SS&C Technologies Holdings Inc (SSNC) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to SS&C Technologies Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference is being recorded.

Now I'd like to turn the conference over to Justine Stone. Please go ahead.

Hi, everyone. Welcome, and thank you for joining us for our Q4 and full year 2017 earnings call. I'm Justine Stone, Investor Relations for SS&C. Today on the call with me is Bill Stone, Chairman and Chief Executive Officer; Norm Boulanger, President and Chief Operating Officer; Rahul Kanwar, Executive Vice President and Head of SS&C GlobeOp; and Patrick Pedonti, Senior Vice President and our Chief Financial Officer.

So 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 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 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 via our website. These forward-looking statements represent our expectations only as of today, February 15, 2018. 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, and thanks, everyone, for being with us on our fourth quarter and 2017 year-end call. We're proud to report record revenue and earnings for both the fourth quarter and the year and adjusted consolidated EBITDA margins over 43%. That's 43%.

We now have annual adjusted revenue over $1.68 billion, over $695 million of adjusted consolidated EBITDA and over $470 million of operating cash flow. We earned $1.93 in adjusted diluted earnings per share, up from $1.64 in 2016 and, for those of you that liked 2015, [has] $1.33. But from '16 to '17, that's a 17.7% increase.

SS&C's success in 2017 was widespread throughout our organization. The integrations of Citi Alternative Investment Services, Conifer and Wells Fund Administration businesses are nearly complete, with EBITDA margins approaching 40%. We acquired Modest Park, an enhancement to our Black Diamond platform; and CommonWealth, a Canadian funds administrator.

Product adoption was strong for -- to all our addressable markets. Geneva continues to be a market leader for complex asset managers and fund administrators. Technology and services targeting loan portfolio accounting, including SS&C Primatics, Precision LM and our loan and credit fund administration systems, have been major contributors to the company's growth.

In fund administration, while hedge funds have regained strength in 2017, our private equity business and our real assets remain our fastest-growing markets.

A few weeks ago, we announced our plan to acquire DST Systems, a publicly listed company providing solutions in the financial services and health care industries. The acquisition is consistent with our capital allocation strategy, and we expect to close in Q2 or Q3 of this year.

And now I'll turn it over to Norm.

Thanks, Bill. SS&C had a strong fourth quarter. We have better focus and execution across the business as a whole, which led to our strong results. The fourth quarter typically sees some large number of license deals and signed several perpetual licenses across our Institutional & Investment Management businesses.

Our Asia-Pacific operations continue to grow, and we are adding new clients in that region every quarter. The adoption of hosted services and SaaS ASP-delivering models are trending upward, reducing our clients' operating cost and giving us more recurring revenue.

Demand for our products and services throughout the financial industry remains high. SS&C Primatics is 1 solution we expect growth from in the near term. Current expected credit loss CECL requirements are mandatory for banking institutions by 2020. Yet SS&C survey revealed that as of September, only 8% of banks were implementing the requirements. 46% of the banks were in the information gathering and planning stages. SS&C Primatics is 1 of the only full-service solutions on the market and is well received by our current client base.

Now I'd like to review some of the key deals for Q4. A Swiss-based private bank chose MarginMan for their trading operations at their Hong Kong and Singapore branches. Financial technology firms chose to partner with SS&C for our M3 product, a market leader in commercial paper processing. A French asset servicer purchased high-portfolio license for new modules needed to support their global platform. Investment manager based in Connecticut bought a term license for GWP, Recon and Evare and needed the ability to aggregate data from a large number of custodians in its high volumes of accounts to measure individual performance. An existing client, a Canadian bank, required the expansion of their GWP ASP services to support their business. An Australian insurance company bought a license of a reporting tool, Vision FI. Functional strength of the product and hosting capability led to the win. An $8 billion asset manager with over 4,000 accounts bought a bundled solution of SS&C Advent products, including APX and Moxy. $4 billion hedge fund and existing SS&C GlobeOp fund administrator client chose to license Geneva as a hosted solution for their internal accounting. A $5.4 billion financial adviser, an Anxys client since 2003, upgraded to APX to support further growth. Preexisting SS&C Primatics clients continue to engage SS&C to support their loan portfolio of accounting and evaluation. Combined license and service deals are multimillion dollar transformations.

And with that, I'll turn it over to Rahul to take you through the alternatives business.

Thanks, Norm. SS&C GlobeOp saw a 12% increase in revenue for the quarter ended December 31, 2017, compared to the same quarter in 2016. Our position in the alternatives market continues to strengthen as we add talent, capability and functionality, both organically and through acquisition. Our acquisition of CommonWealth Fund Services gives us added expertise in Canada and a larger presence in the Toronto area. We have made great strides with the integrations of the Citi, Wells and Conifer, and the acquired senior executives and their teams have played a big role in this year's success. These acquisitions have added experts, depth and geographical coverage and additional services to our offering and allow us to provide more value to our customers.

We continue to develop new products and services, in addition to providing us with differentiators in the sales process. These products and modules are extensively used by our customers and help us become an integral part of their workflow. Client usage on some of our largest customer-facing applications has doubled from this time a year ago, a positive sign for how our technology is being received.

Now I will mention some key deals for Q4. One of Canada's largest wealth management firms with investments across equity, fixed income and alternative assets outsourced their fund administration operations with SS&C. A fixed income spinoff from a large client managing nearly $2 billion in assets selected SS&C as their fund administrator. A bulge bracket banks investment management arm chose SS&C as middle office services for their U.K. operations. A $20 billion private equity firm based in the Midwest chose SS&C for private equity fund administration.

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

Thanks, Rahul. Results for the fourth quarter of 2017 were GAAP revenue of $438.4 million, GAAP net income of $165.3 million and diluted EPS of $0.77. Adjusted revenue was $439.4 million, excluding the adjustment for the acquired deferred revenue in the Advent acquisition.

Net income for the fourth quarter of fiscal 2017 includes a tax benefit for the estimated impact from the enactment of the Tax Cuts and Job Act in December 2017 related to the transition tax on accumulated overseas profits and the revaluation of our U.S. deferred tax assets and liabilities. Approximately $121.6 million in tax benefit was recorded related to revaluation of U.S. deferred tax asset, and this was offset by approximately $33.6 million in tax expense that was recorded for the transition tax and overseas earnings. And that resulted in a net tax benefit of $88 million. The impacts of tax reform may differ from this estimate and will continue to refine them as we go through 2018.

Overall, we had a strong quarter. Adjusted revenue was up 8.6%. Adjusted operating income increased 13.7%, and adjusted EPS was $0.54 or 17.4% increase from 2016. The acquisitions of Modestspark, CommonWealth and partially, from Wells Fargo Fund Services, Salentica and Conifer contributed $16.4 million of revenue in the quarter.

Foreign exchange had a favorable impact of $2.6 million or 0.7% in the quarter, mostly due to the strengths of the British pound, the euro and the Canadian dollar. And then adjusting for prior year -- adjusting the prior year for only acquired Citi Fund Admin revenue and adjusting for the impact of the lost Advent revenue as a result of the acquisition, organic growth on a constant currency basis was 5.5% in Q4.

Adjusted operating income for the fourth quarter was $182.4 million, an increase of 13.7% from the fourth quarter 2016. And adjusted operating margins increased to 41.5% from 39.6% in Q4 of 2016. The higher operating margins were due to margin improvements in our core businesses and a reduction in our operating expenses as a percentage of revenues.

Adjusted consolidated EBITDA was $191.3 million or 43.5% of adjusted revenue, an increase of 14.7% over 2016. Net interest expense for the quarter was $25.9 million and includes $2.6 million of noncash amortized financing cost and OID. The average interest rate in the quarter for the term facility in our notes was 4.4%.

We recorded a GAAP tax benefit of $78.6 million or 90.7% of pretax income. The full year tax rate was a benefit of 16.4%. And excluding the new U.S. federal enacted tax law, the effective tax rate would have been 14.8% in the year.

Adjusted net income was $114.5 million, and adjusted EPS was $0.54. Adjusted net income for the quarter excludes $53.3 million of amortization of intangible assets, $9.9 million of stock-based compensation, $2.6 million of noncash debt issuance costs, a $1 million adjustment for revenue and $5.6 million of other items, including $1.9 million FX impact on the balance sheet items and $3.6 million in a legal settlement. And the effective tax rate we used for adjusted net income was 28%.

On our balance sheet and cash flow for the year, we ended December 31 with approximately $64 million of cash on the balance sheet and gross debt of $2.092 billion for net debt position of $2.028 billion. Operating cash flow for the 12 months was $470.4 million, a $52 million or 12.4% increase of 2016. Cash flow in 2017 was driven by improved cash earnings and offset by higher tax payment and a reduction in deferred revenue.

Highlights for the year are: we paid down $467.5 million of total debt in the year; we paid $102.7 million of interest compared to $126.7 million in '16, mostly due to lower debt levels and lower average interest rate costs; we paid $67.6 million in cash taxes in '17 compared to $8.8 million in 2016; and then we made pretty good improvement on our accounts receivable DSO during the year. The DSO as of December 2017 was 49.7 days compared to 52.7 days in December 2016.

We used approximately $46 million in cash for capital expenditures and capitalized software, mostly for facilities expansion and IT. Our LTM EBITDA used for our covenant compliance was $700 million as of December and includes $4.5 million of acquired EBITDA and cost savings related to acquisition. And based on net debt on our balance sheet, our total leverage was 2.9x.

On outlook for 2018, effective January 1, 2018, we'll be applying the new revenue recognition standard. As a result of that standard, we will adjust deferred revenue and record a contract asset for a total accumulated effect adjustment to retained earnings of approximately $61 million. This will result in a reduction in GAAP revenue of approximately $40 million in 2018 and $21 million in future years, which is not included in the guidance that we'll provide you.

For the first quarter, our current expectation is adjusted revenue of $427 million to $437 million, adjusted net income of $113 million to $117.5 million and diluted shares in the range of 214.8 million to 215.2 million.

For the full year of 2018, we expect revenue in the range of $1,755,000,000 to $1,785,000,000, adjusted net income of $480 million to $502 million and diluted shares in the range of $216.5 million to $217.5 million.

Cash from operating activities will be in the range of $570 million to $590 million and capital expenditures in the range of 2.7% to 3.1% of revenues.

And we expect the adjusted tax rate to be approximately 23% for the year.

And I'll turn it over to Bill for final comments.

Thanks, Patrick. Thanks, everybody, for being on the call again. As you can see, we have some momentum, and we've been able to find a very nice acquisition in DST. We are busy shaping our plans, and we expect a smooth transition. We have strong pipelines, new products and services coming online and a number of additional acquisition candidates.

What that, I will open it up to questions.

(Operator Instructions) Our first question comes from Mayank Tandon of Needham.

Bill, I just wanted to get your thoughts on the environment coming into this year in terms of just the big deal pipeline, the potential for conversion of that pipeline versus, say, 12 months ago; and then secondly, in terms of the size and scope of opportunities you're seeing this year versus, say, 12 months ago.

Yes, Mayank. I think we have a number of big deals in the pipeline from -- we start -- probably, the big deals were starting at $7 million or $8 million and go up to, say, $20 million. I would say that we have a stronger pipeline going into '18 than we had in 2017. And I think that our notional sales in '17, I think, were up, say, 20% from what they were in '16. So we don't get all that revenue in the year that we sell, but we sold a lot of big deals in 2017, and we think we'll do the same thing in 2018.

And Bill, what is driving that increase in pipeline and just the environment versus last year? Like why do you feel better? It sounds like you feel better this year versus last year. And last year, you had a good year as well. So just wanted to get a sense of what are the main catalysts that are driving the improvement potentially in your business.

Well, I mean, it's February 2018, and in February 2017, Tony James and Warren Buffett and a crowd of others said the hedge fund industry was going out of business. That's a pretty tough backdrop in which to compete. Today, I think you might have seen our performance index that we released yesterday, it was up 3% in January. And I think that there's just a -- obviously, the market's up 6,000, 7,000 points. There's confidence in the country. And when there's confidence, people make decisions. And they want their processes and procedures and systems and compliance and risk to be better, and they want the experience for their investors to be better. And when they want all of that to happen, we're the place for them to come to, and that's why we're the largest in the world.

Our next question comes from John DiFucci with Jefferies.

This is A.J. Ljubich on for John. I was wondering, if we remember back to last quarter, you had a number of deals slip then, and it appears, given the robust top line results, that you did see some of those deals closed. If you could give us some color on what percentage you actually were able to close. And what in the quarter you were able to sort of improve upon in terms of execution.

Yes. We -- this is Norm. There's a couple of ways to measure a number of deals versus revenue, but I would say about half we closed. And we did certainly focused more on the sales process in the individual sales calls. And myself and Rahul are doing with our team, and we continue to do those things. And look, there's a lot of things that go into being successful for the quarter. But paying attention and focus and showing a sense of urgency is a big part of that. And I think we did that well in Q4, and we're going to continue to do that going forward.

Great. And just one quick follow-up. On the operating cash flow, I mean, the number for the year, I think, missed the sort of the lower end of the guidance, but I believe there are some onetime type of tax impact there. Can you just walk us through what that impact was? And if there was anything else that sort of held back the cash flow from where you thought it would be?

Yes, this is Patrick. I think what we did is -- I think as you know, the new Tax Reform Act required companies to make a tax payment for any cash balances overseas. So to kind of reduce that tax liability, we deliberately made some payments earlier than we would have. So that kind of impacted operating cash flow for the quarter, but it reduced our tax liability.

Okay. And now that would be the only sort of onetime impact that did impact the cash flow in the quarter?

That's right. I think we're showing -- we're expecting approximately $100 million improvement in 2018 on cash flow.

Our next question comes from Alex Kramm with UBS.

Maybe on the guidance. I guess, for Patrick. I think at the midpoint of the revenue guide has implied, I think, 5.2%. Can you break that down a little bit between organic, FX and I think there's still a little bit of acquisition revenue left as well? And while you're on FX, maybe can you tell us what kind of currency rate you're using in your forecast?

So at the midpoint of the guidance for the full year, it's about 4.8% organic growth, and then the range is 3.9% to 5.6%. We expect about -- we're basically using current average FX rates over the last week to 10 days for -- we're not predicting rates for 2018. So we're using what the average rates were over the last 10 days. And so we expect to have about 0.4% to 0.5% negative impact on growth on FX. And then the acquisitions are pretty small. They might contribute $4 million, $5 million for the year.

Okay. Great. And then just secondly, I think you made a comment in your prepared remarks that the tax rates, you expect 23%, but you're still doing the work on that. Can you just elaborate a little bit? I mean, I don't know, if this was maybe a different comment. But are there still opportunities -- yes, go ahead.

Yes, that was a different comment. I mean, we're fairly confident with the -- our best estimate at this point is that the tax rate will be 23% next year. And it could fluctuate a point or 2, up or down, but we think somewhere around 23%. What was an estimate was the benefit we bought in December for the Tax Reform Act on deferred taxes and unremitted earnings overseas. So we booked an estimate on that, and we'll refine that $88 million over the year as we gather more information. But that won't affect the 23%.

Our next question comes from Chris Donat with Sandler O'Neill.

One, in terms of the guidance to see if I can understand the sequential decrease in the first quarter of '18 from fourth quarter of '17 in terms of revenue, is that a function of the perpetual licenses, which tend to be stronger in the fourth quarter? Or is there something else going on? Just trying to understand what's causing the downtick in revenue in the first quarter.

No. I think primarily, if you went back over the last several years, you'd see that this is pretty standard. The fourth quarter tends to be our strongest, and the first quarter tends to be a little bit softer. At the same time, right, I think the number that we're looking at from Q1 of 2017 is $404 million, and I think the midpoint is $432 million here. So we're still growing, and we're -- we think we have a reasonably ambitious target in Q1. And we -- we're working hard to get it.

Okay. And then just, Bill, on the text of the press release, you mentioned the progress on synergies. Was just curious if that's mostly with the fund administration side? Or anything legacy from Advent, or anything specific to call out on the expense synergies realized?

I think that most of it have to do with the fund administration businesses, so Citi, Wells, and Conifer, although there's probably a couple other things that we did. But yes, that's the bulk of it.

Our next question comes from Peter Heckmann with Davidson.

Could you give us an update on, Rahul, on the AUA mix? If the mix is shifting? It sounds like private equity is growing very nicely and real assets. But can you just give a quick update on the mix? And then how we're thinking about pricing on some of the bigger deals? It seems anecdotally, maybe some of the prime brokers will get a little bit more aggressive. So can you just update on those 2 things?

Sure. So total AUA at the end of Q4 was $1.52 trillion, right, and private equity is roughly 1/3 of that asset mix. And like Bill said, the private equity and real assets are growing faster than hedge funds, although hedge funds did come back. And I think from a pricing standpoint, we really spend a lot of time and effort and added products and services and capability. So when we go into large investment organizations, we're typically able to service in a broader and more comprehensive way than others. And we find that, that helps us hold to our pricing. So we're not really seeing downward pressure.

Okay, that's helpful. And then Norm, could you maybe give us an update on growth just within the Black Diamond product? And I believe the Modestspark acquisition was done to supplement some of it because the actual client -- do you think that will maybe extend the growth of Black Diamond? Or do you think that continues at a good -- pretty good clip?

No, I think we're still very bullish on the Black Diamond business and in its future growth. In this quarter, we actually got growth across many of our -- actually, almost every one of our major businesses contributed strongly to the quarter, which was very positive.

Yes, Pete. I think we're still looking at Black Diamond to grow 20% or better.

Our next question comes from Rayna Kumar with Evercore.

So can you talk a little bit about your outlook for hedge fund formation in 2018? And could you also call out the organic revenue growth rate, specifically for the alternatives business in the fourth quarter?

I think -- this is Rahul. In terms of hedge fund formation, I think we're pretty optimistic. We're seeing a number of people spinning out of other organizations and starting funds. And we have -- we've won several of those, and we have others in our pipeline, so we feel good about that. I think organic revenue, Patrick, you can confirm, was 7% for the alternatives business in Q4.

That's right.

Our next question comes from Brian Essex with Morgan Stanley.

Bill, I was wondering if you can maybe comment. I know it's only been a couple of weeks, but with regard to DST, commentary that you may be hearing from customers that you may have overlap with there -- just the overall environment in terms of revenue retention. And then any work that you're doing ahead of the transaction, either on the DST side or the SS&C side with regard to positioning your sales force, adjusting for potential synergies prior to the consummation of the transaction.

Yes, Brian. I think that we are -- we're full-bore on the planning and trying to get our ducks in a row, so that immediately, upon closing, we will be in a position to kind of occupy our new house and be -- right, and be able to really find the best spots in which to cross-sell and upsell and see where we can add technological improvement and where they can add technological improvement to us. So we're optimistic about what we can do there. We've gotten to know some of the people, and we're impressed with their people, and we think that we're cautiously optimistic on these things. And we've done a bunch of acquisitions, and we're not precipitous. We're methodical. And I think that's the right approach. We're spending $5.5 billion of our shareholders' money, and we have been, and we intend to continue to be good custodians of that. So we want to make sure that we protect that and that we don't do anything that people will say they're off the rocker. We're not doing anything of that.

Any -- I guess, the follow-up on conversations with customers, I know that they can have some high-customer concentration. They've lost some big customers in the past. I mean, so is this -- maybe you started to have conversations with their clients and you feel good about what's coming over in terms of your ability to retain that business.

Yes. We've had some conversations. Obviously, it's still quite preliminary, but we've had a number of conversations with a lot of their biggest clients who were anxious. But they also know that they can talk to other parts of their business often. There are a lot of our large-scale clients that we have around the world. And I think that, in general, our acquisitions result in improved customer satisfaction, a broader range of capability and a deeper and broader depth of fundamental expertise in these various intersections of the financial services industry. And I think that when you look at a strategic acquisition like this and a strategic acquirer like us, it's all about what are all the alternatives. And most high-quality companies like DST don't really want to be acquired by private equity. They prefer to be bought by a strategic, and the customers prefer that the strategic knows something about the businesses that we're acquiring, in which we have a deep understanding of this business.

Our next question comes from Sterling Auty of JPMorgan.

This is Jackson Ader on for Sterling tonight. Norm, I think you mentioned a couple of times in your prepared remarks about the SS&C Primatics solution for banks. So how big can that total opportunity be? And where do you feel like we are into that opportunity, either percentage or on an innings basis?

First of all, there's a lot of opportunity in that space. It's not -- I think there's a lot of upside for the size of that business. Maybe...

But any -- I mean, is there any -- sorry, go ahead.

I think it has a chance to get to $500 million over time, I think. I mean, I think we have a very competitive solution there. It's a very highly expert-driven business, which is in our sweet spot. And it's a matter of continuing to focus on fund and other services and improving our sales organization and providing that opportunity.

Yes. And just to comment, we work closely with Primatics, and it is purely in the banking business, right? And there's still 9,000, 10,000 banks here in the United States, and that's going to drive, obviously, with what like Norm said, $500 million, that's going to mean we have to really do great execution. But we've got a good team at Primatics, and we have high expectations. And I think that it's a question of getting people to adopt our EVOLV product and our CECL solution. And I think that there's an awful lot of banks that need these solutions.

Sure. Great, that's helpful. And then 1 quick follow-up for you, Patrick. The 606 impact, I just want to make sure that I heard you correctly. It's a $40 million headwind here in 2018 and $20 million thereafter? Or $20 million in 2019, and then you'll be finished with that retained earnings flush?

No, it's $40 million in -- you are right, $40 million in 2018. By quarter, it's approximately -- starting with Q1, it's approximately $12 million, $10 million, $7 million and $11 million, approximately. And then the $21 million is '18 and '19 -- it's '19 and '20. I don't have a breakout between the years.

Our next question comes from Chris Shutler with William Blair.

Can you just talk about what's in the guidance for organic revenue growth in the alternatives business for 2018?

I think we're...

It's...

Go ahead, Patrick.

Can I go ahead?

Yes, go ahead.

It's approximately somewhere between 5% and 6%.

Okay, perfect. And then just a couple of others on the guidance, just so that we're clear. So the kind of the pricing and inflation impacts you're expecting in the guidance. And then I guess, stepping back, how are you thinking about adjusted EBITDA that's in that guidance? A little difficult to get to with the -- we just don't have all of the pieces.

I think we -- on the cost side, we expect somewhere around 3% inflation on the cost side. And at the midpoint of the guidance, EBITDA margins are, well, a little over 42% for the year.

A little over for the year, right? Okay. Got it.

For the year, yes, which is an improvement from above 41%, a little above 41% in '17 for the full year.

Got it. Okay. And then just one more, the software-enabled services revenue in the quarter. I think it was up, I think, around 30 basis points or so quarter-over-quarter. I'm trying to understand why it was up that amount, given the strength in the fund admin business and the continued growth in the AUA numbers. Is it simply -- kind of going back to Peter's comment earlier, is it more just growth in hedge funds and -- or private equity rather than hedge funds? Or what else is going on there because it does feel like you would might maybe expect it to be a little bit higher.

Well, I think, just on -- I think we went from $257 million to $282 million in software-enabled services. I think that's $25 million on $257 million, that's about 10%. Is that the number -- the line item -- the top line item in revenue?

Yes. I guess, I was just looking at it sequentially, Bill. Trying to strip out any kind of acquisition activity.

So you mean from Q3 to Q4?

Correct.

I don't have -- well, I don't have Q3 in front of me.

Well, it was -- Bill, it was -- it went from $282 million to $283 million. There's really very little acquisition in there, right?

Right.

As you see, with fund admin being strong, I guess, I just thought it would have been up a little more. But I know things can vary quarter-to-quarter. I just want...

Yes, I think there's also some seasonality in terms of timing of tax work, in particular, but some [special reason] even within the fund admin business.

Our next question comes from Patrick O'Shaughnessy with Raymond James.

So Bill, last couple of times, you guys did big deals. I'm thinking Advent and GlobeOp. I think there were some commentary around organic growth slipped a little bit because you were focused on closing those deals and making sure that it worked. So this time around with DST, how do you make sure -- what sort of processes are you putting in place to make sure that organic growth stays where you want it to be?

All right. I would say, Patrick, that mostly, that comes through a concerted prayer effort, right? I mean, come on, we're spending $5.5 billion, and its $2 billion in revenue. The focus of this management team is to not screw that up, right? So if our organic revenue was to tick down 0.3% but we blew it away on synergies and stuff with DST, I mean, I'm a pretty serious shareholder of this place, and I think that I, for one, would be a pretty happy shareholder. But again, I don't -- we have momentum, right? So as long as we can fire through on that, I think we're in good shape. But we're bringing 16,500 employees and contractors into this business, like I said, $2 billion in revenue. We have to put some focus here. And I think that while organic revenue is the absolute manna from heaven for all of the analysts, we're going to be about a $4 billion in revenue company. And if we can manage to move this to our traditional earnings and cash flow characteristics, I think that there's an awfully big upside here.

All right, fair enough. And then Rahul, maybe a question for you. So of your growth that you guys saw in the fund administration business in 2017, and it looks like it was high single digits on average over the course of the year, how much of that would you say was from general market appreciation, hedge funds and private equity? And how much would you say is from client wins in other areas?

I'd say most of it, at least 2/3, is probably from new client wins. And the rest is probably current clients subscribing to new services, adding funds or taking some additional module.

And our final question is a follow-up from Alex Kramm with UBS.

Maybe I missed this, but for the first quarter, Patrick, can you also run down the organic acquisition FX contributions that I asked about the full year earlier?

Sure. So at the -- well, in the range, okay, the organic growth is 6.3% to 3.8% on the low end of the range and averages out to about 5% at the midpoint of the range for Q1. And the FX is pretty similar. It's negative 0.5%. And there's $1.5 million or so of acquisition revenue in the quarter.

Great. And then just, I guess, for my last question of the day, just coming back to the investment management business for a second. If I look at the disclosures in the presentation, like with the percentages of the different businesses, I get to the investment business, management business shrinking 4% last year. So maybe, just when you put it all together and looking for 2018, Bill, like kind what's your confidence level that you can actually grow that business again? I know you mentioned a couple of things, but I think you've also talked about the new product launches that you're excited about. Obviously, you're still hoping to turn the Russell arrangement into a more customer wins of that size. I mean, any update that you can give us on the investment management actually growing again next year?

Well, I think Q4 was the best quarter that the investment management side of the business has had in a number of quarters. And I think that we have to build on that momentum. We have some really talented people that we've brought into the business, and guys like Jon Underhill and Justin Nottage are doing a good job for us. And we have high expectations that they're going to continue to do a good job for us. And we have -- again, we're off to Q1 in a pretty strong fashion in that business. And again, it's halfway through, and we'll have to see what happens in the next 45 days. But we're cautiously optimistic, Alex, that there's a lot of opportunity in that space. And we also think that DST has 48 of the top 50 institutional investment managers. And we think we're going to have increasingly tight relationships with those people. And that generally offers you opportunity to show your entire set of capability.

I'll squeeze 1 last one in real quick. You made a comment at the beginning about M&A and still looking and still seeing deals out there. I mean, you just said a couple of questions ago that you got your hands full with DST or you expect to have your hands full with DST. I mean, any other comments in terms of -- I mean, you're going to be fairly levered. But are there still like hedge fund administration assets out there that more discussions happening? Any incremental color and readiness, I guess, would be helpful.

Yes. I mean, I wouldn't say there's another DST out there, but certainly, we're not closing shop. I mean, we talk to people all the time. And bringing in incremental technology or bringing in another incremental fund administrator, I don't think that, that's necessarily something that would take a tremendous amount of our management time, right? So we're still looking, if there's attractive opportunities. And we have plenty of flexibility to do tuck-in acquisitions, and I think we would continue to do that.

We do have another follow up from John DiFucci with Jefferies.

It's A.J. Ljubich on again. This is for Patrick, and sorry, if I'm just confused or sort of missed it. But upon ASC 606, if I understood correctly, your guidance is under 605, but some of the commentary you gave is how you expect to be impacted once 606 is actually implemented probably next quarter. Do I have that correctly? Or what's sort of your plan for implementation there?

So our guidance for all new business is on the new revenue standards 606. The only thing we didn't reflect in the guidance, just so you'd have a little bit of comparability to last year, is the $40 million of revenue we're going to lose. That was in deferred revenue on 12/31/17 that we're required to write off to retained earnings. So on 1/1/18, any term license that you have in deferred revenue, you're going to have to write off to retained earnings. And that's the $60 million, of which is going to impact us $40 million in 2018. And then going forward, on term licenses, you got to determine fair value of maintenance and fair value of the term license. And then you recognize the term license upon signing the deal, and then you recognize the maintenance portion ratably. So the guidance we provided is based on new 606. The only thing we didn't reflect is the retained -- is the deferred revenue of the $40 million that we're going to have to write off. So GAAP revenue will be a little bit lower.

Got it. So for comparability purposes, though, is it the right way to think about it that if you added that $40 million back to the guidance, that would be comparable to 605?

It's going to be fairly comparable. I mean, it's going to depend on -- you mean comparable to 2017?

Correct.

It's going to be fairly comparable. I mean, it's going to be very difficult because it's going to depend on how the contracts are structured and -- exactly, but it's fairly comparable. We didn't go back and take our forecast and restructure it completely on the old revenue standard.

With no other questions in queue, I'd like to turn the conference back over to Mr. Stone for closing remarks.

Well, again, we appreciate everybody being on there, and we're working hard for our shareholders. And all of you that are looking forward to the securities we're going to offer in connection with the DST acquisition should be in contact with Credit Suisse and Morgan Stanley and the rest of our really high-quality team of bankers we have. So thanks a lot, and we'll see you next quarter.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation, you may all disconnect.