SS&C Technologies Holdings Inc (SSNC) 2011 Q3 法說會逐字稿

Good afternoon. My name is Tyrone, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the SS&C Technologies 2011 third-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and we will be taking questions in the order we receive them. Please note that this conference is being recorded and will be made available on SS&C's website, www.ssctech.com. I would now like to turn the call over to William C. Stone, Chairman and Chief Executive Officer. Mr. Stone, you may begin your conference.

Thanks, Tyrone. Welcome, everybody, and thank you for joining us for our Q3 2011 earnings call. I'm Bill Stone. I'm Chairman and CEO of SS&C, and with me today is Normand Boulanger, our President and Chief Operating Officer, Patrick Pedonti, our Chief Financial Officer. Before we get started, we need to review the Safe Harbor statements, which says various remarks we may make on this conference call about our future expectations, plans, and prospects constitute Forward-looking Statements for purposes of the Safe Harbor provisions under the Private Securities Litigation and Reform Act of 1995.

Actual results may differ materially from those indicated by these Forward-looking Statements as a result of various important factors. These are included in SS&C's filings with the Securities and Exchange Commission, and in particular Company's annual report on Form 10-K for year ended December 31, 2010. I'll give a brief overview of the quarter and then turn it over to Norm, who will take you through some operational highlights, and then Patrick will take us to the financials. After that, I'll summarize and then open it up to questions.

The third-quarter revenue grew 13.6% to a record of $94.3 million. We continue to deliver. I'm pleased to report that our Q3 year-to-date revenue is up 13% over the same period in 2010. Our continued ability to grow at healthy levels showcases our strong business model and the improving health of our global client base. Software-enabled services were up 17.5% in the third quarter to $63 million, and with 67% of our total third-quarter revenue. We achieved GAAP net income of $14.9 million, up 51%, and adjusted non-GAAP net income of $22.6 million, up 31% over the third quarter of 2010.

Operating cash flow was up 50% the first 9 months of this year to $71.6 million. 88% of our revenues are recurring, and SS&C has great visibility into our earnings and cash flow. This visibility greatly enhances our ability to plan and monitor our business. Our annual run-rate basis of recurring revenue, which we define as maintenance and software-enabled services, was $82.8 million in Q3, an annual run rate of $33.4 million. This represents an increase of nearly 15% from $72.1 million and $288.6 million run rate in the same period of 2010, and an increase of 2.3% from Q2 2011 to $81 million and $323.8 million run rate. We believe this is a good indicator of visibilities, and these are GAAP recognized revenue numbers.

SS&C continues to enhance and develop cloud applications and services. The main benefit of SS&C's cloud technology is the ability to provide our clients on-demand access to their data and applications in a transparent and secure environment. SS&C launched its cloud-based web portal and related applications for mobile devices, such as the iPad, in June of 2011. Through this portal, our clients now access standard reconciliation pricing and net asset value reports and investor statements. Clients can also drill into live portfolio-accounting data and create customized reports. Finally, we also moved our internal systems onto the cloud. Our Company is now faster and leaner. Through virtualization, we have access to the systems we need on demand, and we can deploy those resources to offices around the world, and we scale very quickly.

In parallel, we continue to enhance and extend our core software and services with complementary and strategic acquisitions. In this quarter, for instance, we acquired Dublin-based BDO Simpson Xavier Fund Administration Services Limited -- that's a mouthful -- a division of BDO. The acquisition allows us to corner European-regulated funds market and the ability to support new fund structures, such as UCITS and QIF fund. We also are always focused on expanding earnings in that you have seen our diluted earnings per share were up 38.4% in Q3 from Q3 2010. I'll turn it over to Norm for some operational state highlights.

Thanks, Bill. As Bill mentioned, in Q3, we achieved pretty good results. Demand for our fund service offering is strong, and Q3 was a very good quarter for our combined private-equity outsource and TNR shared platform. We also improved our license sales from Q2 2011. License sales were strongest in our institutional business, mostly related to our CAMRA software. Our pipeline looks good across the business.

Our customers continue to face uncertainty, in some cases are downsizing. In the near term, this affects our license business the most. We continue our focus on executing at the highest level on available deals, which will allow us to manage in this kind of environment. Many of our -- many of the current market concerns are also long-term drivers of growth. With no let-up in the regulatory environment, cost pressures, staff reductions, and the need for better information faster, we believe that demand for solutions will benefit. In particular, the cost benefit of choosing our software-enabled service business is compelling. Currently, we manage more than $1.7 trillion of clients' assets under management through our software-enabled service business.

In Q3, we went live to administer in the middle- and back-office functions for the XL Group to our SS&C direct services. This is notable because we believe that XL Group is 1 of the largest global insurance and reinsurance companies in the world measured by assets under management to fully outsource these functions. Some notable deals for the quarter include a Chicago-based hedge and private equity managers selected SS&C to provide fund administration services. A large hedge fund out of Boston selected SS&C as the sole fund administrator for all their funds. Philadelphia-based private-equity fund selected SS&C to provide private-equity administration services and technology using our TNR shared platform. Morgan Stanley has launched FX Gateway, a new multi- manager platform aimed at providing institutional investors access to select currency managers. They chose SS&C as the administrator to ensure independence of net-asset value calculations and to leverage our technology. A long-term SS&C client, Blue Cross Blue Shield of Michigan, upgraded to the latest version of CAMRA and chose our hosting option at our data center.

In addition, they will use our data-collection services, and the entire initiative was designed to automate their mid- to back-office processes. A large Wisconsin-based RA firm has selected Pages as an enterprise-reporting solution, and a large multi-billion-dollar New York-based credit hedge fund purchased SS&C Recon to automate their complex reconciliation process. We also launched a number of key releases during Q3. CAMRA 6.0, we added more than 16 enhancements to the latest version of CAMRA, including workflow enhancements for advanced corporate action processing and a rating summary that will provide traders with a snapshot of the latest credit ratings from a variety of rating organizations, plus user-defined composite ratings, and support for index-linked securities and dual-currency bonds. We also released LMS 12.0, but the latest release of LMS Loan Suite provides fully integrated multi-currency platform to manage the entire loan life cycle, from initial request at disposition, coverage in our proven scalable technology. This latest release positions us for new opportunities and will help us expand into Europe, Asia, and Australia.

We are hosting a special risk symposium at the NASDAQ market site in Times Square on November 16. Bill Stone and our risk-management experts will share perspectives on risk-management challenges facing the financial industry and how technology is providing solutions. And I'll now turn it over to Patrick to go through the financials.

Thank you, Norm. Results for the third quarter of 2011 were GAAP revenue of $94.3 million and reported GAAP income of $14.9 million and diluted GAAP EPS of $0.18. Revenue increased $11.3 million, or 13.6% over Q3 2010. Excluding acquisition revenue and the positive impact of foreign currency, organic revenue increased 6% in the quarter. Acquisitions, including thinklink, TimeShareWare, Benefits XML, and the Ireland fund-administration business contributed $5.2 million in the quarter, and foreign exchange positively impacted us by $1.1 million, or 1.4%. The business had strong growth in the fund services business provided to hedge funds, fund-to-funds, and institutional asset managers.

Software-enabled services revenue was $63.3 million, an increase of $9.4 million, or 17.5%. Excluding acquisitions and a positive impact of foreign currency, software-enabled services organic revenue growth was 11.5%. And the fund administration segment grew 21%. Adjusted operating income in the third quarter was $37.6 million, an increase of $5 million, or 15.3%, over third quarter of 2010. Operating margins increased to $39.9 million from $39.3 million in Q3 2010, as gross margins improved, specifically in the software-enabled services area. We continue to invest in selling and research and development, as operating expenses increased to 21.1% of revenue. Sequentially, operating margins improved from 39% in Q2 2011, due to improvements in gross margins.

Adjusted EBITDA, defined in note 3 of the financial statements, was $38.7 million, or 41% of revenue. This was a $4.7 million improvement over Q3 2010, or 13.9%. Net interest expense for the quarter was $3.2 million and includes $415,000 of non-cash amortized financing costs. Interest expense is down $3.5 million from Q3 2010, as we paid down $119 million of debt in September 13 -- September 30 of 2010. We recorded a tax provision of 30% of pretax income in the quarter. We expect the GAAP effective tax rate for the full year to be in the range of 32% to 33%. Adjusted net income, defined in note 4 of the financial statements, was $22.6 million, and adjusted diluted EPS was $0.28. Adjusted net income excludes $9.3 million of amortization of intangible assets, $3.8 million stock-based comp, and $127,000 of unusual and recurring -- nonrecurring expenses, mostly fees related to stock offering, costs associated with acquisitions, and foreign-currency gains.

For our balance sheet and cash flow in the quarter, we ended the quarter with $76.2 million in cash and $172.7 million of debt, for net debt position of about $96 million. We generated $71.6 million operating cash flow in the first 9 months, compared to $47.6 million in the same period of 2010. This strong improvement operating cash flow is a result of improved earnings, excluding non-cash items, and improvements in working-capital management. We continue to use our operating cash flow to acquire business and pay down debt. Highlights of cash uses for the year are the 2 acquisitions we did this year, Benefits XML and the Ireland fund admin we paid $19.9 million for. We spent $5.7 million for capital expenditures and capitalized internal-use software, which was about 2.1% of revenue. As I said, we paid down $119 million of debt in the first 9 months. We paid about $23.6 million in taxes, compared to $15.7 million in 2010, as US-based profitability increased compared to 2010.

Our accounts receivable DSO was 43 days as of September 2011, a decrease of 5 days and 48 days at December 2010 and 49 days as of September 2010. In financing activities, we recorded the net proceeds from the February stock offer. Our LTM consolidated EBITDA used for covenant compliance was $149.2 million as of September 11, and our EBITDA growth and lower debt position reduced our leverage from 1.8 times at the end of 2010 to exactly 1.0 times on September 30, 2011. For the outlook for the fourth quarter -- our current expectation for the fourth quarter is revenue in the range of $94 million to $97.5 million, adjusted net income of $22.2 million to $23.1 million and outstanding diluted shares in the range of 81.5 million to 82 million. For the full-year 2011, we expect cash from operating activities to increase compared to our prior guidance, as profitability and working capital have improved. We expect cash from operations to be in the range of $87 million to $90 million and capital expenditures to be in the range of 2.1% to 2.3% of revenues for the full year. And now I'll turn it over to Bill for final comment.

Thanks, Patrick. In closing, our pipelines are strong across all our solutions and market verticals. Our Q4 events in New York and London will showcase our technology, innovation leadership, and our work force is highly motivated to win. We have an optimistic view of our business for the remainder of the year, and we, as Patrick said, we reiterated our guidance. Our numbers for the quarter speak for themselves, and we're focused on delivering a strong close to 2011. Today, we also launched a new radio campaign featuring our strong fund-services business, and I'd like to play a 30-second advertisement for you and then open the audience up for questions. Kristin? (video playing)Thanks, everybody. Now we'll take questions.

Thank you.

(Operator Instructions)

Sterling Auty, J.P. Morgan.

Yes, thanks. Hi, guys. So first question would be on the pipeline, you mentioned that given the environment, that with downsizing that typically pressures licensing but through execution you're kind of offsetting it. How does the pipeline look for having enough availability to allow that execution to deliver on continued license growth, not only for the quarter, but a trend line moving beyond that?

Well, I'll give you my first off-the-top-of-my-head comment on that, Sterling, and I'll let Norm maybe get a little deeper if he'd like. You know what, I do think that what we've done by bringing out additional stuff using the cloud and bringing in the iPad and iPhone and Android is that we are really kind of burnishing our applications.

And I believe that our sales force is motivated to sell that, and I think they're getting some good traction. And I think that will overcome some of the softness that we're seeing in some of our clients.

And as you know, as some banks get soft, others get strong. And so I think that the ones that have chosen the businesses that they want to get into, they're going to need software and expertise in order to be able to deliver that capability, and we think we're very well-positioned to help them. Norm?

The only thing I want to add, Sterling, is really the uncertainty that makes it difficult to manage the license number on a 90-day basis. A lot of organizations budget a year in advance. We can usually count on a very good Q4 because people spend the remainder of their budget.

But as organizations face their own difficulties, that's also an easy number to pull from a budget perspective, so it's really the uncertainty rather than the softness that makes it difficult to predict things that normally had positive trend lines for us in terms of how it's going to play out.

So, from our perspective is an available deals is precious, and you've got to knock it down when you have a chance. So, we're focused on increasing our win rates and giving ourselves the best chance to win.

And we think we'll be able to continue to deliver in a similar range that we have in the past. The market trends will play themselves out from here forward, and we'll both have a better understanding of the growth opportunity.

Okay, and then a follow-up to that is, I wasn't quite clear you mentioned that the CAMRA sales were improving. What specifically was driving that improvement?

It's a combination of things, but a lot of it is the additional services we've been offering to clients, as well as upgrades to the sequel version of our CAMRA product.

Okay, and then last question is just an update. I wasn't -- I didn't hear in the prepared remarks some of the commentary around some of the initiatives that you have the International side.

You know, as I've said in the past, right, Dave Reid has moved there about 6 months ago now, and he is really starting to gain his stride. He's got number of opportunities. He's in Finland today.

There's opportunities across the markets that we're going after. We have an opportunity, a new one in Germany. We've got some new ones going on across the continent. We think that the pipelines are getting stronger.

Norm talked a little about the shared platform of our outsourcing, as well as our TNR, or private-equity outsourcing, as well as our TNR application. That looks like that's gaining traction. We have a number of deals in the pipeline for that.

I think Raoul Kanwar, who works very closely with Dave, and Raoul runs our fund-administration business, one of his guys is Steve [Victoria]. And Steve and Dave have been working together on this TNR initiative, and we are cautiously optimistic that we are gaining traction across a number of new verticals with that offering.

All right. Great. Thank you.

Bryan Keane, Deutsche Bank.

Yes, the professional services area has been -- last two quarters has showed quite a bit of strength. Just curious what's driving that, and should that continue?

It's primarily the brokerage business, Bryan. But other than that, we've been doing better with delivering in the institutional asset-management space. Pension and insurance companies and our LMS product, which is large, lumpy licenses. We won a big mandate from TIAA-CREF and a big mandate from AIG, and both of those are large implementations.

Okay, that's helpful. I just wanted to ask on fund services, is that your guys' success there and obviously your focus with doing more of the radio advertising there, is that coming just in higher demand for the services in the marketplace, or is something happening in competition that you guys have just decided to weed out -- or have been able to weed out a lot of the competition with the product?

Well, I think what you're seeing with uncertainty and regulation across all the financial services companies, and kind of a onslaught of government regulation on the large-scale integrated investment and commercial banks, is that an awful lot -- there's almost no prop trading, right, in any more of the large integrated banks, right?

So, those prop traders, they're not the dumbest people that work in the banks, right? They go out and they start hedge funds. They start other investment vehicles, like private equity funds and other things, and they get involved. And they need to have the support. Some of them are launching bigger and bigger funds, right?

The last -- this past quarter, there's been more launches, I think, of in excess of $200 million than there had been in several quarters before. There's a whole bunch of them lining up. And I think we are very well-positioned to win a good chunk of that business, as we have a very strong reference base, and we have a broad-based technology and a broad-based delivery capability.

Well, it's an interesting dynamic, because there was a scare going around the market that a lot of hedge funds would be closing and not enough opening, but it seems like you guys are funding a lot of openings.

One of the things that we've been able to do is, as you can tell from our profitability compared to our competitors, we are able to deliver, because we own our own software. We deliver proprietary product and service.

We are able to make a lot of money at lower price points than our competitors, and if it turns into a price competition, SS&C is really -- brings a war chest to this process. And as we continue to delever, you can see how our cash flow is generating. We're going to be able to pay off last of our 11.75% bonds. Our cash flow is going to continue to build our business, and we intend to win in this space.

Okay, last question for me. Patrick, the adjusted net income is a little bit higher than what you were guiding to earlier. Is that just a little bit better profitability, or is there something else driving that outperformance?

It's mostly cost management. As we grow, we've been able to control our costs, and that's really the result of the visibility we have. So, we can manage costs that we put in place to support the growth. So, we ran a little bit lower in costs than we expected in the quarter.

Okay, great. Thanks a lot, and congratulations on the quarter.

Glenn Fodor, Morgan Stanley.

Hi, everybody. Thanks for taking my questions. More and more, we're getting questions on this cloud offering as it relates to the processing space. Is this a meaningful source of potential margin expansion for you? Or do have a goal of how much you can bring to the cloud? Is it really all that applicable to your business, over, say the next 2 years, 2 - 3 years?

Obviously, Glenn, I think what happened has to happen is is that the cloud has to continue to deliver on its promise. And that is increased infrastructure, increased amounts of ability to handle volumes. But when we deliver large-scale reports or large-scale graphics, compared to what Apple's doing on iTunes or what other people are doing through streaming video, ours is really not that heavy a load on the infrastructure that you can do using the cloud.

And we think that's going to allow us, by having an open mind as to what we can do and how we can do it, that we're going to get people really -- their office in an iPad or their office in an Android, and they're going to be able to do what they need to do across all asset classes, across all different responsibilities that they have, whether that's strategy, that's trading, that's execution, that's reporting, that's an investor hand-holding, fundraising.

All these things become part of the things that -- as you know, we've been a Carlyle company since 2005. You get to watch a world-class operation generate new funds to manage, and you see guys like David Rubenstein and Bill Conway and Dan D'Aniello and Allan Holt and those guys, and they're constantly traveling, constantly connected, constantly pitching new investors to get information and be able to deliver the latest results that they have in order to generate new funds and new billions. And we think this delivery capability is what they're really looking for, and we think we have great insight into how that happens.

Okay, great. Thank you. Just on growth in business in the quarter, would you say this quarter was particularly more skewed towards the up-selling and cross-selling to existing customers, versus just new customers outright? Was there anything different about this quarter or trends over the last couple of quarters versus the prior, say, three or four quarters? Any sort of trends ongoing there that might be different or diverging versus history?

I think it's pretty similar. The only exception I would probably draw your attention to is I think the appetite of the private-equity firms forced not only software solutions but in particular, outsourcing solutions. I think there's going to be lots of private-equity firms that are taking a fresh look at whether they can outsource or not.

Traditionally, the large ones were cautious because of privacy concerns, confidentiality concerns, but we think that's changed. And so, that's a trend that I've started to see pick up. And in addition to that I would say our Loan Management business has a nice uptick over the last three or four quarters.

We also think that the XL capital, that these large-scale customers that outsource, our ability to deliver against increasingly better, every month, every quarter, and the amount of capability that we can bring to the table, I think, is going to be extremely pleasantly surprising to XL as we go on and on.

And that's going to drive business as people see that they have a way better information, way faster information, way more accurate, and way more capability. And I think that we took them off of four separate vendors that were supplying information to them, and we consolidated and now deliver to their -- I think they have about $35 billion in AUF.

Okay, great. Thank you very much.

Terry Tillman, Raymond James.

Yes, good afternoon, guys. Thanks for taking my question. Nice job, and nice ad. One question, Norm, related to the environment, and I think what you're signaling is uncertainty around closed rates and timing of deals getting done, as opposed to a demand issue.

But how should we think about the license in the fourth quarter? I know last quarter you actually framed it for us at about a $5.5 million to $7 million quarterly range to think about. Are you changing that thought process for 4Q?

No, I'm not changing it. The nature of the business is, some of the stuff is going to close, some is not, so it's our job to manage that. We actually had a very nice deal we thought was lined up to close in the middle of December that pulled because the organization had a bad quarter.

So, sometimes the ball bounces against you. But the range is the same. It's really a matter of how can we execute within those targets, and it's making sure our sales force is sensitized to close business when it's closeable. Because the uncertainty that you face is things change pretty quickly for our clients right now, and we don't want to lose a deal because we didn't act.

Okay. And one thing that does seem a little bit different now on this call is more and more about TNR in the quarter. Could you give us even a little bit more color on, is it something related to the product, or do you just think there is an inflexion point or tipping point terms of outsourcing or looking to automate? Or is there something you may have done on the go-to-market side or the leadership side there, because it is seems like we're hearing a lot more about it?

Well, it's a combination of things, but I think we've been focused on driving that product for about a year now. We're getting traction internationally. It's one of our best products in terms of pipeline internationally.

We smartly combined the outsource and service with the basically a SaaS model of the relationship, investor-management component. So, the prospects really seem to be funding a high-value proposition. We'll have full outsource plus access to the investor relations from a software perspective.

It's really a combination of those things. And we also added Steve [Victorie], we mentioned earlier, and he's provided some leadership. So I think it's just a matter of a tipping point, where we're starting to finally see some of the benefits of the efforts we've been putting in. And we -- and again, in addition to that, I think private-equity firms in general have all had a need for solutions, and they're starting to actually consider outsourcing in addition to software, at least the large ones.

Okay. Then my last question, just related, I don't know if this is for Bill or Norm, but last quarter, you guys talked on the call, you talked about these new portal initiatives, part of the cloud initiative. The idea in your traditional asset or institutional, or your alternative business might be, it's not so much you monetized the portal, but it's the things like liquidity or performance attribution. So, what's the attach rate of some of those value-added services after somebody turns on the portal? And then secondly, have you now launched into these other nontraditional verticals you were talking about? Thank you.

I think it's too early to measure the attach rate, but the idea is that we're delivering capability in a way that many of our competitors are not. Our ability to up-sell things like liquidity performance and attribution, we think that's pretty clear that that opportunity is there.

In addition to that, we've made some progress this quarter on launching it for our institutional business and our private-equity business. We're little bit -- not quite as far as long as the fund services, but I think by the end of the year, we'll having start having a pretty good rollout of those 2 markets.

And what we've seen even by showing the prototypes that we have for both of those areas to chief investment officers at large-scale places is they're saying you can see it in the meetings. I need that. Because whether you're in the Hamptons, or you're in Napa, or you're in Florida, you can still do your job. You don't really need to be in the office.

If you have information at your fingertips, and you get to see what your subscriptions are, what your redemptions are, what your performance is, what the market's doing, and you're able to access anything and everything that you would just like you would in the office. Our people are really realizing what the value-add that is.

What I always to try to make sure is is that our systems are up so that our smartest people can work whenever they want. I'm not trying to make it so that they have to work 8.30 to 5.30. They get to work whenever they want. That really adds productivity to the entire organization. And I think investment organizations with really high-powered, highly paid people, they need to have access to that information that allows them to work whenever they want.

Tim Willi, Wells Fargo.

Thank you. Good afternoon. I have two questions. One is you actually talked about, if I caught the comment correctly, that things within Europe in terms of sales, execution, actually seem to be maybe getting a bit better. I'd just be curious if you could talk about what your sense of the overall market tone might have been outside of your internal improvements.

Did you feel like, as an industry at a high level, things deteriorated over the course of the quarter to any degree but you were just able to execute better? Or is it just frankly been a relatively stable market, despite what we see and read in the news?

I think it's still a relatively stable market. All you read about in the news is 9% unemployment. No one talks about 91% employment. When the 91% employment, the kind of people that we sell to are the highly educated, very well paid. That market's not very unemployed. It's very employed.

And so, where we're at is really in a different kind of space than what you read about from some people that are trying to get elected. Where we feel they're not trying to get elected. They're trying to manage the cash flow, and as what you've seen in a number of different banking institutions, they can't deploy the cash that people are trying to give them, so they're trying -- they can't pay them less than $0.

So now, they're -- some places are talking about charging them to post -- to handle their cash for them, so I think that in our business, which is really financial assets across a wide spectrum, I think that our business is inherently, as the world gets wealthier, there's more financial assets to keep track of. That means you need more accounting systems, more inventory systems, more pricing systems, more reporting systems, more regulatory systems.

There's more taxing systems. So, I don't see that as slowing down at all. The government, if anything, is trying to get more active, not less active. So, I think those things all innure to our benefit.

How would that apply likewise to Europe? It sounds a lot like those are US-centric comments, and I know that they're similar, but I was more curious about anything you saw across Europe in your business as the quarter went on. Obviously, there's lots of turmoil there around the various banking industries and financial services industries that's different than where we're at right now.

It is, but a lot of times, those big banks that start having issues, they start pulling their horns in. So, the competition that we have a number of the businesses that we're in starts to alleviate a little bit, and what that does is give us opportunities to be more nimble and be able to -- stuff like BDO is not a very big acquisition for us, but the ability to offer UCITS and QIF funds is already driving lots of opportunities for us.

In some cases, millions of dollars a year in opportunities, whee the whole business was only doing $2 million a year when we acquired it. We will probably, which, of course, won't go into organic revenue, but the first year we own them, we might triple revenue. But I don't think they would've trouble revenue, since they were in business for 15 years and they were at $2 million.

So, I think something about coming into SS&C's family, getting access to the 50, 60 sales people we have, a large-scale marketing force, and a management that pays attention, is something that's very valuable for these small companies that we acquire. And it's no different than what Norm was talking about on private equity.

When we acquired the Cranford business, which is kind of the basis of our strongest private-equity group, they were doing about $4 million in revenue, and that was in 2007. And now they do $12 million in revenue. So, I do think that we add a lot of value to these acquisitions.

I think things like Europe is an untapped market. It's a little bit behind the United States as far as technology and capability is concerned, but they know they need to change. And technology might be able to soften some of the problems that they're going to have in changing, and I think that's our big opportunity.

Okay, and my second question around margins. Just some of your comments at the beginning around your own internal technology initiatives. As you think about your margins go forward, and you think about the now versus a year ago when you went public, or even two years ago, and just thinking about all the technology that's evolved, whether it's mobile, cloud, et cetera, do you have incrementally more confidence about the scalability and the trajectory of margins now than you would have then?

Or does this all not really alter your thoughts? Just curious if there's an even brighter outlook there because of a lot of the stuff coming down the pipe from the technology perspective?

Well, I think we would articulate it similar to what you just said, is that we get opportunities to firm up on prices because we have better technology than our competitors. So, when people take a look at our technology, they say wow, the only way to get at an iPad app or an Android app is through SS&C fund services or through SS&C's private-equity services -- or now SS&C's institutional services -- I can't get that elsewhere.

That may not mean that we can double our price or anything like that, but what it might mean is that we don't have to discount price at all. So, our price gets firm, and then what happens is, is that when we delight those customers, we get additional opportunity, and then you get things like the VMware. You get cloud services. You get cheaper telecom. You get cheaper data.

You can just watch these guys compete against each other, whether it's AT&T, it's Verizon, it's Sprint, it's T-Mobile, they're all competing. And all that stuff is is better, faster, cheaper. And we get better, faster, cheaper, then it becomes expertise.

And better, faster cheaper when it comes to your tax return, when it comes to your performance measurement, your performance attribution, people go accurate. I want to be accurate. I need real expertise. And I think that's what we bring to the table, and I think that's something that allows us to expand our margin.

Okay. Thank you very much. That's all I had.

Thank you.

(Operator Instructions)

Ross Macmillan, Jefferies.

Thanks a lot. So, your organic growth and software-enabled services has been ticking along at 11%, 11.5%, which is pretty good growth. And I'm just curious as to your confidence in maintaining that growth rate assuming status quo, let's say? So, let's say the world doesn't really get a lot better or a lot worse, do you feel pretty confident about sustaining that 11.5% type organic growth?

I think we do, because that's where we're putting an awful lot of our investment. So, the guys like Steve [Victorie], or like Darren Berkowicz and Jay Maher and Raoul Kanwar and Dave Reid and Noeleen Flynn, and we just got a tremendous amount of talented people in that business that are really working hard to deliver. And we've got a really high-powered sales force that's led by Ken Turchin and Jack Quinn and that type of talent.

We've got some young guys coming up, like Tom Franco and Rob Stone, and other guys that are really driving the business, and we're counting on it. We're counting on them to drive that business. And they're young. They're hungry, and they want to win. And I think that's how we're going to win.

Great. And I was curious from the margins, I think this was the first quarter where year-over-year, your operating margin on adjusted basis was actually up. And I think there were some drags on that from some of the acquisitions that you'd done.

Patrick, can you comment on that? And are we now in a ex-acquisitions? Would you expect margins to -- ex-incremental acquisitions, would you expect operating margins to continue to improve?

We are seeing the effects of some of the improvements in the acquisitions we did in 2010 and early 2011, and that helps contribute. But also our core business is doing much better in Q3. So, our core fund administration business, our core software service business really improved, and those margins significantly improved in Q3.

So, it is some of the acquisition, but I think for the most part, it is our core software-enabled services business. We think -- we're going to focus on growing the business and servicing our clients in the near term, so we think our margins will hang in this range in the near term.

Okay. That's helpful. And Bill, can you just talk about -- obviously, a lot of volatility in financial markets. I'm curious as to whether that's filtering through yet into -- I know you guys do a perpetual job of looking at assets, potential acquisitions. Is it too early to call things distressed from a valuation standpoint? Just curious to get your sense on what that M&A landscape looks like in valuations.

Yes, I don't think distressed is the right word. I do think that in smaller financial services, technology companies, thin-tech companies, that the volatility tends to scare the entrepreneur. So, you start a business, you were 28. You're now 37. Been at it for 9 years, you get $6 million in revenue.

You're making $700,000, $800,000, and you're afraid volatility is going to take that $6 million, $7 million in revenue down to $2 million or $3 million. And it's going to take all those profits away. And you have to fire all your friends you hired. The people decide if I can get 6 - 7 times EBITDA, I think that maybe now's not a bad time. I can get a good job.

The stress level goes to normal, Patrick, Bill. You get to pass the stress level, you get to put money in the bank, and you get a different lifestyle. And I think the bigger there are -- if you're up to $30 million, $40 million, $50 million, and you're owned by an institution, then I think the institution is still trying to maximize the price.

Now it depends on how stressed those companies are and how much they want to get back to the knitting. But sometimes I think they're more price sensitive. It's generally -- if it is a thin-tech company and a big bank or something like that, it's not usually that big a deal to that bank. So, they can hold on or they can sell, and it's -- they're putting assets up, depending on getting a certain return. So, I don't it is distressed, but I don't think it's frothy at all, either.

That's helpful. Thank you.

Thank you. Ladies and gentlemen, this ends the Q&A portion of today's conference. I'd like to turn the call over to management for any closing remarks.

We look forward to talking to everybody at the end of the year, first quarter next year after 2011 is gone. And I hope everybody has happy holidays. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect, and have a wonderful day.