SS&C Technologies Holdings Inc (SSNC) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SS&C Technologies third-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms. Justine Stone, Head of Investor Relations. Ma'am, please go ahead.

Hi, everyone. Welcome and thank you for joining us for our Q3 2016 earnings call. I am Justine Stone, Investor Relations for SS&C Technologies. With me today on the call is Bill Stone, Chairman and Chief Executive Officer; Norm Boulanger, President and Chief Operating Officer; Rahul Kanwar, Senior Vice President and Managing Director of Alternative Assets; and Patrick Pedonti, our Chief Financial Officer.

Before we get started, we need to review the Safe Harbor statement. Please note that various remarks we make today about the future expectations, plans, and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website.

These forward-looking statements represent our expectations only as of today, October 27, 2016. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.

During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

Thanks, Justine. We reported record adjusted revenues of $391.9 million, and adjusted diluted earnings per share of $0.42. We have reached over $600 million in the last 12 months consolidated EBITDA, and have paid $528 million in debt since acquiring Advent last July. This brings our leverage ratio to 4.1 times.

SS&C, as you know, is a high cash flow business with over $237 million in cash flow from operations in the first nine months of this year. We nearly doubled our cash flow from the same period in 2015. This gives us the ability to pay down debt quickly while maintaining our methodically opportunistic acquisition philosophy. Wells Fargo Global Fund Services and Salentica are two examples we recently announced, and Salentica we recently closed.

Last month we had our annual client conference, SS&C Deliver, in San Diego. We had 1,200 attendees, and we had over 150 educational sessions, labs, and hands-on training.

We featured new capabilities across our entire platform, including enhanced reporting business intelligence, intelligence risk, and financial planning. We also unveiled a new powerful enterprise trading system where we integrated Moxy with our market trader execution management capabilities. Feedback from the conference and our new offerings has been quite positive.

We've had tremendous growth over the past few years. We have increased our assets under administration to become the second largest administrator in the world, and we have enriched our technology stacks through acquisitions such as Advent, Varden, and Primatics, and added expertise at our senior management level to support our growing Business.

Our alternative assets business in particular has seen impressive growth, and it now has even more opportunity. As of last week, we have reorganized this business under Rahul Kanwar to create a more cohesive business structure, and to accommodate the increasing size and complexity of our clients' demand. We welcome the opportunity to embrace the best of what acquisitions, technology, and management has done to our Business. I will let Rahul explain what he is doing later in this call.

Earlier this month we announced our plan to acquire Wells Fargo Global Fund Services Business. This reinforces SS&C at the forefront of the fund administration business and as a natural consolidator. Wells Fargo, as many of you may know, runs our Geneva platform. We also expect this to close in the first quarter of December. I will turn it over to Norm now for an operational review.

Thanks, Bill. As Bill mentioned earlier, acquisitions are a key ingredient to our growth story, and our ability to successfully enhance capabilities and integrate acquired companies into our business model is a core competency. We've seen several examples of this with the Advent Software and Primatics Financial acquisitions.

Black Diamond, our registered investment advisor platform, now has enhanced reporting and business intelligence capabilities, and two new partnerships for more integrated experience across financial planning and risk. Our vision is to join both technology experience and day-to-day service experience into a powerful, unmatched combination. Already an industry-leading solution, Black Diamond has over 900 advisory clients and holds multiple awards.

Earlier this week, we announced our acquisition of Salentica, a leading CRM solution for the wealth management industry. This acquisition will add deep expertise in CRM, and will enrich Black Diamond's front office capabilities. Salentica software will also integrate with Axys, APX, and our global wealth platform.

We've also integrated our order management system, Moxy, with SS&C's execution management software, Market Trader, in our FIX network. The newly combined offer ensures that managers can achieve automation and efficiency, reducing risk during the trade lifecycle, and gaining speed to market.

Lastly, we are seeing a pickup in sales and pipeline for the integrated risk and finance solutions that Primatics offers due to the final guideline status we issued in June for current expected loss requirements. The new rule requires financial institutions to overhaul their current branch (inaudible) reserving process. The evolved platform is the only solution to integrate risk and finance capabilities to manage new accounting standards.

I would like to review some of the key deals for Q3. Specialized fixed income boutique, an existing PORTIA client on a 25-year term license agreement, purchased perpetual license after the term was up. Singapore-based financial service organization made additional investments in their HiPortfolio product with the purchase of multiple modules. The high volume municipal bond issuer chose our global debt manager solution for its innovative design and superior functionality. A Texas-based insurance company selected Precision LM to streamline its loan servicing operations.

National private lending firms like (inaudible) for a combination of fund services and also purchase Precision LM licenses for its commercial lending (inaudible). A long-time client has moved to a hosted solution and upgraded to our trade costs and settlement solution, TradeThru, to support their growing commodity trading business.

$5.5 billion asset manager chose [Advent] on-demand, hosting data management services for Moxy APX and Advent outsourcing services. A $147 billion asset manager and existing client upgraded from Axys to APX, which SS&C recounted, which will eliminate workflow errors. A large saving bank bought annual license for Primatic's evolved solution, along with business support services, and lastly, a government-sponsored enterprise bought annual license for evolved loan processing platform. I'll turn it over to Rahul to discuss the alternatives business.

Thanks, Norm. Revenue for SS&C's alternatives business unit grew 43.8% for the third quarter of 2016 compared to the same quarter in 2015. The requirements of our customers and prospects are constantly evolving; and as Bill mentioned earlier, we have reorganized the business unit to better serve them.

Mike Sleightholme and Ken Fullerton will serve as co-Heads of our global hedge and liquid alternatives business. Joe Patellaro will head up global private equity and will assume responsibility for our worldwide private equity fund offerings.

Strategic solutions and shared services is a new umbrella of offerings managed by Stephanie Miller. This will include our regulatory solutions business, middle office, and investment services solutions.

And finally, we have decided to combine our institutional and insurance outsourcing business, SS&C Direct, with alternatives under Stan Szczepanik. In light of the increasing convergence among asset owners and the types of asset classes they invest in, this change will allow us to bring even more resources to the very important insurance market. We are confident in the ability of these skilled executives, and are primed for future growth.

We continue to progress in our transition and integration plans for the Citi Alternative Investor Services business we acquired earlier this year. The teams are working well together. We have completed several important milestones in the synergies process, and are building a pipeline for these groups. Client retention and satisfaction continue to be strong.

Bill also mentioned our acquisition of Wells Fargo Global Fund Services business, which will fall into our newly created global hedge and liquid alternative segment. Wells Fargo administers $42 billion in alternative assets, covering a wide range of complex strategies providing comprehensive administration, middle office, operations, and cash management services to alternative investment managers. This acquisition enhances our presence in Asia Pacific with clients and offices in Singapore and Hong Kong, as well as London, New York, and Minneapolis. We are excited to welcome the 250 employees across the globe to SS&C and look forward to closing soon.

I will now review key deals for Q3. A $12 billion AUA legacy Citi fund services client chose to convert funds to SS&C GlobeOp from a competitor. A state-sponsored New York financial entity chose SS&C's fund administration and loan processing services for functions that were previously done in-house. A new long short equity hedge fund launch from a former SS&C GlobeOp client chose SS&C for their fund administration. A private equity firm with over $40 billion in assets chose SS&C for fund administration, [eInvestor R], investor transaction processing solution was key element for the win.

An existing private equity client with over $12 billion in assets expanded their relationship in private equity administration. And a private equity startup spun out of the Harvard Endowment chose SS&C for private equity administration. Our TNR private equity platform was a key element of the sale. I will now turn it over to Patrick to walk you through the financials.

Thanks, Rahul. We reported results from Q3 GAAP revenue of $383.3 million, GAAP net income of $38.7 million, and diluted EPS of $0.19. Adjusted revenue was $391.9 million excluding the adjustment for acquired deferred revenues for the Advent, Varden, and Primatic acquisitions.

We had a strong quarter. Adjusted revenue was up 25.8%, adjusted operating income increased 20.1%, and adjusted diluted EPS was $0.42 or 23.5% increase over 2015. Adjusted revenue increased $80.4 million or 25.8% in the quarter. The acquisitions of Varden, Primatics, and the Citi Fund Administration business contributed $68.4 million.

Foreign-exchange had a negative impact of $1.8 million or 0.6% in the quarter, mostly due to weakness in the British pound. Organic growth on a constant-currency basis was 4.6% in the quarter.

Adjusted operating income was $150.5 million, an increase of $25.2 million or 20.1% from the third-quarter 2015. Operating margins decreased to 38.4% of revenue from 40.2% in Q3 2015. The operating margins were impacted by the City Fund Administration business, which had operating margins of 24.3% in the quarter. This is an improvement from 18.8% in Q2 2016.

Advent implemented cost synergies as of September were $43.4 million on an annual run-rate basis. Recently we completed a cost reduction of the sublease of one of our floors in the San Francisco location, and this will generate about $2.6 million of annual cost reductions.

Adjusted consolidated EBITDA was $156.7 million or 40% of revenue, an increase of 19.7% above 2015. Net interest expense was $31.6 million and includes $2.7 million of non-cash amortized financing costs, [MLID]. And the average interest rate in the quarter was 4.4%.

We recorded a GAAP tax provision of 19% in the quarter, and we expect the GAAP effective tax rate for the full year to be between 20% and 22%. We continue to project the tax rate for adjusted earnings to be between 27% and 29% for the full-year 2016.

Adjusted net income was $87.5 million and adjusted EPS was $0.42. Adjusted net income excludes $51.5 million of amortization of intangible assets, $12.5 million of stock-based compensation, $5.6 million of acquisition purchase accounting adjustment including the deferred revenue adjustment, $2.7 million of non-cash debt issuance costs, $300,000 of unusual and non-recurring items, and $1 million of capital base taxes. For the adjusted net income, we use an effective tax rate of 28%.

Moving on to the balance sheet and cash flow, as of September 30 we had $101.8 million of cash and $2.551 billion of gross debt, for a net debt position of $2.4497 billion. Operating cash flow for the nine months was $237 million, a $116.4 million or 96.6% increase over 2015. Cash flow for the nine months was driven by improved cash earnings and lower tax payments.

For the nine months ended September, we paid down $268.6 million of debt. That brings the total since we acquired Advent in July of 2015 to $528.6 million.

We used $25 million for capital expenditures and capitalized software, mostly for IT, the buildout of the Citi Fund Administration business infrastructure, and facilities expansion. We paid $106.4 million of interest compared to $31.4 million in 2015. So far in the nine months, we paid $14.6 million of cash taxes.

Our accounts receivable DSO as of September 2016 was 54.5 days, an improvement of 1.6 days from June 2016. The Citi Fund Administration receivables continue to adversely impact DSO, but we expect them to improve over the next several quarters. In addition, we acquired Citi Fund Administration on March 11, and we paid a total net amount of $309.8 million for that acquisition.

LTM EBITDA used for our covenant compliance was $600 million as of September 2016, and includes $14.7 million of acquired EBITDA and cost savings related to the acquisition. Based on net debt, our total leverage ratio is approximately 4.1 times as of September.

An outlook for Q4 -- and this outlook excludes the Wells acquisition, which we do expect Wells acquisition to close in the fourth quarter, but we don't have a firm date as of this point. So our expectation for the fourth quarter is adjusted revenue in the range of $394 million to $403 million, adjusted net income of $89.4 million to $92.4 million, and diluted shares in the range of 207.8 million to 208.2 million. For the full-year 2016, we expect cash from operating activities to be in the range of $380 million to $390 million, and capital expenditures in the range of 2.5% to 2.8% of adjusted revenues. I will now turn it over to Bill for final comments.

Thanks, Patrick. And thank all of you for joining our call. We think we have a lot of opportunities ahead.

Wells Fargo's Global Fund Services will give us more scale and expertise. The new organization in alternatives under Rahul will enable us to build and promote complex [bespoke] solutions. Dave Welling will integrate Salentica's CRM platform across our advisory business and give us a world-class CRM solution.

It's really exciting to work with 7,500 such talented employees across the globe, and as Rahul said, we are excited about adding the 250 from Wells Fargo. We look forward to closing out 2016 on a strong note.

We will now open it up for questions.

(Operator Instructions)

Dan Perlin, RBC Capital Markets.

Thanks. Good evening, guys. I had a question just about the reorganization quickly. Is the plan there -- or I should say that -- was the plan a function of the changing in-market demand and environment, or a function of the mix that's shifting inside your business given the assets that you've acquired over the past couple a quarters?

You know, I think it's primarily the latter. It's primarily that we have acquired a lot of capability over the last several years, and what we're trying to do is bring that capability together to be able to go after these market segments in the most effective way possible.

Okay. And then I think, though, in the past you guys have mentioned Geneva has something like 400 and some odd clients, and only about 15% or something like that are not currently -- or are currently fund administrative clients. I'm wondering of that other 85% of the pool -- what does that look like, and what is the opportunity there, and is there any update in terms of conversions?

Well, I think that the Geneva business continues to be strong, and we have been able to -- when you look at fund administrative from a fund administrator basis, there's about 300 fund administrators. And my guess is that Geneva is in about probably 40 of them, ranging from JPMorgan to smaller fund administrators.

Rob Roley has been running that business for the last six months. He has done a great job, he's got a big pipeline, and we think that that will continue to be a strong area for the business.

And lastly, I think last time we talked, you mentioned a deal pipeline -- not acquisitions, but actual signing the deals -- of 10 deals that could be $5 million annualized in revenue each. Where do we stand on that pipeline? Are we getting closer to getting it down the road? And then the other part of the question is you also mentioned that there were two or three institutional clients, I think, that you were expecting to have fully implemented, and that was going to be a big driver for the fourth-quarter organic growth. Thanks, guys.

We still have a big pipeline of large deals. We are, knock on wood, getting closer to closing a number of them. Certainly we have weekly, if not daily, conversations about when we're going to get ink on paper.

I think as far as where we go from there, I think the business will remain strong. I think we have lots of opportunities, and I think that our business has performed and, I think, will continue to perform.

Ashish Sabadra, Deutsche Bank.

Hi. Thanks. Just a quick question on the organic growth. What are the organic growth expectations for Q4?

In the range that we've provided it's between 3.6% and 5.7%.

Okay. That is helpful. And just quickly on the $68.4 million of acquisition revenue in quarter, how much of it is Citi? And expectations for -- how Citi has been trending and expectations Citi revenue for the full year?

Citi revenue in Q3 I think was $53.4 million. We expect that to trend down for the fourth quarter probably in the range of somewhere around $50 million, plus or minus.

That is helpful. And then just a quick question around guidance for the full year, I think the organic guidance was in the range of 3% to 4.5%. Just wanted to confirm that -- because you've confirmed the revenue range, I believe of -- are you comfortable with that organic growth guidance, as well, of 3% to 4.5%?

I think the full year guidance, now -- we have had a little bit stronger results from Citi, and we've got a little bit of revenue from (inaudible), so it's about 2.3% to 3% right now full year.

Okay. That's helpful. And maybe one final question around the drivers for organic growth improvement in the fourth quarter. I'm just wondering if you could talk about, what are -- what were the drivers for organic growth improvement in this quarter as well, just in terms of the core business versus contribution from Advent and stuff like that -- if you can help us parse what have been the drivers for organic growth? Thanks.

I will take that. This is Norm. I would say the best way to look at it is for Q3 the three primary drivers of organic growth were the institutionalized advantage segment, our fund services team, and Advent.

Peter Heckmann, Avondale Partners.

Patrick, could you help us size the two recent acquisitions? You said Selentica has closed. Wells potentially, I believe Bill said you believe it can close in December. Could you help us size those, and if possible, talk about what type of margins we might see from them early on?

Selentica is about -- it's a pretty small acquisition -- somewhere around $3.5 million a year. The Wells acquisition -- I think we said that they had $42 billion in assets, and the average fee is probably around 8/10 or so. So I think that's around $35 million -- somewhere around there -- a year.

But we didn't provide Wells guidance at this point. We will once it closes.

Okay. That's good. As regards the deal with Russell, which you press -- and talked about on the last call -- press released recently, when do we expect that to ramp up to its full run rate? Would that be about mid-2017?

We'll certainly expect to see a substantial portion by mid-2017, but the overall ramp-up time is about 18 months.

18 months, okay. And just lastly, are you seeing any hesitation on the part of your customers in terms of spending plans as they try and navigate a more difficult environment: fee pressure, the fiduciary rule, potential consolidation in the industry. Do you see decision cycles lengthening more on the software side, or are you seeing deals continue to close as expected?

I think in general, Pete, that -- in the financial institutions the major banks are really, in certain sectors, very anxious to improve their operating environment and be able either to take technology in or outsource to providers like us. And I think the Russell win is kind of a wakeup call to a lot of loan-only lonely places that are looking to reduce their footprint as far as their costing.

Once you get these things in large-scale and these big places, the overhead from the data centers and all the cost of the bureaucracy become pretty burdensome on these individual businesses. We've seen a number of big companies come see us about what we're offering to Russell and whether or not we can offer the same thing to them.

Great. I will go back into the queue.

Brian Essex, Morgan Stanley.

Hi, good afternoon and thank you for taking the question. I was wondering if I could start by maybe touching on Varden, Primatics, and Citi and how margin progression is progressing there. How long do you think before you get those in line with corporate averages? And particularly with Citi, what kind of steps you're taking there and what that trajectory might look like with that one?

I will let Rahul comment in a second, but, as Patrick mentioned in his remarks, in the second quarter of 2016, Citi was 18.8% margins and we acquired them in March of 2016. We probably picked up 600 or 700 basis points in the first quarter that we own to them -- second quarter of 2016, that would be.

And then in the third quarter of 2016, I think we reported that margins were 24.3%, which is another 450 -- or 550 basis points above what we did in Q2. That is a pretty fast ramp, and we have a transaction services agreement that will run for a year and when that year is up, that will be a pretty nice kick into our margin expansion. I don't know what you would say, Rahul.

I think that is right. Also just to add, the big areas for us have been focus on the technology costs and vendors and renegotiating some of those contracts. And also how many contractors we use and how efficiently we can do that. That has worked pretty well and we expect it to continue working for the next several quarters.

Got it. And then maybe to follow with Selentica, I thought that was a pretty interesting transaction. It was pretty small, just about 30 employees, I think it said. How do you measure transactions like that in terms of value it adds to the platform, and how much IP comes with it, given the small number of employees? And what do you anticipate that would be able to incrementally add to the platform going forward?

I will take that one, Bill. A couple of ways to look at that. The number one value, I think -- there are two primary values of that acquisition. One is the expertise in CRM. These guys are experts in CRM systems and integrating their platforms. Microsoft Dynamics and sales force are the two largest players in that space.

That product is already integrated with our APX and Axys system as a partner. We will be able to add that to our Black Diamond product as well as our global wealth platform.

So in short, thinking about the Black Diamond solution, it's really the holistic approach of fully integrating CRM, pre-ordered management, rebalance, and accounting portfolio management. There are so many relationships. This is part of the strategy of making sure we can service that entire spectrum of activities in the fact that we could own what we think is an important part of that equation, which is the CRM side.

They have IP. They've got a hosted version of that that they started building, and we're going to continue -- it's making some nice progress in terms of converting people from a service model to an outsource model. We will continue to invest in that and I think it has great potential.

I think we have a thousand prospects for them literally right out of the box. We think we have opportunities in which to drive Selentica into our client base. Obviously you have to start with a few, and you have to get some momentum, and use them as a reference so they can see the power that the combined solution does. But that's a great opportunity to push Selentica through a large swath of our client base.

That was one of the ways I was thinking about it, and I guess -- how do you scale that, given the tie to headcount? How do you get the penetration at a robust rate into that install base?

Brian, we have almost 7700 or 7800 when we have Wells Fargo. We have plenty of resources. We have plenty of bandwidth, and I think as Dave Welling starts to roll that through his client base, that there will be all kinds of ways to have our resources support that. It's something that gives us a lot of flexibility and a lot of power.

Thank you very much. I'll step back in the queue.

Sterling Auty, JPMorgan.

Thanks. Hello, guys. Looking at the nice acceleration organic revenue growth into the fourth quarter, how would you characterize that improvement in terms of just the mix now that you have annualized Advent versus maybe just generally some improvement that you're seeing in either broader execution or maybe even some improvement in the health of your end markets?

I think, Sterling, Q2 was a real tough comp for 2016 over 2015. Q3 was a little bit easier, and we did have some of the acquisitions go organic. And we are focusing on the business. The more we focus, the better that business gets.

And as far as the end markets, we are seeing some surprising strength in various of our products. I think we just sold the largest margin man in our history, about a $2 million deal over five years. We've just sold some really nice Precision LM business. We have a lot of capability across our product portfolio, and I think it's really if we continue to execute, I think our business can continue to perform.

That makes sense. Maybe just on the Citi business, you are seeing over-performance relative to what you guided to when you first bought it. How much of that is related to the positive customer retention comments that you had earlier in the call versus other factors?

I think it is both. I think we've had an opportunity to get to know those customers and show them the combined offering, and in some cases have been able to either retain them when they were looking to leave or upsell them on several of our other products and services.

And also we are doing a little bit better with synergies than we had originally thought. And we think that process is going to keep going pretty well.

Great. Thank you.

Hugh Miller, Macquarie Research.

A quick follow-up or two on the Wells transaction. Definitely appreciate some of the insight you gave. If you could just give us a feel of what their business -- maybe the EBITDA margin that they were running at, and if you have an expectation as to the time horizon which is realistically going to get them up to your standard?

Yes, I think in general the Wells business was running in the 10% to 15% EBITDA range. What we would be shooting is 40% to 45%, and my guess is you are looking again at probably an 18- to 24-month transition. It depends how quickly we can scale parts of their technology infrastructure.

And then also, they have a pretty nice sales pipeline themselves. If we can help them bring some of that to fruition, I think it could perhaps be at the low end of that 18% to 24%.

Great. That is definitely helpful. As you think about some of the headwinds within the hedge fund space from the macro environment there, but also some of the strength that you're seeing in terms of the recent re-acquired franchises that you're seeing some synergies and tailwinds to selling efforts -- when we think about organic growth in 2017, can you just give us a rough sense as you think about moving into next year how that might compare to organic growth in 2016?

Hugh, I think a key determinant on how fast we'll grow in 2017 will be how many acquisitions we do between now and, say, the fourth quarter of 2017. Management matters. If you're going to do a bunch of acquisitions, you're not going to get 5% to 10% organic growth, but you're going to get way more than 5% to 10% acquisition growth.

The pipeline on acquisitions is pretty high. The opportunities that are being presented to us is pretty broad and pretty deep. So we are getting to be pretty selective on what it is that we want. I would tell you that most of these assets are trying to price in a pretty high manner.

I think we have some momentum going into 2017 across our product portfolio. And I think that we have an opportunity to outperform 2016 as far as organic revenue growth is concerned.

Okay. And maybe as a quick follow up to that, as you consider -- and I definitely appreciate the insight about pricing and your maintaining some discipline -- you're getting a little more excited consolidating-type transactions or would you anticipate they're probably going to go on a strategic front in enhancing the platform?

You know, when your goal is to be the world's dominant platform, you are looking across the gamut at both acquisitions that really rely on our platform and the expertise that we have built around the platform and our ability to run a platform to its highest degree of efficiency. At the same time, you bump into new types of customers that want new types of services. And you have to be prepared to deliver those services.

Certainly, we are spending in excess of $150 million a year on R&D ourselves, plus the acquisitions that we do. So we build a lot of software and we buy a lot of software. But we think software is the underpinning of all of what we do. And that's what allows our accountants and our operations personnel to have the best tools to be able to process more transactions per person than our competitors, to be able to do more assets under administration per person than our competitors, and allows us to improve our offering to our customers more quickly, more efficiently than any of our competitors.

So to us, it's a holistic thing, it's technology. There is a lot of Geneva customers that would like to run like we run, so we are a natural consolidator there. Then we are always coming out with new products, new service, and I think that's something that allows us to be a leader in each of the segments we are in.

That's helpful, thank you. And last from me, if you could just provide us a little bit of an update on the Black Diamond offering, just in terms of both the growth opportunities and the competitive landscape, and if anything has changed there?

Again on Black Diamond, I think we are growing in excess, I think, of 25% a year. I think we have over 900 RIAs on the platform. I think that business is doing very well. We're pretty optimistic about it, and we would like to put more resources behind it to see if we can grow faster.

The primary competitors, Orion, Tamarac, and Addepar have not changed. And then also the major custodians such as Schwab and Pershing tend to be -- Fidelity -- tend to be the same ones as well.

So we are working a lot with our partners, and we are building out the product itself, Selentica this quarter, last quarter we announced two new partnerships. So we are excited about that business, and we think that's one of areas in financial services across the United States that has some organic growth itself.

Got it. Thanks so much.

Rayna Kumar, Evercore ISI.

Good evening. Could we get your AUA number for the quarter and your expectation for AUA growth for the next 12 months?

The AUA number for the quarter is 1.093 trillion. We do not guide forward AUA.

Okay. But just overall thoughts?

As Bill mentioned, we've got lots of opportunity, both within our client base -- we continue to see really strong performance particularly in private equity and real estate. And the pipeline is strong, and on the backs of some of the recent wins we think we are getting interest from similar organizations. We're pretty optimistic.

Great. That is helpful. Could you discuss your progress with post-trade matching in the US?

Yes.

Yes, go ahead, Norm.

We're working very closely with different partners in that space as well as the SEC. It's going a little bit slower than we'd like because of the delay on the bank side. They changed some of their systems to allow the processing.

But we're still optimistic that there can be some business over the course of Q4, and we will see more improvement going into next year. It's going to take a little bit. All the partners have to come together to make sure we can communicate the settlement process across each of its systems. And it's the banks -- still inside of the banks that is the delay at the moment.

Got it. What was revenue growth in the alternative business in the third quarter, and could you just discuss client retention?

This is Patrick. So client retention -- we measure it on an LTM basis the last 12 months. So on an LTM basis the last 12 months, it was 95.7%. That is -- I'm sorry, 95.9%. That's a slight improvement from LTM as of June, which was 95.7%.

(multiple speakers) Did you have another question? I'm sorry, I missed it.

Yes. And what was the organic growth rate on revenue growth rate for the alternative business in the third quarter?

It was about 1.8%.

Thank you.

Chris Donat, Sandler O'Neill & Partners.

Thank you for taking my question. I wanted to ask Bill about something you said at a conference a couple months ago about how after the acquisition of Primatics, you had about 55 clients on it but you thought you could get it up to 550. Just trying to size the opportunity there.

Is this something that -- based on the math that was available, it looks like Primatics' clients were are doing about $1 million in annual revenue -- can it scale up at that level, or do you think you're going to move down-market and get into some smaller clients if you can't scale into the hundreds?

Yes, I think obviously, their clients now are places like JPMorgan and PNC and Fannie Mae. There's not 550 of those, right? So obviously we're going to down-market through two or three tiers of various banking organizations.

But there's probably multibillion-dollar banks -- there's probably about 500 of them, I'll bet. So I think that we have opportunities to probably sell $500 million in assets all the way up, and obviously a lot of banks are consolidating. When you consolidate, you acquire a bunch of loans, and there's an awful lot of requirements coming out of the Fed and the SEC about reporting on those loans.

The evolved platform is a pretty robust, capable platform that we think will get a lot of traction. I think we have lots of opportunities in that space.

Got it. Thanks very much.

John DiFucci, Jefferies.

This is AJ Ljubich on for John. I was just looking at cash flow in the quarter, and I think it came in a little bit light versus expectations. I think deferred revenue was down a bit sequentially. Would you point to that as the reason for maybe a little bit of cash flow lightness, or was there anything sort of one-time-y in the quarter?

We don't guide by quarter. We guide for full year. I think we will see probably the DSO was a little bit higher than we expected, was probably a disappointment in the quarter. I think we will make that up in the fourth quarter, and we will hit the overall guidance for the full year that we've been providing.

Okay. Thanks. And then one more strategic question. The Salentica acquisition is very interesting. It's sort of a technological acquisitions as an adjacency to the RA wealth-management market. As you look out into other potential acquisitions, are there other adjacencies that you'd like to enter within that wealth-management space?

I think there's a lot of opportunity in the wealth management space because, like I said, it's one of the few areas where you organic growth in the industry as a whole. As you look at what Black Diamond offers and then also what Salentica offers, some things that people are going to want are more sophisticated investment plans that are easy to read and easy to understand.

As you start going at the mass affluence market, everybody's not a CFA and a CPA. A lot of people are doctors or lawyers or business people -- teachers. The financial information is going to have to be able to be presented in a way that is quite understanding.

We also think that our learning process with our Zoologic process and our Nervanix can be an addition into this space, as well, as people want to get increasingly conversant with how people are investing their money and what risks they are taking and what expectations they should have on a reasonable basis.

Most of us with our retirement funds are not trying to go to Vegas and put it all on red. I think it's much more trying to understand how you maintain your principal balances and get as much income as you can off those principal balances. I think there are a lot of things across that in the wealth management sector. We have been putting a very big push on tax across all of our businesses, and we think that's another area that will be quite attractive to the mass affluent.

Thank you.

Chris Shutler, William Blair & Company.

Just wanted to touch on organic growth for a second here. It looks like -- I think last quarter, Patrick, you provided a full-year guidance of 3% to 3.5% organic, and today I think you said 2.3% to 3% despite the fact that Q3 was relatively in the middle of the previously provided range. What happened to make Q4 a little bit lower? Obviously FX isn't helping you guys, but on the alternative side, I guess particularly, what is happening in that business? I would think that markets would be helping.

I think in summary -- we are getting hurt by FX, especially in the British pound, I think which dropped 8% from Q2 to Q3. In addition, the guidance we provided for Q4 is -- the midpoint of that guidance is exactly the same guidance we provided at the end of Q2, except we upped it a little bit for Salentica.

But what we're seeing is a little bit of a shift in some of the components that are contributing to the growth from Q2. And we have a lot of products and a lot of them shift around, but I think in summary, from where we are at the end of Q2, we're getting better revenue performance out of the Citi Fund Administration business, especially in retaining clients longer than we expected when we originally acquired it. And the growth in the core fund administration business is a little bit slower than what we expected.

And in the hedge fund administration business -- it's obviously a tough environment -- but is it pricing? Is it fewer startups? What would you attribute it to?

I think the overarching thing is that even though the redemption indicators are within the range, you are seeing a little bit higher redemptions coming into our client base. So at the beginning of October, you might have had in 2015 that there's going to be -- over the next 90 days -- there's going to be $5 billion worth of redemptions. This year it could have ticked up to $6.5 billion or $7 billion.

That's a couple billion dollars, and we are selling a lot of business, and there's also capital inflows, but it would be better if that $5 billion went to $3 billion. You're going to have some headwind in the asset growth of the current client base, and then I think -- startups, while they are down a little bit, they were never a large source of revenue to us, particularly at the start up. We hope for them to grow over time, but they are not a big source of revenue in the first several quarters of them going live.

So I think there is a little bit of headwind. We have a number of opportunities that we can accelerate in Q4 and execute. We have a number of projects that have to get done. If they get done, we're going to be able to pick up some more revenue.

We have a number of these great big deals that, if you sign them now, we will get revenue in December. If you don't sign until December, you're not getting revenue until January at the earliest.

A lot of it has to do with execution. We passed out a lot of new pens out to our sales force, and we expect them to use them.

Thank you, and just one last one, Bill, on the topic of acquisitions. Looking out to 2017, are you seeing the most opportunities now in fund administration, or is it more other areas, or are there some larger deals, or is it mostly tuck-ins? Just trying to get a feel.

It's across the gamut, and there are a lot of them. It ranges from stuff in the billion-dollar cost to stuff in the $20 million cost, it is across the gamut.

I would not say we are seeing -- maybe there's one or two at $1.5 billion, but we're not seeing anything in the $2 billion, $3 billion, $4 billion right now. Obviously, you saw the Misys IPO that got pulled. There's still a number of things that are not being massively embraced by the investing public, but there are a lot of stuff where prices have firmed, people have fought their way through the financial crisis, they are in pretty good shape, and they want to take money off the table. It's a pretty nice spot to be able to acquire some really nice assets.

Thank you.

Patrick O'Shaughnessy, Raymond James & Associates, Inc.

Good afternoon. First question, a lot of the chatter right now seems to be around asset manager consolidation, and we saw that with Janus. And we're hearing other asset managers talk about that. Does that pose a potential threat to your software business, or do you figure even if one of your clients consolidates, you probably are also working with the other firm that it might join with?

You know, Patrick I didn't know you changed your from O'Shaughnessy, but given that you did, we will still answer those questions.

I think that the Janus Henderson creates opportunity for us, because as they combine they start looking about what they do and how they do it, and then they see what we did with Russell, and they might give us a shot at being their middle and back office provider.

In general, when these lonely shops get together, I think it creates more opportunity for us than it creates consolidation of current clients that would not pay us as much because we only have one license instead of two. That's possible, as well, but so far, knock on wood, it looks like more opportunity than it looks like headwind.

Got it. And we cannot all be blessed with an easily-pronounced last name like Stone. I will work on that.

I appreciate that.

One quick follow-up question. The reorg on the fund administration side, what's the real goal of that? Is that to improve your sales capability? Is it to improve your service, improve your technology development? What do you hope to achieve from that?

I think that when we acquired Eisnerfast in March 2005 is when Rahul came into our business. And he's done a great job organizing and running that business. But we've now also gone from $50 million, $60 million in revenue to $600 million, $700 million in revenue. Now it's much more about how are you organized -- we've got a lot of new talent that complements talent we have. We have a lot of great talent that's here.

Stephanie Miller was running JPMorgan fund services business. That's a big business: more than $1 trillion in assets. We get Mike Sleightholme and Joe Patallero that were running big businesses for Citi. They have some skills and abilities that can really help Rahul, and I think that along with his current crop of talented people that he just needed to be better organized in order to take advantage and have more people executing on big decisions than everything flowing through him.

I think that's what we have done, and we expect faster decision-making, more responsibility in our people, and that should play through both the sales organization, the delivery organization, the new product -- new service creation organization -- so development and experts that are building the specifications on that development -- so things like tax, things like really slick insights into performance and performance attribution, more things when it comes to regulatory as the government keeps coming out with more and more, and integration with things like Evolve at Primatics and Varden.

So there a lot of things that are going on that you need to have some more traditional organized business where he has individual units within his alternative business, plus he has a controller that helps him run the business and he has a development manager that helps him run the business. I just think it's a much stronger organization, and that's why we did it.

Thank you very much.

Thank you, and I am showing no further questions at this time, and I would like to turn the conference back over to Mr. Bill Stone for any closing remarks.

Again, thanks so much. We look forward to talking to you after the new year, and everybody enjoy the holiday season and this last two weeks of this American election which has been quite entertaining. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.