Q3 2008 DAVIS HENDERSON INCOME FUND (English) Earnings Conference Call - Final.(Broadcast transcript)

OPERATOR: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Davis + Henderson Income Fund conference call for the third quarter of 2008 ended September 30. I would like to remind everyone that this conference call is being recorded today, Wednesday October 29th, 2008 at 10 AM Eastern time. I will now turn the call over to Catherine Martin, Chief Financial Officer of Davis + Henderson Income Fund. Please go ahead, Ms. Martin.

CATHERINE MARTIN, CFO, DAVIS + HENDERSON INCOME FUND: Thank you. Good morning, everyone, and thank you for attending. Your main host today is Bob Cronin, Chief Executive Officer of Davis + Henderson.

Before turning the call over to Bob, I'd like to advise you that the statements to follow include forward-looking information within the meaning of applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of the business or developments in Davis + Henderson's industry, to differ materially from the anticipated results, performance, achievements, or developments expressed or implied by such forward-looking statements.

Information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in the fund's annual information form available on SEDAR and in the press release announcing the results of the third quarter of 2008 ended September 30. Now, over to Bob.

BOB CRONIN, CEO, DAVIS + HENDERSON INCOME FUND: Thank you, Cathy, and good morning, everyone. This was a solid quarter for Davis + Henderson with year-over-year growth registered in revenues, cash flow, net income, and distributions. We are pleased with this overall performance and in particular, the return to revenue growth in our D+H Segment. You'll recall that for the first two quarters of 2008, we've been comparing to the unusually strong results for 2007, which included higher than expected cheque order volumes due to changes in the Canadian cheque imaging standards.

Also positive for the quarter and above our expectations were our Filogix results. Despite a slowing housing market in Canada, our quarterly Filogix Segment revenues were about the same as last year and above our expectations.

The big picture for the quarter is that cash flow was solid and growing and supported both a 16% year-over-year increase in distribution and a CAD5 million voluntary debt repayment in September.

Stepping back, it's clear that our operating environment is different today than it was 12 months ago and even different than it was one month ago. It's difficult for us to determine with precision what impact this changing environment will have on our business. But having said that, we remind you that within our cheque program, which is the biggest part of our business, it has not been our experience that a slowing economy significantly affects order volumes or revenues. Importantly, this program represents approximately 80% of our revenue.

In our Filogix Segment, we do expect changes in the real estate market and the mortgage market to negatively affect our Filogix revenues. To date, this impact has not been dramatic with the year-to-date origination services revenues down only 1.5%.

Given published housing market statistics, particularly recent stats, you might have expected a more significant drop than this, but we believe there are a couple of mitigating factors. First, in addition to processing mortgage data related to home sales, we also process refinancing and renewals from independent mortgage brokers. To the extent that refinancings and renewals remain stable or grow, this helps mitigate impacts from declining new mortgage activity.

Second, [we're then seen when a] mortgage is funded, which generally lags behind the date when a home is sold. As such, the most recent and larger decline in housing activity would be expected to have a greater impact on future revenues.

With these overall observations made, let me talk about this quarter's financial results in more detail. On a consolidated basis for the quarter, revenues increased 2.8% or CAD2.6 million, primarily reflecting revenue growth in the D+H Segment. Net income was up 11.6% to CAD0.53 per unit and excluding non-cash marked-to-market adjustments for swaps and future taxes, was up 10.3%. Distributions were up 16.1% over the same period in 2007. On an annualized basis, distributions were CAD1.84 per unit on September 30th, compared to CAD1.58 on the same date in 2007.

Now, some comments on our …