SS&C Technologies Holdings, Inc. (SSNC) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the SS&C Technologies third quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the floor over to our host, Justine Stone.

Hi, everyone. Welcome and thank you for joining us for our Q3 2017 earnings call. I'm 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, Executive Vice President and Head of SS&C GlobeOp; 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 as a result of various important factors, including those discussed in the risk factor 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 on of today October 25, 2017. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we'll be referring to certain non-GAAP 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'll now turn the call over to Bill.

Thanks, Justine. And hello, everyone, and welcome to our third quarter earnings call. This quarter, SS&C grew adjusted revenue 7.1% to $419.6 million and grew adjusted diluted earnings per share 19% to $0.50 per share. While our total revenue was impacted by a number of perpetual license deals slipping to Q4, we're pretty pleased with our earnings results. Synergies from Citi, Wells, and Conifer acquisitions were a big driver to our Q3 earnings margin increases. Since the Advent acquisition in July of 2015, which we did a public debt offering, we've paid off over $813 million and bought our leverage ratio down to 3.19. This past quarter, we increased our quarterly dividend to $0.07 per share, a 12% increase. And last week, we closed the acquisition of CommonWealth Fund Services. Our strong cash flow and low CapEx allow us to use our cash to best create shareholder value. As a growing and evolving organization, SS&C continuously evaluates our personnel and our management. In September, we announced Rahul Kanwar's promotion to Executive Vice President, reporting directly to Norm Boulanger and myself. Over Rahul's 12-year tenure at SS&C, he's grown the fund administration business from $400,000 to $216 million a quarter and has been integral in the acquisition of eight fund administrators, including our most recent, CommonWealth. This promotion is a testament to Rahul's expertise and leadership. We also announced the recent hire of CV Channagiri as our Chief Information Officer. CV has held management positions at Thomson Reuters, Morgan Stanley, Credit Suisse, and Deutsche Bank and understands deeply the intricacies of technology development and cyber security. As CIO, CV will lead a team of over 200 technologists across all lines of business and is responsible for managing all technology assets and promoting agile, modern cloud-first solutions. With that, I'll turn it over to Norm.

Thanks, Bill. Last month, we hosted over 1,000 client, partners, and employees at our annual SS&C Deliver Conference held in Chicago. Feedback on the conference has been overwhelmingly positive. We welcomed over 470 new attendees and had valuable training, peer-to-peer networking sessions, and one-on-one customer meetings. Sessions included demonstrations of our recently released software, included an enhanced Precision LM, an order creation solution, Advent Genesis, and a new exception management and workflow solution for Geneva. Client attendees said the conference provided new ideas for growth and operational efficiency. We look forward to next year's conference in Las Vegas. At SS&C, we recognize our clients trust us with their critical data and we do everything in our power to be deserving of their trust. Recent highly publicized security breaches have led to increased scrutiny and focus on cybersecurity practices across the financial services market. SS&C's information security and cyber risk program incorporates common security standards, regulatory requirements, layered security model, overlapping controls, data-centric, and risk-based security implementation. Our full-time dedicated information security professionals work around the clock to protect client data by proactively monitoring and addressing cybersecurity threats and vulnerabilities. As Bill mentioned, our newly hired CIO CV Channagiri is uniquely qualified and very capable of ensuring SS&C has strong security protocols. Since he joined SS&C, he has had detailed security reviews of our internal teams, ongoing reviews by external vendors, and presented a firm-wide security program to our board of directors. Now, I would like to review some key deals for Q3. SS&C reporting tool Vison FI displaced a competitor out of a $4.5 billion manager. The client was impressed by the customizable reports and portal. A $5 billion fixed-income asset manager chose a suite of SS&C products, including GWP, Evare and Vision FI because it is a better platform for fixed income securities. A US manager required an extension of their PORTIA license for managing their extensive historical data. A South African fund service provider licensed our performance measurement tool Sylvan to help them win new business across Africa. An $18 billion asset manager chose a hosted version of Geneva and Recon to replace a homegrown system. A $13 billion asset manager chose APX for their portfolio management accounting over renewing with a competitor. Our full-service solution was a big driver for that win. A $5 billion hedge fund chose Geneva specifically for the bank debt functionality. A $2 billion AUM and advisor chose Black Diamond due to our partnership focus. And last, an existing advisory client chose Black Diamond for their commercial credit division. This is the third instance of Black Diamond. Now, I'll turn it over to Rahul to discuss the alternatives business.

Thanks, Norm. SS&C GlobeOp grew 18% in revenue for the quarter ended September 30, 2017 compared to September 30, 2016. We're seeing strong demand for our products and services across a wide range of asset classes and structures, including hedge, private equity, private credit, real assets, family office and asset allocators. During the quarter, we continued to develop applications to provide greater functionality and value to our customers. We completed the integration of FundHub with our asset allocator suite of services. This market, comprising of endowments, state and local funds, sovereign wealth funds and other investors across asset classes, represents an important growth area for SS&C GlobeOp. We also completed several milestones with respect to operational processes for customers of the Wells Fargo and Conifer acquisitions. Now, I'd like to go over key deals for Q3. A large family office chose to outsource their fund administration with SS&C GlobeOp. An existing Texas-based fund administration client expanded fund administration services to their private equity group. An $8 billion real estate and property management investment firm selected SS&C's real assets group for fund administration. A Chicago-based real estate fund was impressed and chose SS&C as their administrator. A multibillion-dollar asset manager expanded their private equity fund administration relationship with SS&C. I will now turn it over to Patrick.

Thanks, Rahul. We reported results for our Q3 2017. GAAP revenue, $18.3 [ph] million, GAAP net income is $64.2 million, and GAAP EPS is $0.30. On an adjusted basis, revenue was $419.6 million and excludes the adjustment for the acquired deferred revenue from the Advent acquisition. We had a strong quarter. Revenue was up 7.1%, operating income increased 13.1% and EPS was up 19%. Adjusted revenue increased $27.7 million or 7.1% over Q3 2016. The acquisitions of Wells Fund Services, Salentica, and Conifer contributed $21.5 million in revenue. Foreign-exchange had a favorable impact of $1.4 million or 0.4% in the quarter, mostly due to the strength of the euro and the Canadian dollar. Adjusting the prior year for only acquired Citi fund admin revenue and adjusting for lost Advent revenue as a result of the acquisitions we completed this past year, organic growth on a constant currency basis was 2.9% in the quarter. Adjusted operating income was $170.1 million, an increase of $19.6 million or 13.1% in the third quarter. Adjusted operating margins increased to 40.5% from 38.4% of revenue in Q3 of 2016. The higher operating margins were due to margin improvements in our core businesses, driven by improved software-enabled services margins and the Citi Fund admin acquisition as cost synergies were implemented at that acquisition. Adjusted consolidated EBITDA was $178.8 million or 42.6% of revenue, an increase of 14.2% over 2016. Net interest expense for the quarter was $26.3 million, and includes $2.6 million of non-cash amortized financing costs and OID. The average interest rate in the quarter for the term loan facility and the notes was 4.1%. We recorded a GAAP tax provision in the quarter of $10.9 million or 14.5% of pretax income and we expect the full year GAAP tax rate to be in the range of 17% to 19%. Adjusted net income was $105.5 million and adjusted EPS was $0.50. The adjusted net income excludes $52.9 million of amortization of tangible assets, $10.3 million of stock-based compensation, $2.6 million of non-cash issuance costs, $1.3 million for the revenue adjustment, and $4.3 million of other items that include $2 million FX impact on balance sheet items and $4.3 million of extraordinary non-recurring items and acquisition-related costs. And the effective tax rate we use for adjusted net income was 28%. On our balance sheet and cash flow, as of September 30, we had $103.3 million of cash and cash equivalents and $2.266 million of gross debt for a net debt position of $2.163 million. Operating cash flow for the nine months ended September was $307.1 million, a $70.1 million or 29.6% increase over 2016. Cash flow in the first nine months of 2017 was driven by improved cash earnings, lower accounts receivable DSO, and was offset by higher tax payments and a reduction in deferred revenue. So, for the nine months of 2017, we've paid down $292.8 million of total debt, including the remaining portion of the revolver that was outstanding at year-end, which we had used for the prior-year – we had used in the prior year to fund acquisitions. We've paid $88.2 million of interest compared to $106.4 million in 2016 due to the lower debt levels and lower average interest rate. We've paid $48.4 million in cash taxes compared to $14.6 million in 2016. Our accounts receivable DSO at the end of the quarter was 51.2 days and that compares to 52.7 days as of December 2016. And we've used $37.9 million of cash for capital expenditures and capitalized software, mostly for facility expansion and IT infrastructure. Option proceeds were $46.3 million and the payment of withholding tax related to net share settlement was $4.1 million. And we've paid $39.9 million in dividends year-to-date, which is approximately 13% of cash provided from operating activities. As of September 30, our LTM consolidated EBITDA, which we use for covenant compliance, was $678 million and includes $6.9 million of acquired EBITDA and cost saving related to the acquisition. And based on net debt position of approximately of $2.2 billion, our total leverage ratio was 3.19 times. On outlook for the fourth quarter, our current expectation for the fourth quarter is adjusted revenue in the range of $427 million to $437 million. Adjusted net income in the range of 110 million to $113.9 million and diluted shares in the range of 213.2 million to 212.8 million. For the full year, we expect cash from operating activities to be in the range of $485 million to $500 million and capital expenditures to be in the range of 2.9% to 3.1% of revenues. And we expect the tax rates for adjusted earnings to be 28%. And I'll turn it back over to Bill.

Thanks, Patrick. We have a great opportunity to finish 2017 on a very strong note. Over 30 deals were pushed to Q4 and we are actively managing those deals. Additionally, so far, in Q4, we have closed fund administration deals with few hundred AUA of over $15 billion with several of the same size of over $5 billion in the pipeline. We are excited about where we are. We're excited about what we can do to finish Q4 and we're optimistic about 2018. So, with that, we'll turn it over for questions.

Thank you. [Operator Instructions]. Our first question for today comes from the line of Ashish Sabadra with Deutsche Bank.

Hi. My question was regarding the revenue growth. The revenue growth slowed down. And, I guess, it looks like it was related to deals getting pushed out. But when you look at the guidance, the fourth quarter guidance was roughly in line with what was implied earlier on and full year guidance was lower by $4 million. So, with the solid pipeline in the fourth quarter and the deal closure you've already talked about, why didn't we see more upside to the fourth quarter numbers?

Yeah. I think that's a really good question. I think what we're trying to do is to recognize that if we had 30 deals pushed to the fourth quarter, we would like to hit 100% of those, but, obviously, we don't have a track record of doing that and I think it's something that we need to make sure we improve on. I think that at the 427 to 437, I think we do hit our year estimated number of about $1.93, which is what we guided to at the beginning of the year and what we've executed to. Hey, we'd like to do better, but our earnings per share were up 19% this quarter. And I think cash flow from operations through the first nine months is up $70 million. And so, our people are working hard. They are executing. We have some execution issues that people are getting to know us very, very well that we need to improve on. And I think we're pretty focused on it. But to stick a real big number out in Q4 didn't make a lot of sense.

Thanks for the color, Bill. And good progress on margin expansion. We saw some really good margin expansion both on a sequential basis, also on a year-over-year basis. How should we think about margin expansion opportunities as we start to take out some more cost from the acquisitions both in the fourth quarter, but also going into 2018 and 2019?

If we don’t start getting better execution, we will have faster margin expansion, right, because we're a performance oriented organization and we can't have these kind of pushouts to quarters and act like we're performing, because we're not. So, I think everybody at SS&C can understand the kind of execution we're looking for in Q4. And I think that the margin expansion is something that we've worked hard on. We've got people that have made some real progress and I would imagine that you'll see some – probably not 270 basis points or whatever we got this quarter, but incrementally. We think we can get 50 to 100 basis points in incremental margin depending on the size of acquisitions that we do if we have to turn some of these things around.

Thanks, Bill.

Thank you. And our next question comes from the line of Brian Essex of Morgan Stanley.

Hi, good afternoon. And thank you for taking the question. Maybe if I can follow up real quick on Ashish's question in terms of the pushed deals. Bill, the 30 deals pushed, any sense of how many you closed? And is there a common denominator there in terms of a certain type of business or deals that you're going after that happen to slip or is this more of a broad-based issue?

It's primarily been done in the Far East where the communication – we have really good people and we communicate on a daily basis, now we used to communicate weekly on deals, but the vast majority of the 30 slipped in Q4 in the Far East. And we also had some challenges in our Primatics subsidiary where we had a number of very large deals slip to Q4. And we closed a few, but we have tremendous focus.

Right. And then maybe to follow up, Paul, could you give us an update on the margins for the stuff that you've acquired and the progress there, particularly the Citi, Conifer, and Wells, and now with the latest acquisitions? How far along those are progressing?

This is Patrick. The Citi acquisition's operating margins are approximately 32%, 33% in the quarter. So, significant improvement from last year. And the Conifer and Wells, most recent acquisitions we did, are in the mid-20s right now from near 10% last quarter.

That's helpful. Thank you very much. Apologize for the slip.

It's all right. Patrick, Peter, Paul, pretty similar. They are all saints.

Thank you. And our next question comes from the line of Dan Perlin with RBC Capital Markets.

Thanks. Bill – I'm going to harp on the same thing. So, you're talking about 30 deals in the Far East. And, obviously, moving the conference call up to a daily versus weekly doesn't sound like they are going to hammer you typical bringing to the table. So, what was the problem in the execution? I'm actually surprised that it was that many. What are you really doing to rectify that?

Again, Dan, we have to get people on the ground that have experience, that can evaluate the quality of the prospects that we have. We have some of our top people that have gone through these things and are pretty satisfied that these are real deals with real opportunity. And a lot of times, it's going for the jugular and getting the ink on the paper. And a lot of times that needs to be educated and we need to have the right people that are executing on that. And I know Norm and Rahul, both have been intimately involved on a number of these deals. And maybe, Norm, you could comment. And maybe then you, Rahul, as well.

The first thing is that the slips were pretty broad-based. But as Bill pointed out, we had a higher concentration of opportunities in Asia and actually to a lesser degree in the Middle East. And those organizations are notorious for trying to bring the closure. So, the positive there is, we actually have built a relatively new sales organization in that part of the world, and they've done a great job of bringing opportunities to the table. But, obviously, this quarter, we're not bringing them to closure. The other thing is that the – it is the summer months, which tends to be a problem overseas generally. And we ran into some issues on a few accounts for the hurricane. So, when I look at across the board, a lot of things just kind of went against us. The positive is we had a very strong and diverse pipeline across the whole business. We really didn't need to be perfect to hit these numbers, but we really didn't execute across the board, so we ended up short of where we intended. So, the deals are real. We're trying to make sure that we have senior management reaching out directly to the clients to make sure that we test what the sales and sales management team thinks is happening around those deals. So, it is always about execution and that's what we're going to be focused on. We think we're doing the right things. We're going to invest in the sales organization and we're also going to invest in the products that they sell. So, those other things, long-term, that are going to come – bear fruit for us. But obviously, this quarter, enough things went against us that we were not able to close, but it was pretty disappointing.

And I think the thing that I would add to what Norm said is we're also becoming a little more precise about scheduling signature dates with our prospects and conveying that same sense of urgency and just managing their processes internally and some of that daily communication is about deal status and how we're interacting with the prospects. And we're pretty sure that will make a difference.

Okay. Help me reconcile the $15 billion that's already been signed in the fourth quarter. And it sounded like, Bill, you said another $5 billion that's kind of pending, maybe to the 30 deals. It sounded like the 30 deals were these perpetual license deals. And it wasn't clear if these $15 billion were tied to that or if that was something else.

No, no. The $15 billion is already closed. And that's fund administration deals.

Right.

And then the 30 are almost all perpetual or term license deals. And so, I would say that that's the separation between those two. And we're excited about that we've closed and their reputations in the market in our ability to lever that going forward.

Okay. That makes more sense to me. So, I did have another question for you. In terms of – you de-levered fairly quickly and with a lot of discipline here. You're down to, as you said, 3.1, 3.2 turns. You're, obviously, accustomed to being able to lever up the balance sheet when you find opportunities. But I'm wondering what the market looks like. You haven't been particularly aggressive this year. And I'm wondering why that's the case. Is it just there's many willing sellers at the price points that you're looking at or are there asset qualities that are out there don't meet the kind of characteristics that you typically like to look for?

I think it's both, right? I know everybody is interested in our capital allocation and how we're going about it, but we are disciplined about what we're going to do. Sometimes, we get disappointed, right? We get LOIs and then all the numbers change. And you get an LOI and then the numbers change and then maybe you don't have an LOI, right? And we're not going to do acquisitions for acquisition sake. We have targets. We have dates. We have understandings. And you have to have that play all the way through the funding of it. And if you don't, you run into having a grab bag of what you bought, not having the discipline to walk all the way through to close and make sure that everything that you've been told in this acquisition process stands up to scrutiny.

Right, okay. One last one and I'm going to jump out. Sorry. But, Patrick, had these deals closed, where would your organic growth roughly have been? 2.9% is obviously a big disappointment. You're moving backwards. I think we all get it. But kind of give us some silver lining here as to what that could have looked like. Thanks.

Well, I think it's $4 million extra, right? So, it would have been on – compared to $400 million last year. So, it would have been another percent or so. So, it might have been near 4% organic.

So, have you closed the deal, did you close it at 4%? That's what you're saying?

I think if we were at the midpoint of our guidance, 4.24%, right? For Q3, you're talking about?

Yeah. Yeah, I would say – and you had all these deals slip. Were that not to have occurred, what would the organic growth rate actually have been?

Somewhere around 4%, I would suspect.

Okay, thank you.

I think another point, I think, that's important is that if you look at our financials for Q3, a lot of the weakness is around perpetual license, maybe a little bit of refresh on services. But if you look at our recurring revenue, it's growing pretty fast. And, in fact, the alternatives fund administration business grew 10.7% in the quarter. So, we're getting really strong performance out of 50% of our business and we're seeing good revenue growth there and we're seeing margin expansion out of that business.

And that's why we've done acquisitions. And actually, it was up 18% and 10.7% organically.

Yeah, organically, right.

And, Dan, we've got to go on.

I know. I'm sorry.

Thank you. And our next question comes from the line of Christopher Shutler with William Blair.

Hi, guys. Good afternoon. This is actually [indiscernible] for Chris. I think you may have touched in the previous set of questions, but we recently saw a PE-backed competitor acquired a bank-owned fund administrator. Obviously, that strikes as one of the first times in a while where SS&C wasn't the one doing the acquiring. To the extent you can discuss it, I'm just curious how closely you considered the asset. And, second, if you have any concerns about additional competition for those bank-owned administrators going forward.

As you well know, right, we participate in all of them and we look at everything very, very hard. We're also picky. The quality and capabilities of the people we got at Wells Fargo that Chris Kundro leads and at Conifer that Jack McDonald leads and Mike Sleightholme at Citi and guys like Joe Patellaro at Citi and Ken Fullerton and a crowd of people that came through to us from GlobeOp, those are all industry leaders. And we continue to focus on businesses that we think we can expand, that we think we can improve and that we can do it jointly with the management teams that we acquire. And not every aspect meets our criteria. If it doesn't meet our criteria, we're not going to bid it up. So, I think that, for our shareholders, of which you might know I am one, we're going to focus on getting value for whatever acquisition we do and that's what differentiates us from all the other players in the space.

All right, thank you. And then, just a few administrative items. Just curious, Patrick, if you could let us know what's embedded in revenue guidance in terms of organic growth for the fourth quarter. And if possible, of the 30 deals that got pushed to the fourth quarter, does that same organic growth assumption assume all 30 had closed or what amount is baked into that guidance? Thank you.

The Q4 guidance, the midpoint is at approximately 3.8% organic growth for Q4.

Okay. And does that assume all 30 –

This is Norm. The sales targets for the quarter are a blend of some of those 30 and other deals we're working. We're not assuming a 100% closure around this 30.

Okay, great. Thank you very much.

Thank you. And our next question comes from the line of Peter Heckmann with DA Davidson.

Good afternoon, everyone. Bill or Rahul, in terms of the consolidation of the administration space, we're kind of shaking out with five or six really large players and that's what somewhat suboptimal from a competition standpoint. Do you think there is a roadmap here where SS&C can continue to grow and perhaps get this industry to a point where there is maybe two or three clear leaders and then you could really get some better pricing? Or do you think some of the holdouts in the business in that top 5, top 10 are going to continue to hold out and stay in the business?

First, we're certainly having some pretty strong quarters both in terms of organic growth and total growth as it relates to funds administration, right? So, 10% plus in terms organic this quarter, 18% in terms of total growth. We closed two of our biggest deals of the year after the end of the quarter, right? So, I think that there's plenty of opportunity for us to keep doing it. We do think that there is acquisition opportunities out there as well. And as the market matures, there's more and more demand for the way we do it, which is with technology. And so, I think we're going to keep getting bigger prospects.

And the other thing, Peter, is that probably three or four of the biggest administrators that would be in our purview of an acquisition or not technology already.

Right, right. That's right. So, that has potentially an important lever in future negotiations. My follow-up would be with regard – on the financial advisor side of the business, are we still seeing a migration away from Advent's Axys platform? And if so, where are they going? What percentage of those is SS&C retaining? And when they are retaining them, what platforms? I would assume primarily like Diamond, but what other platforms might they be migrating to?

First of all, the retention rates across the whole Advent business are actually higher than they have been. So, we're not really seeing lots of migrations off Axys. But when people to consider upgrade, a lot of them are choosing Black Diamond. Some are choosing GWP. Of course, we're not going to keep every client that decides to look. But for the most part, we're not having a significant activation in any of the Advent products.

And secondly, we have objectively decided that the Axys client base is a 1,500 to 2,000, very stable clients that have been long-term clients and we're bringing out new products and services to that group of 1,500 to 2,000. Quite a bit different strategy than had been employed prior to us acquiring Advent in July 2016.

Got it. That's helpful.

Thank you. And our next question comes from the line of Alex Kramm with UBS.

Hey, good evening. Just coming back to the revenue side and I guess the miss in the quarter for a little bit. I really appreciate that you are kind of blaming yourself here and saying it was all execution. So, that's great. Just wondering more generally, has anything changed in the sales environment as well. I'm thinking, all these regulatory demands that we're seeing with MiFID II coming in soon. Is it just harder right now given the demands on the customer base or is it really just like you didn't do a good job and you've got to be better at forecasting this stuff?

Yeah. I would say we were not responsible for the hurricane, right? So, we're not taking that one, right? And that was probably $1 million or more that cost us in revenue. We're trying to get better weather models, but we don't have them yet. We're concerned about climate change too here. So, it is something that we keep an eye on. But I do think that when you have as many deals in our pipeline as you do, you have to really get disciplined about – as Rahul had said earlier about, when do we ink contracts. And when you see some softness in professional services, it's also because we have teams of people ready to go and then the contract gets delayed a month or two. So, now, you have three or four people that would've been billing out at some thousands of dollars a day and now they're sitting on the sidelines for two or three weeks, and that's expensive. So, I think we're trying to tighten up those processes and procedures. We're trying to make sure that the player coaches that we have in the management structure, in the sales force that they are comped correctly for their management capabilities as well as the commissions they get on their own deals. So, we're focusing across all of the lines of those things and trying to make sure we manage the business better. But, in general, when we have year-over-year 19% earnings growth, in earnings per share, we don't cry too much in our beer.

And just very quickly, can you just give – as an update about AUA, where we stand right now in the alternatives business. Thank you.

At the end of Q3, AUA was $1.48 trillion.

Very good. Thank you.

And our next question comes from the line of Ranya Kumar with Evercore.

Good evening. Can you call out organic revenue growth from the alternatives and fund administration businesses at their quarter end? Secondly, if you can discuss your overall client retention in the quarter.

I miss the second part of – the first part of it, the alternatives business grew organically 10.7% in Q3. And I'm sorry, but I missed the second part of your question.

Our retention rate?

Yeah, our client retention rate.

Our retention rates, and the measure them LTM. For the last 12 months, we are 97% at the end of the third quarter.

Great, thank you. Could you just discuss your expectations for revenue and earnings contribution from your recent acquisition of CommonWealth Fund Services?

Not enough.

CommonWealth is going to contribute about $1 million in the fourth quarter, which is about – I think it's about two-and-a-half months.

Great. And lastly, if you can speak about your acquisition pipeline and what types of acquisition you're seeking there.

Yeah. We're looking at a number of deals in both the US and internationally. We think we'll get another deal before the end of the year, but that's two months left or a little more than two months. And if I get to the lawyers, I would have to get through regulators. So, I wouldn't bet the farm on that, but we're pretty aggressive when it's something we want. And there's a lot of stuff for sale. World is awash in money. PE has got more money it's ever had. So, prices are firm. And you have to be disciplined or you'll end up with a disparate set of products and services that are hard to gel together.

Thank you.

Thank you. And our next question comes from the line of John DiFucci with Jefferies.

Hey, guys. This is AJ Ljubich on for John. I'm just wondering if we can take a step back, now that we're nearing the end of 2017. Can you provide any preliminary comments on the outlook for 2018 and if there are any catalysts out there that you could potentially see that might be able to accelerate topline growth entering the year?

I think -- the stock market is that, what, 23,300 or 23,400 on the Dow and similar levels at the S&P 500. If you have continued strength in the financial markets, you're going to have strength in SS&C's business because you get confident people with who all of you work with. And you know good and well how much more quickly they make decisions, they launch new funds, they create new products, they need new technology, they go into new geographies, and there's new demands by regulators all over the world. So, we think that that there is a momentum in the world's wealth creation that is going to benefit SS&C and we think it will go well beyond just 2018.

Great, thanks. And I was wondering too if we could just get a quick update on the real assets division. I know it's relatively new. But have you had any sort of initial traction there and do you expect that division to be a meaningful contributor to your revenue in sort of the intermediate term?

We're really pleased with the work Bhagesh has done already. Bhagesh Malde manages that. And I think I announced in my remarks that we had won an $8 billion real estate and property management firm, which was one of the first real big wins for that division. We won a few others where we've got a handful of really big ones and a bunch of medium-size ones in the pipeline. Look, in terms of – it's going to take a while to build up the revenue contribution, but we feel pretty good about the opportunity and we certainly think that, over a few years, that could be a few hundred million dollar business for us.

Great. Thanks very much.

Thank you. And our next question comes from the line of Sterling Auty with JP Morgan.

Hey, guys. This is Jackson Ader on for Sterling tonight. One quick question. Norm, I think that you mentioned that the Middle East and Far East sales teams had experienced some recent changes. We're just curious what those changes were and how recent and maybe any early impacts from those.

We've got some realignment of the some of the sales management and some of the sales management and some of the geographies in terms of who won. Some of these added a lot of sales guys. And we actually had probably the strongest sales pipeline we've had in that part of the world in a long time. So, I think – but there's also some experience challenges with that group that it's hard to find an opportunity and then get people interested in signing, but now we have to judge whether they are going to close when we want them to close. So, that's what we need to help them, right? That's where we have management responsibility to step in and help people get things closed. But I think we're comfortable that that part of the world has kind of started contributing more to our revenue opportunity and we're going to keep investing in the sales organization there and make sure we build products that specialize in the things that that part of the world needs.

And I think just to add to that, right, we also have some pretty senior sales and executives – Walter Kallis [ph] is one example of that. Justin Nottage is another one. So, we're starting to see more momentum, more deals in that part of the world.

Okay, got it. Thanks, guys.

Thank you. And our next question comes from the line of Chris Donat with Sandler O'Neill.

Good afternoon. Thanks for taking my questions. Just to go back on the delayed transactions. So, I thought I heard you mention that Primatics was involved. And I assume this is something small, but was just wondering if that was related to the EVOLV software and all the current estimate of credit losses because it's an accounting standard that's not in effect for a couple years, so I imagine the banks who are going to use that product don't have their feet to the fire. Anyway, I'm just wondering if that's the factor in the timing of some of these deals or not.

I think it is, although I think we have a pretty strong pipeline in Primatics and we have some talented people and I think it's focused. I think – that group reports up to Rahul and maybe you have some comments.

Yeah. I think the three or four deals in particular, we've already signed some of them. And you're correct in [indiscernible]. We've still got a ways to go before the implementation date, but we are starting to see the pipe build up. And like Bill said, we've got a lot of confidence in that management team. We're just trying to bring a little more discipline into this process.

Okay. And then, separate issue, but just curious on the appointment of your new chief information officer. Does that signal anything in a structural management change or is it just you needed to fill a role there? Just trying to understand if it's something new or just more of the same.

Bob Schwartz who was running that position [indiscernible].

Yeah. Bob is our long-term chief information officer. And previously, he was at GlobeOp. And prior to that, he was at Lehman Brothers. And so, we're trying to get somebody of the equal caliber as Bob and we think CV really has already made an impact for us.

Okay, thank you.

Thank you. And our next question comes from the line of Patrick O'Shaughnessy with Raymond James.

Hey, good afternoon. So, clearly, there's no notable divergence between your fund admin organic growth and your total. I think as you said, 10.7% for fund admin in the third quarter versus 2.9% overall. That would, obviously, imply that there is negative organic growth for the other half of your business. Are there pockets of the other half that are seeing customer losses or seeing pricing pressure or anything of that dimension or is it really just tough comps for professional services revenue?

Well, I think there's some attrition in the other licensing business. We're bringing out new products as fast as we can in order to be able to give people our path to technology. I think Advent has had some success. They had a pretty tough comp in the Q3 last year to Q3 of this year and they are going to have pretty tough comp in Q4. But they are a talented group, with a lot of capability and a good sales force. I think license businesses worldwide, for most software companies, have more challenge with capital expenditures inside financial services organizations because primarily over the last ten years the government hasn't let financial services companies grow the way that they could have grown. And so, what that leads to is a retrenchment. And I think what we're seeing is – there is some semblance of animal spirits in the US economy in particular, in the world economy overall, and I think if they let them run i a little bit that we will start to see some aggressive risk-taking where people have a chance to build new products and new services in financial services and then need support organizations like SS&C in order for them to follow through on their ambition.

Great, thank you.

Thank you. And that concludes our question-and-answer session for today. I will now turn the call back over to Bill Stone for closing remarks.

Again, thanks everybody for being on the call. I do understand that 19% earnings per share growth is not enough, right? And that doesn't mean that we're going to do better than 19% earnings-per-share growth forever, but we're going to do pretty well for a long time. So, we appreciate your interest and we look forward to talk to you at the end of the year. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.