SS&C Technologies Holdings Inc (SSNC) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the SS&C Technologies fourth-quarter and FY16 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Justine Stone. Ma'am, you may begin.

Hi, everyone. Welcome and thank you for joining us for our fourth-quarter and full-year 2016 earnings call. I am Justine Stone, investor relations for SS&C Technologies. With me today 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 future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements and 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, February 15, 2017. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do.

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, and thanks, everyone, for being with us for our fourth-quarter and 2016 year-end conference call. We're proud to report record adjusted revenue, record adjusted diluted earnings per share and record operating cash flow for the fourth quarter and the full year 2016. We now have over $1.52 billion in adjusted revenue in the year, over $612 million in adjusted consolidated EBITDA and over $418 million in operating cash flow. We earned $1.64 adjusted diluted earnings per share, up from $1.33 in 2015, a 23.3% increase.

We did a lot of things in 2016. We did four acquisitions, including Citi Alternative Investor Services, Salentica, Wells Fargo Global Fund Services, and Conifer Financial Services. It solidified our strength in the alternatives and RIA markets, and deepened our expertise in endowments and pensions and expanded our reach in the Asia-Pacific region. We in fact now have four talented Singapore offices which we will be able to scale, consolidate and improve the customer experience.

The Advent team continues to perform, and Advent's revenue, margins and product suite have progressed nicely since our acquisition closed in July of 2015. A few weeks ago we announced our plan to consolidate our New York City metro offices at 4 Times Square. 2.5 floors will house nearly 1,000 current employees and will assist in attracting and retaining talent, our most valuable assets. We're looking forward to our move and hosting many of you at our new offices.

Lastly, we're having an Investor Day on May 2 at the NASDAQ Market site in New York City, which happens to be at 4 Times Square as well. Please look out for additional information about this Investor Day in the coming weeks. If you have any questions, please call Justine. Now I'll turn it over to Norm.

Thanks, Bill. SS&C had a strong fourth quarter. We released product upgrades across a number of solutions and won key mandates, including wins originated through our cross-sale efforts. SS&C Advent has strengthened over the past year. Our investments in their best-in-class technology, including Geneva, APX, Moxy, Black Diamond and Tamale continue to attract new clients.

The survey we published in Q4 shows that insurers and large asset managers will increase their portfolio allocations across an array of complex assets, including loans, derivatives and alternatives. Processing new securities is the biggest challenges of these firms, and we're seeing an interest towards both outsourcing and purchasing of vendor-provided solutions.

To our Precision LM and EVOLV. Precision LM is our comprehensive commercial loan origination servicing system and the latest release offers a number of usability, functionally, performance and efficiency benefits. EVOLV, our integrated risk and finance solution is designed to eliminate your manual processes and provide transparency, integration, and continuous real-time automation of your loan portfolio.

As Bill mentioned, our reach in Asia-Pac has expand with our recent acquisitions. HiPortfolio and PORTIA are strong in this region with insurance and traditional asset managers, while Citi Alternative Fund Services and Wells Fargo Global Fund Services increases our presence in the alternatives market. Over 6% of our revenue is originated in Asia-Pac, more than doubling our exposure from just two years ago.

I would like to review some key deals for Q4. An existing client chose to host our performance and performance attribution solution, Sylvan, in our data centers. Two existing clients in Hong Kong, both global banks, licensed Anova. A large Chinese insurance company renewed and expanded their HiPortfolio license.

A financial service firm in Malaysia expanded their use of PORTIA for their insurance affiliate. A $21 billion global asset manager chose a suite of SS&C Advent OnDemand solutions. An existing $17 billion SS&C Advent client upgraded their systems to OnDemand and integrated with it our integrated SS&C reconciliation tool. A large South African hedge fund chose Geneva and Moxy solutions.

A $3 billion advisory firm chose Black Diamond suite for their back office reporting needs. An existing $4.8 billion asset manager upgraded to Black Diamond. A $100 billion asset manager chose to replace a competitor system with SS&C's Precision LM for mortgage processing. A national healthcare company which operates over 300 urgent care centers across the country chose Precision LM for their expanded commercial loan services for member banks.

A national bank and S&P 500 member signed a large professional service contract to implement SS&C's EVOLV platform for end-to-end risk and finance processes. This is part of a larger transformation to modernize the bank. Last, a global bank, Bank Singapore Operations, chose MarginMan, our margin and engine, because it is more functionally rich and cost effective, and build it internally.

Now I would like to turn over to Rahul to discuss the alternatives business.

Thanks, Norm. SS&C's alternative business saw a 49.3% increase in revenue for the quarter ended December 31, 2016 compared to the same quarter in 2015. Our position in the alternatives market continues to strengthen as we add talent, capability and functionality, both organically and through acquisitions. We have assembled some the leading executives in the industry on our team and are seeing the benefits in our sales process as well as customer satisfaction.

The opportunities to displace competitors have increased significantly this past year. We've signed some great clients during the quarter and are closing in on several other mandates. The pipeline remains full, with large funds and asset managers across the various asset classes.

We closed both Wells Fargo Global Fund Services and Conifer Financial Solutions in December. These two fund administrators added approximately $160 billion in assets under administration and a roster of hedge funds, private equity fund, endowment fund and pension fund clients that we look forward to introducing into our broader array of products and services. Conifer gives us the stronger processing presence of the West Coast and Wells Fargo has some big clients in the Asia-Pacific region and further increases our footprint and pipeline in APAC.

Several new products were brought to market this year. [Fund Hub] is tool for investors to research, perform due diligence and manage investments and alternatives. It allows for managers to publish information to investors while managing the due diligence process. We have expanded e-Investor's core functionality of allowing funds to manage prospective and existing investors while rolling out a completely digital process of document collection and fulfillment.

In an effort to address the needs and concerns of the front office, we have developed our Tax Optimizer and Insight products. Tax Optimizer gives managers a view of their portfolio from an economic basis and a tax basis as well as run scenarios on their portfolios to evaluate the impact of trading from a tax perspective. Insight is a performance and analytics system that allows managers to perform detail analytics on their portfolio while also being able to create investor-grade presentations in one system. Each of these products can be sold in combination with our fund administration offering or as a standalone solution. This focus on continued innovation, supported by a broad infrastructure including real-time messaging and web and mobility continually differentiates us from our competitors.

Now I will mention some key deals for Q4. A new global macro fund launch chose SS&C GlobeOp as their fund administrator, winning over several of our largest competitors. A global alternative asset management firm consolidated their fund administration with SS&C, terminating a competitor that had previously provided services to a portion of the funds. A $5.5 billion fixed income investment management firm chose SS&C fund administration services for our comprehensive solution and local support capabilities.

A San Francisco-based private equity firm chose to outsource their fund administration to SS&C. A Miami-based investment manager chose SS&C as their fund administrator due to a long-standing relationship with Conifer Financial Services. A new firm specializing in statistical arbitrage chose SS&C as their fund administrator, driven by our trade processing and compression expertise.

I will now turn it over to Patrick to run through the financials.

Thanks, Rahul. The results for Q4 2016 were GAAP revenue of $400.9 million, GAAP net income of $57 million and diluted EPS of $0.28. Adjusted revenue was $404.6 million, excluding the adjustment for the acquired deferred revenue for the recent acquisitions. We had a strong quarter. Adjusted revenue was up 24.2%, adjusted operating income was up 20.3% and adjusted EPS was $0.46, up 27.8% from 2015.

The acquisitions of Primatics, Citi Fund administration, Wells Fund Services, Salentica and Conifer contributed $65.6 million of revenue in Q4. Foreign exchange had a negative impact of $2.5 million, or 0.8% in the quarter, mostly due to the weakness of British pound. That gave us organic revenue growth on a constant currency basis of 4.8% in Q4.

Adjusted operating income for the quarter was $160.4 million, an increase of $27.1 million, or 20.3%, from the fourth quarter of 2015. Operating margins decreased to 39.6% from 40.9% in Q4 2015. The operating margins were impacted by the 2016 acquisitions, which had a combined operating margin of 32.7% in the quarter. Adjusted consolidated EBITDA, which is defined in three of our financial statements, was $166.8 million, or 41.2% of adjusted revenue, and increased 19.3% over 2015.

Interest expense for the quarter was $30.9 million and includes $2.7 million of noncash, amortized financing costs and OID. The average interest rate for the quarter, including the bonds, was 4.4%. We recorded a GAAP tax provision in the quarter of $10 million, or 15% of pretax income, and for the full year we recorded a tax provision of 19.9%.

Adjusted net income for the quarter was $95.2 million and adjusted EPS was $0.46. The adjusted net income excludes $51.7 million of amortization of intangible assets, $10.2 million of stock-based compensation, $1.8 million of acquisition purchase accounting adjustments, including the deferred revenue adjustment, $2.7 million of noncash debt issuance costs and $1.2 million of favorable, unusual and nonrecurring items. The effective tax rate we used for adjusted income was 28%.

Now, to our balance sheet and cash flow, as of December 31 we had $117.6 million in cash and $2.5597 billion of gross debt for a net debt position of $2.4421 billion. Operating cash flow for the year ended December 2016 was $418.4 million, a $187.8 million or 81.4% increase from 2015. Cash flow for the year was driven by improved cash earnings and lower cash tax payments and strong working capital management.

For the year we paid down $383.4 million of debt. Included in that number is $26 million that we paid down on the revolver in the quarter. Since the Advent acquisition in July 2015, we have paid down $614.4 million of the term debt facility. In the quarter we drew down $120 million on the revolver to fund the Wells Fund administration and Conifer acquisition. $94 million remained drawn as of December 31.

We used $37.5 million for capital expenditures and capitalized software, mostly for IT and build out for the Citi Fund administration -- Citi fund admin infrastructure and facilities expansion. We paid $126.7 million of cash interest in the year compared to $42.4 million -- $42.2 million in 2015. For this year, for 2016, we paid $8.8 million of cash taxes compared to $42.2 million in 2015. In 2016 we had a cash tax benefit of $62 million related to option exercises.

Accounts receivable at DSO continues to go down. As of December 2016 it was 52.7 days, an improvement of 1.8 days from September 2016. The Citi fund administration receivables have improved from September and we expect it to further improve on the 2017. We paid $457 million in net cash for the acquisitions of the Citi fund admin, Wells Fargo Services, Salentica and the Conifer acquisitions in the year. Our LTM consolidated EBITDA we use for covenant compliance was $622 million and includes $9.1 million of acquired EBITDA and cost savings related to the acquisition. Based on the net debt position, our total leverage ratio at December 31 was 3.9 times.

For our outlook for 2017, we are initiating that guidance for the first time. In addition, we will be adjusting the 2016 revenue to calculate organic growth. The Citi fund admin revenue will be adjusted to reflect only the revenue we acquired and paid for in the acquisition. The adjustment in 2016 will be approximately $21.6 million. In addition, we will adjust the Advent revenue to reflect the Geneva revenue loss related to the acquisitions of Citi, Wells and Conifer. Those three companies were using Geneva for fund administration and that adjustment will approximately be $2.7 million.

For Q1 2017, our current expectation is adjusted revenue in the range of $402.5 million to $408.5 million, adjusted net income of $89 million to $92.5 million and diluted shares in the range of 207.5 million to 208 million. The midpoint will be adjusted EPS of $0.44. For the full year, we expect revenue range of $1.655 billion to $1.685 billion, which represents growth of 8.6% to 10.6% and adjusted organic growth between 3.4% and 5% for the full year.

Adjusted net income will be in the range of $392 million to $409 million and diluted shares in range of 208 million to 210 million. We expect cash from operating activities to be in the range of $480 million to $500 million for the full year and capital expenditures to be in the range of 2.5% to 3% of revenues. The midpoint of the EPS guidance will be $1.92. I'll turn it over to Bill for final comments.

Thanks Patrick. Over 11,000 financial services firms have chosen from SS&C's comprehensive solution set for their most complex process and their most sensitive data. They entrust us with the backbone of their operations. We bring expertise, experience and commitment to our customers. With over 95% retention rates, they have given us their vote. We look forward to serving the greater financial services community, growing our global business and rewarding our shareholders.

Now we will open it up for questions.

(Operator Instructions)

Chris Donat, Sandler O'Neill.

Wanted to ask about the real estate consolidation, I guess, not just New York but Singapore and other places. Is this something for New York that you expect to see any, either cost benefit or higher expenses 2017, and then thinking out more like 2018, should we see some of the benefit from consolidation as you work through?

We think that we're going to have a pretty nice bump in productivity, because we will have all of these people together and really only have one telephone system and one data center and one support group and all of that. We are consolidating five offices into Times Square, so we're pretty excited about all of that productivity increase. We got a pretty good deal and it is really nice space so we are real optimistic about it.

One question for Rahul. With the Citi and Wells and Conifer acquisitions, just because we track the GlobeOp indexes on a monthly basis, is there a roadmap for including those acquisitions in the indexes or is that something to be decided?

That's right. We actually included Citi in the publication that happened in January and I'm sure we will have Wells and Conifer in there during the course of this year.

Okay, got it. Thank you.

John DiFucci, Jefferies.

This is AJ Lubich on for John. I was hoping we could talk through the guidance for 1Q in 2017. Can you give us what you are estimating for organic growth for both those periods as well as the contribution from acquisitions? I know Patrick gave some comments on adjustments you are making for Citi and the loss of Geneva revenue, which makes sense, but if you could walk us back through the puts and takes there, that would be really helpful.

This is Patrick. In Q1 we expect -- this is on an adjusted basis. We expect organic growth of 3% to 4%. Acquisitions should contribute anywhere between $53 million and $55 million, $56 million in Q1. For the full year, I think I said we expect organic revenue growth of 3.5% to 5%. The acquisitions, which is pretty much Wells and Conifer for almost a full year and Citi only for about 70 days the first quarter, we expect revenue of somewhere in the range of $108 million to $115 million from the acquisitions.

Okay, that's great. Could you walk us through, again, the adjustments you are making to the organic growth?

We're taking the 2016 revenue, which is $1.524 billion and in that number there's $21.6 million of revenue in the Citi fund administration business that we got the benefit from last year but those clients had canceled prior to the acquisition but remain on our platform through most of 2016. That is revenue that we did not pay for the acquisition. That is why the price was significantly lowered from the announcement price than we ended up paying for Citi. We are adjusting 2016 by $21.6 million for Citi, lost revenue, and then we're adjusting, for Advent we're adjusting it for $2.7 million.

That is the revenue that Advent generated from Citi, Wells, and Conifer in 2016 obviously that we will no longer have. That does not affect the bottom line because we also will not have the cost of the combined businesses. I think that --

Great, thank you very much.

The adjusted number is somewhere around $1.499 million for 2016.

Hugh Miller, Macquarie.

In following up on that discussion, as you think about the organic growth, in that assumption for 2017 of, call it, the 3.5% to 5%, what are you assuming for the alternative admin business within that?

I don't have a range, but probably the midpoint is around 5%.

You feel organic growth pace for the alternative admin business by being the 5% area?

Around the 5% area for the full year, yes.

Okay. As we think about your expectations with regard to the hedge fund industry for AUM flows and for the number of hedge funds outstanding for 2017, how are you thinking about that in terms of industry dynamics or flows and for the potential for the growth in a number of funds outstanding?

I think we're encouraged by the fact that the pipeline is pretty full. We're seeing lots of new opportunities. Were starting to see some new launches that had been muted for some period of time and I think in particular on the private equity, real estate, and closed-end hybrid part of the business, which is seeing pretty strong asset flows. In general, we feel pretty good about the activity.

Okay, that's helpful. On the adjusted EBITDA margin, could you give us the sense of where the Citi alternative services franchise ended at year end and where you might expect that to improve to as we head through the end of 2017?

I think the Citi business was somewhere around the low 30%s EBITDA margin and then we expect by year end 2017 to be around 40%.

Great, got it. Last for me, as we think about Black Diamond and we think about a little bit more uncertainty around the DOL's fiduciary standard rule, are you seeing any influence there in terms of the end-user demand, people signing up for the service and being able to grow that business, or has that not been a factor?

We're seeing strong demand overall for the Black Diamond solution. This is Norm, by the way. We're watching that regulation closely but from our perspective, we are heavily weighted on the resident investment advisors in the space and they're already under the fiduciary rule. I think in general, we view this as a slight tailwind for us and I think regardless of where they end up on those rules, people have considered taking steps to put them in place. And I think somewhere we're going to follow through with that regardless whether they have to or not and they probably will be starting looking to expand some of their offerings, if you're a broker dealer, for example. Again, nothing -- it wouldn't consider it material but think it is a slight headwind, not a headwind, a tailwind for us.

Okay. Thank you very much. I appreciate it.

Dan Perlin, RBC Capital Markets.

I want to make sure I'm clear on the adjustments. Included in the fourth-quarter organic growth of 4.8%, are you including the revenue that you're -- basically stayed on the system longer than you had anticipated, ex Citi?

No. That is not organic in Q4. It is acquisition revenue.

Right. Okay. We think about what flows into -- the $21.6 million adjustment is basically your call on what was revenue that stayed with clients that were on the platform longer. I do remember that. It was run in last quarter, it was $53 million in Citi and it seemed like that was running high. I want to make sure I'm understanding what adjustments we are making here.

Let me just back up a little bit. I think when we announced the Citi acquisition, we said that we were essentially acquiring about $185 million of run rate revenue, annual run rate. That is what we paid for. Even though the business was probably running at $210 million, right?

Yes.

The difference was the clients that Citi had lost. Had nothing to do with the acquisition, had nothing to do with us. Plus, we did not pay for that revenue when we calculated the adjusted purchase price with Citi. Those clients ended up being on the platform longer than we expected through 2016, and are now coming off the platform in Q1 2017. Just to do a fair comparison of the real revenue we acquired from Citi, that is why we are adjusting the 2016 revenue by this $21.6 million, so that there is a fair comparison on the real revenue we acquired.

Okay. Do we have the Citi number in the fourth quarter? I know you gave the total for the group, or for the three. I did not know if you have that one in particular.

Citi was $53 million.

Okay. Still running hot. Okay.

We're running high, but we should see it -- we are expecting it to drop off significantly in Q1 and Q2.

Okay. If I could just ask for -- you talked briefly in the prepared remarks about the deal pipeline. I don't mean the acquired pipeline, I mean the actual deals that you guys have coming in. I'm wondering if you can elaborate on that commentary a little bit more, specifically I guess in alternatives, but if there's other notable areas in particular worth mentioning, I am all ears.

Dan, on an overall basis, we are just seeing opportunities all over the world and we are having some pretty good success at closing that business. There is a number of $5 million to $20 million deals in the alternative space. There's a number of $750,000 to $1 million in license revenue in our loan administration space. We have a real full pipeline on Black Diamond. Geneva has a great pipeline that we're going after on licenses.

The whole business seems to be at an inflection point that if we can get them to close, which is always what the key to it, we don't record a lot of money on a verbal. We don't record any money on a letter of intent. We have to get a contract and we have to start delivering services. I think we're taking advantage of prior successes we had at Russell, for instance. I believe that the talent that we have grown and acquired makes us stand out.

I think we're going to acquire some more talent before the end of the first quarter, so I really do think that we're putting together an all-star team of experts and I think that is what is really going to drive it for us. I think that we are cautiously optimistic going into 2017. Obviously, we have got six weeks of proof already.

I've heard you talk the $5 million range in the past. I hadn't you go as high as $20 million in the alternative space. Is there a tilt that you started to see as maybe the markets continued to move or is there something that has pushed some of the deal sizes up to the $20 million range? As I said, that is a little bit higher than what I have historically heard you talk about.

If you look at it, you go back to when we bought GlobeOp in 2012 and really, prior to that, you were competing against Goldman, Morgan Stanley, JPMorgan, Credit Suisse, UBS, on all kinds of deals. Now, other than Morgan Stanley, all of them are gone. JPMorgan is still in the business and is a good competitor but they're not taking new clients.

When these big clients have a place to turn, they're either turning to us, they're turning to State Street, Bank of New York, maybe Northern Trust, maybe SEI, but the competition is not as fierce and the quality of the competitors from a name recognition standpoint is not the same either. Plus, the banking industry for a few years has mostly been in a circular firing squad. We have been a recipient of some pretty good mandates because these big funds are looking for people to be able to do this with less errors, less mistakes, better technology, more expertise and I think that is just playing into what we have built.

Okay. Just two other quick ones. One is a housekeeping. Patrick, the tax rate I think you guys have embedded in your guidance is 29%. I think that's a bit up from where ended this year so I was trying to understand why that flows higher. Secondly, can you talk about pricing opportunities that you are seeing potentially within the Advent portfolio?

I will cover the tax rate. Our adjusted tax rate we've been using for the past several years has been 28%. Our current estimate for 2017 is about 29%. The main reason for the increase is that the acquisitions we have completed recently, Citi and Conifer and Wells, the vast majority of that income is in the US and the US is where we have the highest tax rate, which probably is running around 39% or 40%, compared to a much lower rate overseas. That factor is driving up our rate a little bit to 29%.

Okay. Then the pricing?

What is the question on the pricing?

Just opportunities in pricing around the Advent portfolio. Thanks.

As far as the Advent portfolio, there are a number of our products that get automatic escalator price increases every year. We also have an opportunity when we renew term licenses to negotiate better fee so that's built in. In addition to that, we have really strong products like Black Diamond and Geneva, that I think that we're actually evaluating right now, whether we want a more structured price increase for things like Geneva which have such a strong leadership position in the market. That is not baked into any of the numbers at the moment.

Great, thank you.

Peter Heckmann, Avondale.

Most of my questions have been answered but I did want to follow can see if you could give us any examples with Advent where you may have generated some revenue synergies, either from hosting or cross-selling new solutions. Either way, either the SS&C product into Advent space or an Advent product into SS&C space.

Paul, you can chip in as well but I will take this one and start. There's actually been strong cross-sales across a number products. When we bought Advent, some of the things they were missing in their portfolio were performance measurement systems, reconciliation tools, and reporting tools. The strongest cross-sales going into the Advent customer base where Advent customers bought services is Varden, our reporting system; Recon, our reconciliation tool, are probably the two strongest.

Then going the other way, there were a number of Advent customers considering outsourcing providers and Rahul's team has been able to win those outsourcing business is. That was probably the largest revenue number was people who were previously licensed clients who switched to outsourcing. Then Syncova is another product offering that has been picked up in our outsourcing business. Those are the primary buckets that they fall into. Trend wise, I think those will continue.

There are some other services that I think people will start picking up over the course of this year that -- performance measurement in particular I think, is a great opportunity in that space that we have not quite tapped as much as we like. Things like our SS&C net business, the affirmation confirmation process in our fixed network. We have a large opportunity to drive revenue with the Moxy customer base.

Got it. That's helpful. Are there any large remaining potential cost synergies that are worth calling out at this time or have we realized most of those?

I think -- it's Patrick. I think we have implemented the target cost synergies that we set when we bought Advent. I think Advent is operating now in the high to mid-high to mid- to high-40% operating margins. I think we have it all of our targets on Advent. There might be some additional savings in some areas of data centers and things like that. I think the big one probably is as we get Citi and Wells onto our platform in the second half of 2017, we should be able to generate cost savings.

On Advent synergy we're still focused on really driving revenue synergies but there obviously are -- there are more cost synergies that I wouldn't call it a strategic effort to get these costs out but there are opportunities over the course of the year that we can take. One in particular, we're still trying to improve the professional services margins in that business. They have improved quite a bit but they're still lower than most of SS&C's business. Breaking that down, part of it is that the resource allocation is pretty heavy in New York and San Francisco, so that's part of it. I think there's an opportunity to improve professional services margin as the business grows and we look at the expense structure in professional services.

Great. That's helpful.

Rayna Kumar, Evercore ISI.

Can you discuss your acquisition pipeline and your capital allocation priorities for 2017?

The acquisition pipeline is, there's all kinds of things for sale and nothing is cheap. I think it is continuing to comb through all of the acquisitions and move quickly when we see something that we want. We did just do -- close to two of them in December so it has only been two months. There's a lot of things for sale, some big stuff, which I would say big is over $1 billion in cost and then there's a bunch of stuff that is tuck-in.

As far as capital allocation is concerned, think our guidance for 2017 is $480 million to $500 million in free cash flow. We will use a lot of that to pay down debt and then if we can't find acquisitions, we might decide to figure out how to give some money back to shareholders.

That's really helpful. Could we get the organic revenue growth rate for the alternatives business in the fourth quarter and could you call out the AUA number as well?

The AUA number is $1.32 trillion. Patrick?

In the fourth quarter I have got organic growth in the fund administration, the alternative fund administration business about 5.4%.

Okay, that's great. Could we also get a breakout of revenue in EBITDA contributions for 2017 for Citi, Wells, and Conifer? That would be helpful for our models.

We generally don't provide that level of detail.

Okay. Thank you.

Ashish Sabadra, Deutsche Bank.

My question was a follow-up on the AUA. It looks like the AUA was lower compared to what the trend was in the first three quarters. Is that partly because the Citi? The follow-up would be, the alternatives business growth definitely accelerated in the quarter compared roughly to 2% over the last two quarters and now it's moved to 5%. Any incremental color on those two fronts?

I think on assets under administration at the end of last quarter, we were at $1.093 trillion so it went up $227 billion in the quarter, out of which $160 billion was the acquisitions and the rest was addition of clients. I think in terms of the growth, as I mentioned earlier we are continuing to see strong flows, a little more weighted towards the hybrid funds and the closed-end funds and we have lots of opportunity and we've won some nice deals during the course of the quarter.

That's helpful. Patrick, just a quick clarification, just so that we understand those adjustments. Those would have been roughly a good way to think about it would be a 2 point headwind to revenue growth in 2017. Is that the right way to think about it?

How much the adjustment represents?

Yes.

Is that what you're saying? It is about -- it's a little under 2%.

That's helpful. Thanks.

That is also all inorganic, so that is not an organic growth inhibitor.

Chris Shutler, William Blair.

This is Andrew Nicholas filling in for Chris. Had a quick question on debt. Given where markets are today, just wondering how you guys are thinking about your current debt structure and the possibility of maybe refinancing to try and reduce exposure to rising rates.

Go ahead, Patrick.

I think there is, I think the market out there for repricing term debt is very, very good right now. We're definitely looking at that opportunity to do that and I think what it'll -- where the market is at right now is that they've lowered the spreads on the interest rate so they are still LIBOR-based that they will lower the spreads and that will give us some protection against rising interest rates over the next couple of years by having a lower spread.

Thank you. Second, I think Norm talked about the SS&C net revenue opportunity a little bit. Just curious, and I apologize if you've already mentioned this and I missed it; but is that still something that you think will hit P&L in 2017, or you can start to see revenue from in 2017? Then maybe more broadly, if there is a way to size up the longer term opportunity in taking share from some of the other market participants. Thank you.

I think the best way to think about net is first of all, we're doing a lot of the work to get all of the connections and work through all of the business relationships with the participants in the marketplace. The we were looking at it is there are two pieces. The number one piece we can control is the settlement services which include trade matching, the settlement, and the allocations and that is something we're gearing up to start selling at the end of Q1 to our customers, primarily our Moxy and GlobeOp customers as well as new prospects. That will start to generate revenue but it's going take time to build that revenue so we have a modest -- we have some modest run rate targets for the end of the year for that part of the business.

The second half is the interoperability with all of the market participants and that's -- we're still negotiating with Omgeo and Bloomberg and working with the SEC to come to some agreement as to how that is going to shake out. That is going slower than we would like. That will be a second revenue stream for the confirmation and affirmation process that we do think is going to start generating some revenue but it will be in the second half of the year.

Our goal really is to establish those two services, get some clear run rate revenue at the end of the year for both of those parts of the business and then the primary rule of growth, it will start to be more material to our financials. It's hard to be material, to be honest with you, at $1.6 billion for some of these small businesses. In terms of opportunity to grow this business into something material over the next five years, most of the heavy lifting is going to be this year. And then I think in 2018 we'll start to see more rapid growth rate as those services are established and we have -- are focused in 100% on sales rather than all of this infrastructure and all of this internal negotiations with the market participants and the SEC.

Great. That's really helpful color. Thank you.

Brian Essex, Morgan Stanley.

This is Ivan Holman pinch hitting for Brian Essex. Nice acceleration in organic revenue in the fourth quarter. If we were to try to parse on how much of that was from the AUA inflation, excluding Conifer and Wells, how much of that do you think was driven by broader asset inflation in the market, as there has been a pretty nice rally?

I think that the majority of it, we did have some -- and you can probably see this our indexes, we did have some good improvement in the performance index. To a certain extent that was mitigated by the flows index but most of the revenue growth really comes from sales execution, winning new deals, and providing current clients with more products and services.

Understood. Thank you. A quick follow-up, if I could. You did mention, I think Bill might've mentioned that JPMorgan was not taking any more clients. Are there any other competitors out of there where you have seen what is called a significant decline in competitive appetite?

I think in general, the large banking type institutions are the ones where we are seeing less appetite than there had been for in the past, for sure.

Great. Thank you very much.

Mayank Tandon, Needham & Company.

Most of my questions have been answered, but Patrick, on organic growth, what was the number for FY16 just so we can compare that with your forecast for FY17? What was the all-in number organic growth for the fourth quarter as well?

The full year 2016 was 2.6% and the Company was -- the fourth quarter was 4.8% in the fourth quarter.

Got it. Great. One quick question on margins. I know you don't parse out the breakdown between organic versus inorganic, but where are Citi's margin today relative to last quarter? I know we saw nice improvement the last several quarters. Then if you could just give us some sense in terms of, should we still be thinking core margins improved 50 basis points for the year and the rest of the improvement to get to the midpoint of your guidance would be coming from the synergies from the recent acquisition? Is that a good way to think about it?

I think you can -- that is one way to look at it. I think if you look at Citi, I think Q2 of 2016 they were at 18.8%, Q3 they were at 24.3% and Q4, I think what we got them to, as Patrick said, low 30%s. Now we expect -- you're not going to quite get it 600, 700 basis point every quarter in 2017. It's going to be little heavier lifting and it's going be 200 or 300 basis points. Hopefully at the end of Q1 there are at 33%, 34%; at the end of Q2, they are at 35%, 36%; at the end of Q3, they are at 37%, 38%; then in the Q4 they are 39% or 40%, or 41% maybe.

We just have really talented people like Mike Sleightholme and Ken Fullerton and Joe Patallero and Stephanie Miller that are focusing on that business and making that business better. They get access to all of our data centers. They get access to our contracts with data vendors and everyone else. They're generally quite a bit more favorable on a cost basis than what they currently have.

Conifer, on just one day of the contract, I think saved $400,000 just when they renewed a contract. It's the same data, comes the same way, comes at the same time. It is just we have a better deal.

There is a lot of that stuff that we're going to pick up over the next three or four quarters and I think that in addition to the 50 basis points of how we make our business better all the time, anyway. I think that is the real value of the SS&C franchise. It's the expertise, it's the experience, it's the focus, the commitment and then being able to reward shareholders.

That's helpful, Bill. Thank you very much.

I'm showing no further questions from our phone lines. I would now like to turn the conference back over to Bill Stone for any closing remarks.

Thanks, everybody, for being on the call and we look forward to talking to you again at the end of Q1. We look forward to seeing you at Investor Day at the NASDAQ market site. Thanks again.

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