the rules. What we looked at with our analysts were to say, well, you know what, maybe it's going to be as we move forward 16% to 20% of all positions but it should start coming back. The only thing we don't know, is it maybe going to start to behave very erratically, which is you'll see some years of 50% and some years of less than 20%, and that makes it much more difficult to kind of model out, but that's what we're trying to figure out as we go forward for the next 6 months. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: Of course, the positions are compounding as well, right, so you're applying this to a bigger bid?

That's one of the hedges we have, Tien-Tsin. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: Got it. Just on the Penson side, thanks for the overview there. Obviously, you're increasing your exposure and the stock seems to be discounting a negative outlook there. From a diligence standpoint, obviously, you were comfortable there. Can you share some of that in terms of increasing the client exposure to Penson and how your outlook could change maybe?

Sure. And you're absolutely right. Whether it be Penson or any meaningful transaction we go into, where we know we're going be making investment and getting them on to our platform and many times providing some assistance, we always look at this and if actually Dan, John Hogan, our President, and myself go through this on a regular basis. Penson, when they put together their action plan, which they announced in their last call, there was a clear -- there were clear tangible activities that they had to move the broker-dealer to positive cash and P&L position going forward. In addition to that, they've -- they have some pretty valuable assets that they talked about. And beyond that, given that we're a processing business for them, their product and, particularly I guess, their trading product is a very, very sticky product. Their client retention rates have actually -- from our perspective, have been acceptable. So we believe that they have demonstrated what they needed to, to create a plan to be a viable entity going forward. It's a meaningful relationship with all of our clients. We've looked to support them and enable their success. And we're actually pleased of the opportunity to be providing additional outsourcing services as we go forward. We're looking to use this model to show other clients how much more efficient they can make their operations by leveraging our scale.

[Operator Instructions] The next question comes from the line of Ian Zaffino with Oppenheimer & Co. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Question would be on the trading volumes. What -- where are you as far as -- because I know you have bobbed the tiered structure on your pricing of your trades. Given the state that you're in right now, as that returns, what are kind of the incremental margins there because I know you've invested in the infrastructures so that's done, but you are getting a little bit less, I guess, per trade pricing because of that tiered structure. So can you just walk us through that a little bit?

Yes, Ian, so let me give you the perspective, like you had mentioned, incrementally. What we've talked about before and it really hasn't changed much, we're primarily focused on the equity side of it. Is that on the equity piece, we've got a range for every 1% of growth that we see in trade volumes of somewhere between $750,000 and $1.5 million. It's really on the upper end of the $1.5 million of releasing significant return by the retail side. That's where we would see the biggest uplift. And as we mentioned, anything incremental there pretty much falls to the bottom line. That's how I define pre-margins. And to put it in perspective, this last quarter for equities, we saw a $10 million uptick from the year before in contribution to our revenue. We are thinking it was going to be about $5 million because we actually got a 17% increase in the volume, versus what we are planning on we said of about $7 million. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. And then not to beat a dead horse on the whole event-driven side, do you think there's somewhat of a demand destruction that happened in mutual funds or are now more than happy with having less events? Have they grown to live with less events or do you think you have kind of returned ultimately to that level? And then where would it be in the cycle, would it be mid-cycle, late-cycle recovery and just how do you think about that?

I think that the weak market -- I've not heard the term demand destruction tied to this but it may in a weak market, you're going to have every business looking at their expense structure and saying "how can we manage this more effectively until revenues get back to where we'd like them to be, and we have confidence that they're going to grow as we go forward?" The best thing that could happen to Broadridge, is that retail investors gain some confidence in the markets and come back to the markets. We all know there is significant money on the sidelines, earning almost nothing, all right, because right now, fear is driving more activity than the opportunity to invest in the markets. I believe, because I've been through a difficult markets before and I've seen mutual funds cut back and then I've seen when markets have improved that their business models required them -- or I shouldn't say required, it gave them opportunities to make changes to take more advantage of investors who are coming into the market, and I say, take advantage, create more product to change their products. And in those times we had very, very significant activity, so the most important thing for Broadridge, overall, would be, across all of our businesses, to have retail confidence which would drive not just event-driven activity but more communications overall, more activity on the trading side. And we have historically in those markets performed very well and generally beat our expectations during those markets. So it -- I think, Ian, it goes beyond just demand destruction in event-driven. I think it's called prudent expense management, and until we see a return of some confidence in the market, people aren't going to be going out there saying it's time to have an event. The only events that are going to happen right now are, where they'll trip something like the number of directors that have been approved by shareholders that will have to go out or they need to do a merger or some other activity, but it won't be driven by -- we have an opportunity to take this fund, change it in a way that we will need shareholders to approve it but have a better product for the market. That's unlikely to be taking place right now.

[Operator Instructions] Okay, your next question comes from the line of Chris Donat with Sandler O'Neill. Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division: On Paladyne, looking at the 7 clients you added so far, that's in less than 2 months closing, that's increasing the client base by 6%. Is there something that Paladyne being part of the Broadridge platform does, that changes that game or really makes it possible to close deals or is there something that was -- maybe these were pent up client sales?

I think it's a combination of a few of the things you just said. So first of all, Paladyne previously was tied to one prime, and that prime had somewhat of an exclusive to use that product for their customers versus other primes. Broadridge taking out the owners, this product is now available to all the primes without the exclusivity provision. So we think that we've now made the market for Paladyne much larger. You add to that, that the prime brokers all do business with Broadridge, all have customer data with Broadridge right now and all trust Broadridge. And you have got -- we're instantly now far more credible than Paladyne previously was, all right? It's a very, very good product. And I'd like to think that the deals we did were in the pipeline, as you pointed out already but because we're now the owner, it became much easier to get to a decision to end of job, to say now that -- it's Broadridge-backed, this is a -- without question, we're even more comfortable than we were based on their strong functionality.

I'd also add to that, that business, and to Paladyne management's credit, had always had over the last few years a very strong record for closing sales. As the CFO, usually what happens for me is I watch the acquisition go along in the first few months and if somebody comes on board, you usually see a dip. So what we're saying is we're very pleased to see it continue with what already management had successfully done in the past. And as Rich mentioned, that's why we have the projections we have going forward for continued revenue growth even above that now part of the Broadridge family.

Okay. I only have one of this thing, I deliberately put it in my notes. And we really believe that what excited us the most about this is that on their own, as Dan pointed out, they had a very good sales track record. And when you take the prime brokers and you now remove the barriers that they had because of their relationship with one prime broker, okay, and then you combine that with our trusted relationship with those prime brokers, that's the part that excited us the most in terms of on their own, we think it's a good acquisition. We think with us, particularly with our ability to focus on the sell-side relationships and expand the number of buy-side opportunities through those sell-side relationships, this could be a very, very exciting transaction. Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division: Got it. And then just a couple of numbers, Dan, I want to make sure I wrote it down correctly. You said that the margins you're looking for, for Paladyne are 20% but that's exclusive of amortization and transaction costs, is that right? .

Yes, so the way to think about it is there's about $4 million of amortization kind of go for. Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division: Okay.

Okay? Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division: Yes. And then just on the revenue -- the expected revenue, $26 million, is that sort of run rate to where we are or does that bake-in any growth this year if you're adding 7 clients every 2 months?

The way to think about it is, that's the core base, $26 million, and everything added into that will be in our sales projections that we share with everyone.

[Operator Instructions] The next question comes from the line of Peter Heckmann with Avondale Partners.

As we -- following up on Paladyne, can you talk about how much of their solution is kind of proprietary technology or kind of a domain expertise around fund administration and how much is sub-licensed technology? It looks like they have kind of best of breed approach to using some third-party technologies, some of their own, bundling that into a hosted solution. And so when I see that, I tend to think is that a business that can be commoditized by other service providers, then margins would hit low over time or do you believe that there's some proprietary, either technology or process, that can allow margins to expand with volumes?

Okay. Throughout all of Broadridge, Peter, we're going to have some I'll call it generic technology that gets bundled into our proprietary technology, of course, with the appropriate licenses. So the net result is everything we have here is proprietary technology that's very specialized and very difficult to replicate. So -- and Paladyne absolutely fits into that category from my point of view. In terms of this business being commoditized, we have looked for quite a while to find a way to get into the growing and exciting buy side of the market. In a way though, that would be pragmatic and not irresponsible as it relates to our stewardship of our shareholders' assets and cash. Paladyne really ticked the boxes. So you heard, for example, even on the earn-out of this deal, the IRR would have to be over 25% before we pay the first dollar of earn-out. So -- and we think we're going to add to their model beyond what they had the ability to achieve on their model on their own. So we think that this space is very exciting. We think that dovetailing with our incredibly strong brand and reputation with the sell side adds more to it. We had a very full plate of things going on around here. And the senior team, we had very significant distractions about it. We are going to add more activity to what's already a relatively full plate of execution activities, it better be one heck of an opportunity, all right? Paladyne fit into that category so there are other areas where I fight every day to say we can't get commoditized here, or if it's going to happen, we're going to disrupt ourselves and not let someone else do it. Paladyne is more a disrupter. I don't anticipate them being disrupted any ways near on the near term.

Okay, that's helpful. And then moving on to the proxy business, how do you feel about this upcoming proxy season and the potential for some of the relatively more innovative solutions that you've come out with, the virtual meetings, some of the new kind of mobile and tablet communications method, how do you see those playing out in terms of adoption this proxy season?

Thank you. We're really excited. You have companies out there like Coca-Cola that use our virtual shareholder meeting product and the CEO making statements like, I'm going to paraphrase here, but this is the future of investor relations, this is the future of shareholder communications, and I think it's still out there on the web if somebody wants to see it. Our mobile app is very, very successful. You can vote on your BlackBerry, on your iPhone or any other similar device, your iPad, et cetera. You don't even need to download that. And these are things that the SEC and the NYSE are finding very exciting that I referred to in my comments earlier as well. So we believe that we're going to continue to add meaningful efficiency versus anyone else in the space. We're really excited by what's going on in our TA space. We've actually on-boarded Spectra. I actually ran into their CEO in an event, and I was delighted that he took the time to reach out to me because I'm normally chasing people in my role. He took the time to reach out to me to say how pleased they were with the transition, and how he thought our position in the marketplace was really a game changer versus anything else out there. So this is still a weak market out there in terms of retail participation. It's not a weak market in terms of Broadridge's opportunity because of all the things we've executed in terms of product opportunities, acquisitions, et cetera, so we have a lot to execute against and we have -- as I said in my comments earlier, we have more control of destiny than ever before.

Okay, good, that's helpful. And then last question, it seems like the proxy season started a little bit early last year and you had pulled some kind of the annual distribution gravity into the third quarter. Do you anticipate that effect to happen again this year or should we expect relatively more of it to be in the fourth quarter as this is more historical?

This is Dan. I would expect it to be back to the normals but, as we all know, we don't know until proxy season when people are going to actually schedule their meetings. So whether it's the third or the fourth quarter, I can't be specific to it and I would say to you that the good news is, and this is what Rich was mentioning before, the last couple of years, we'd started off the quarter with Q1 with some negative kind of like views on where stock record growth was going. So I'm more pumped up by the fact that we're seeing some positive momentum there. And when the meetings happen, the meetings will happen.

One last thing, Peter, remember even if the distribution revenue happens and even though we've done, because of the complexity of our technology, a good part of the work because everything is systems driven, the actual fees aren't recognized until 30 days after we distribute the material. So even if the distribution revenue was up, the fee revenue has an appropriate aligning revenue and expense lag behind that closer to and really on average about when the actual meeting occurs.

At this time, I'm showing we have no further questions. I will now turn the call back to Mr. Daly.

Well, certainly Dan, Rick and I want to thank you for participating today. I'm also going to ask you -- because we really do sit down and put effort into our annual shareholder letter, to remind you that it's out there. And on a number of the topics that I would cover like capital stewardship and things like that, in the first quarter, we try to keep it concise and -- but certainly, Broadridge, in terms of our commitment to create shareholder value, be an employer of choice, commitment to the service profit chain and overall creating greater value for all as we go forward, I've laid that out in pretty extensive detail on that letter. So for those of you who have any interest, I'd encourage you to take a look at it. As always, we're going to look forward to meeting with you in the near future. [Audio Gap] Thanks. Bye.

This concludes today's Broadridge Financial Solutions Inc. First Quarter Fiscal Year 2012 Earnings Conference Call. Thank you all for your participation. You may now disconnect.