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Ladies and gentlemen, thank you for standing by and welcome to SS&C Technologies Third Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]
I would now to like hand the conference over to your speaker today. Miss Justine Stone, thank you, please go ahead.
Hi, everyone. Welcome and thank you for joining us for our third quarter 2019 earnings call. I’m Justine Stone, Investor Relations for SS&C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer 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 as a result of various important factors, including those discussed in the risk factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website.
These forward-looking statements represent our expectations only as of today, October 31, 2019. 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 joining us today. What 90 days difference makes? Our results for the quarter are $1,150.8 million in adjusted revenue and $0.93 in adjusted diluted earnings per share. Our adjusted consolidated EBITDA was $445.8 million and our adjusted consolidated EBITDA margin was 38.7%. Q3 organic revenue growth was 3.2%. We’ve made a number of organizational changes to streamline our processes and enhance our clients offering and ultimately drive revenue.
Robert [indiscernible] and Ken Visconti [ph] were promoted to Co-General Manager of SS&C Intralinks and Mike [indiscernible] was promoted to general manager of SS&CS [ph]. Steve Graims [ph] is now Global Head of Sales and is charge of developing strategy and process across the company to maximize our revenue opportunity in this short term and we’ll focus on large and strategy account. Rob Stone is now Head of Alternative Asset sales.
We were expecting between $1.16 billion and $1.2 billion in operating cash flow for 2019. And shareholder focus capital allocation is always a top priority. In August, the Board approved $500 million common stock repurchase program and in the third quarter we purchased $60 million or 1.3 million shares at an average price of $45. While stock buybacks have not been a priority lately, we’re inclined to direct some cash towards repurchases when we feel our stock is undervalued.
We continue to pay down debt, now we paid down $629 million so far in 2009, 10 times more debt repayment than stock repurchased. Bringing our secured net leverage to 2.98 times and our total net leverage to 4.05, we’re also participating the M&A market. We acquired Investrack in the Middle East earlier this month and we expect to close Algorithmics, we’re buying from IBM by the end of this year. These acquisitions will provide enhanced technology, talented new employees, new capability and new markets.
And with that, I’ll turn it over to Rahul.
Thanks Bill, we had a strong quarter operationally and continued to capitalize on market trends in the financial services and healthcare industries. Organic momentum in several of our business SS&C GlobeOp our fund services business continues to win new launches and conversions from other administrators. The real assets business has gained momentum in open ended real estate, opportunities owned funds and our private equity businesses benefiting from increased outsourcing amongst private equity firms. Well our timing is very well positioned with new launches in RIA space and across the company we’re building new products enhancing our service offerings and expanding our relationships with large and strategic customers.
We’re also gaining momentum internationally. We’ve increased our ground presence in the Asia Pacific region in the last several quarters and the investments are paying off. Our Advent, Eze and private equity Groups has capitalized on the growing assets and new fund launches in Asia and we’re seeing more opportunity within DST’s international business in the UK and Australia. Delivering new technology to these customers such as our WALLETSHARE application that we rolled out in Europe, is helping enhance their business intelligence and ability to use information to drive important insights.
Now I will mention some key deals for Q3, 2019. A $50 billion plus asset manager expanded their relationship to include cloud delivery and Advent outsourcing services. An Australian investment management company extended their GWP and recon licenses to include a new acquisition, a $400 billion plus publicly traded bank extended their [indiscernible] relationships to use our CSIL accounting solution for the bank’s entire loan portfolio, a $100 billion plus alternative asset manager, an existing funded administration client chose Intralinks fund raising portal to replace a competitor system. A large mutual fund client extended their relationship to include events and their services.
An existing Blue Cross Blue Shield client chose SS&C Health Solutions for their Medicare operations. A $9 billion AUA hedge fund who is a Geneva client, one is a consolidated operational process under one roof and chose SS&C’s fund administration middle office, investor and regulatory services. A multi-billion startup hedge fund chose SS&C GlobeOp for their fund administration and reporting requirements. An existing private equity services client chose to combine fund administration services with DSTL’s [ph] transfer agency services for their interval fund.
We’ll now turn it over to Patrick to run through the financials.
Thanks, Rahul. Results for the third quarter where GAAP revenues of $1,144.2 million GAAP net income of $95 million and diluted EPS of $0.36. Adjusted revenue was $1,150.8 million excluding the impact of the adoption of the revenue standard 606 and the acquired revenue adjustment DST and Intralink’s acquisitions. Overall, we had a strong quarter, adjusted revenue was 14.7%, adjusted operating income increased 23.5% and adjusted diluted EPS was $0.93, a 17.7% increase over Q3, 2018.
Adjusted revenue increased $147.9 million or 14.7% in the quarter. The acquisitions of Eze and Intralinks contributed $148.8 million. Foreign exchange had an unfavorable impact of $9 million or 0.9% in the quarter. Organic growth was 3.2% driven by the strength in our institutional management, alternatives and [indiscernible] businesses. Adjusted operating income for the quarter was $425.6 million an increase of $80.9 million or 23.5% from the third quarter of 2018.
Foreign exchange had a positive impact of $7.5 million on expenses in the quarter. The adjusted operating margins improved from 34.4% in the third quarter of 2018 to 37% in the third quarter of 2019. DST adjusted operating margins were 35.1% in the third quarter of 2019 and annual run rate implemented cost synergies reached $320.5 million at the end of the quarter. Adjusted consolidated EBITDA was $445.8 million or 38.7% of adjusted revenue and increased 21.8% over Q3, 2018.
Net interest expense in the quarter was $98.5 million, it includes $4.5 million of non-cash, amortized financing cost in OID [ph]. The average interest rate in the quarter for the credit facility including the senior notes was 4.84%, compared to 4.59% in the third quarter of 2018. We recorded a GAAP tax provision of $23.7 million or 20% of pretax income. We currently expect the GAAP tax rate to be approximately 22% for the full year.
Adjusted net income was $245.3 million and adjusted EPS was $0.93. Adjusted net income excludes $160.2 million of amortization of intangible assets, $17.1 million of stock based compensation, $4.5 million of amortization and non-cash financing cost in OID [ph], $11.4 million of purchased accounting adjustment mostly deferred adjustment and depreciation related to revaluation of assets. $4.1 million of revenue adjustments related to the adoption of ASC 606 and $15.4 million of non-operating cost including $10.5 million loss for mark-to-market adjustments on investments. And $2.8 million of severance related to staff reductions.
The effective tax rate we used for adjusted net income was 26%. Diluted shares increased 4% over Q3, 2018 mostly due to the shares issued for the Intralinks acquisition in the fourth quarter of 2018 and option issuance. Those were offset in Q3 by share repurchases.
On the balance sheet and cash flow, we ended the quarter with approximately $158 million in cash and cash equivalence and approximately $7.7 billion of gross debt or net debt position of approximately $7.6 billion. Operating cash for the nine months in 2019 was $755 million, is $433 million or 134% increase compared to the same period in 2018. Couple highlights for the nine months, we’ve paid $629 million of debt and that puts us at paying down $1,553 million of total debts [indiscernible] at DST acquisition in April 2018.
We paid $294.6 million cash interest compared to $171.7 million in the same period last year. In the nine months this year we’ve paid $180.3 million cash taxes compared to $95 million last year. The accounts receivables DSO at the end of quarter was 51.2 days and that compares to 51.8 days at the end of June, 2019. And we used $99 million for capital expenditures and capitalized software mostly for IT and leasehold improvements. We’ve declared and paid $76 million of common stock dividends as compared to $50.7 million in the same period last year.
Treasury stock buybacks in the quarter was total of $60.3 million and purchase 1.3 million shares in average price of $45. The impact on diluted shares in the quarter was 571,000 shares on a weighted average basis. Our LTM EBITDA which we used for our covenant was $1,868 million it includes $85 million of acquired EBITDA in cost savings related to the acquisition. Based on net debt of $7.6 million, our total leverage ratio was 4.05 times, with secured leverage ratio was 2.98 times.
Outlook for the fourth quarter, our current expectation for the fourth quarter was adjusted revenue in the range of $1,154 million to $1,184 million. Adjusted net income in the range of $247 million to $264 million and diluted shares in the range of $265 million to $267 million. Our expected organic growth will be in the range of 0.6% to 2.9% for the quarter. For the year, we continue to expect to have the adjusted tax rate of 26% and we expect cash from operating activities to be in the range of $1,160 million to $1.2 billion in a capital expenditures be in the range of 2.7% to 3% of revenue.
And then I’ll turn it over to Bill for final comments.
Thanks Patrick, last month we [indiscernible] for largest client conference to-date in Orlando, Florida with over 800 clients and 1,300 attendees. We had excellent presentation, workshops and [indiscernible]. And client conferences - SS&C deliver because of our commitment to deliver to our client. We welcome [indiscernible] 30 different SS&C product and services and we’ve had very positive impact. This week we hope to 175 SS&C personnel at our first top talent event. We again had overwhelmingly positive response as we continue to bring diverse group of talented employees together.
We service some of the largest financial services in real estate organizations in the world, with a wide array of detailed products and a whole host of both hosted and BPO services. It’s the deep subject matter expertise we have in all of the different asset classes and a very large and talented engineering capability which is the core of our success. We intend to deliver for our shareholders as well.
Now we take some questions.
[Operator Instructions] and your first question comes from the line of Dan Perlin from RBC Capital Markets. Your line is open.
Good evening and you’re right, Bill. What a change in 90 days, so congratulations on this.
I just got smarter.
I hear you. So I did want to talk about a lot of those changes, you’ve made a lot of changes. You stepped into the buyback; you did a couple of additional acquisitions as you called out. I’m wondering so do you feel like you’ve got with all of those changes and particularly in management, do you think you have like the sustainability and kind of better communication throughout the organization to give you that line of sight into 2020 and maybe you can just talk anecdotally about why that would be the case.
Well I think that’s great question for starters. I mean obviously we’re putting in some very talented people and the people that left us are talented people as well. Although they were owned by private equity firms in the case of, as in Intralinks and they got big payouts and so they left. I mean it happens all the time. The new people that we put it Bob Petroki [ph] and Ken Visconti [ph] in Intralinks and Mike [indiscernible] in Eze or the next generation of leaders, they’re ambitious, they’re smart, they’re hungry and we have a lot of hope and a lot of faith in them. But to tell you, 30, 60 days that we’re 100% confident that all is going play out well. I would be Bps’ing [ph] you and I don’t do that.
What I would say is, we’re optimistic. We have a lot of things and really working out well for us. We still have to execute it in execution game, but there’s a lot of positivity, there’s a lot of really good smart people in the business and we have to look ourselves in the mirror and make sure we’re making the right decision. We need to make sure that our best people are getting the best opportunities. We’re extending the contract and capabilities of our best people that have proven results to us, right? And we’re not doing things on wind and I think as we execute through that process and get the best people, I mean that’s why our real estate organization is growing so well.
We’ve been selling commercial loan systems and property management systems for over 20 years, but [indiscernible] came in State Street and J.P. Morgan has done a wonderful job. We get all kinds of talent that he’s brought in and all kinds of talented people that are trying to come work for us. So we’re really optimistic about that part of that business, we’re optimistic as Rahul talked about Black Diamonds, we have huge opportunities in healthcare and strong holding as a great opportunity to take advantage of that. So there’s a lot of great things that we’re doing and I’m really excited about 2020 and I’m excited about Q4.
That’s great. Patrick, can I just ask you what - why would you expect maybe the down draft in the organic growth. I think you said 4Q, so you guys implied on the current definition of Slide 5, 60 Bps to 2.9% organic growth, so that is a bit of down draft in what you’ve done in the past couple of quarters been pretty reasonable and I’m wondering if you could also just give us a sense of what’s going to be the puts and takes to get you to that low end of the range versus the high end of that range. Thank you.
I think the organic growth going down slightly sequentially is really mostly due to the DST business when you compare it to Q4, with 2018 when they had a fairly strong quarter of $564 million in revenue. Overall, if you look at what we would call our core business which is the, our alternatives in software business excluding DST, Intralinks and SS&C acquisitions we did in 2018, our core business continues to perform really well. In fact in Q3, I think our core business was up organically about 5.4% and then we expect to accelerate a little bit to little over 6% in Q4, so our core business is doing really well and we’re getting a little bit of drag on DST. Working hard to turn that business around and sign some new deals with clients.
Okay and does that explain kind of the range there as well. I mean is that the delta in terms of 60 Bps, 2.9%. It all depends on what DST has in more.
Yes, the range is DST, which the revenue really depends on transaction volume which is hard to predict precisely and then we do have a lot of license deals assigned to hit our target, so there’s a range for that.
Okay and if I guess, that’s one more seeking. Investrack and Algorithmics, can you just give us some frame work in terms of revenue contribution that you’d expected on an annualized basis or quarterly basis and then what kind of margin profile those businesses have as we think about compared to your core. Thanks guys.
Dan, I’m going to take that. I mean I think that we expect out of Investrack and Algorithmics something online of $50 million to $60 million of revenue and profitability. We’ll have to do some work on both of those companies, but we expect to get profitability up to our standard till the next 12 months and we take five questions from everybody, we’re going to be here till midnight. So thanks.
And again, we ask that you please limit yourself to one question and one follow-up. Your next question comes from the line of Rayna Kumar from Evercore ISI. Your line is open.
Good results, here. Could you flush out a little bit on just DST performance in the quarter specifically for healthcare and also for financial services?
I think as we’ve talked about over the last several weeks. We continue to see progress at DST and progress measured increasing pipeline as well as more execution and I think that’s kind of what we saw in the quarter, there’s obviously some life that we talked about. There’s some things we’re trying to overcome year-over-year, there’s also some client attrition that we knew about going into it, obviously is going to continue to happen over the next 12 to 15 months or so. But we’re performing really well on both the pipeline and revenue acquisition or opportunity front as well as on the expense management front. I think one of the other things that was said, right about $320 million in synergies which is obviously [indiscernible] wrong. We expect to be able to keep both of those engines going.
Understood and just two quick housekeeping question. Could we just get the organic revenue growth rate on the old definition for the third quarter and also your expectations for the fourth quarter and what was the alternatives revenue growth for the third quarter please?
Rayna, we have slide deck of all kinds of numbers in that you can go look up, how we calculate befores and afters. I think again we expect our fund administration business to grow 5% to 7% in the fourth quarter.
And what was it in the third quarter alternatives growth?
It was about 4.5%.
Yes, 4.5%.
Thank you.
Your next question comes from the line of Andrew Schmidt from Citi. Your line is open.
Thanks for taking my questions here. In DST particularly transfer HT [ph], why if you talk a little about just the pipeline as you see it today and then heading into 2020, what sort of gives you confidence to stabilize that and get that back to the low single-digit growth that you guys are expecting?
I think our opportunities at DST are - fall into several different categories, right it’s a big complicated business with lots of big customers, many different areas that we address. Just to run through some of them, most of the big mutual fund companies and all the fund managers that we have, have big operations where they’re performing several of the same things that we do on a outsource basis, whether that is transfer agency that they’re doing on their own book or on the investment side of the house, investment operations and the technology and other systems required to support that.
So as we talked to these customers, we’re seeing lots of opportunities for, to go in there and be able to either enhance what they have or help them get to the next generation or in some cases convert over some portion of their book and we think that will continue, so you know that’s the big part of the TA [ph] opportunity there. But there’s also DST has a more full product, while AWD [ph] which is a strong business that we have done, number of releases on over the course of this year and we think that will continue to grow. I talked a little bit about how we rolled out our WALLETSHARE which is sales intelligence and distribution intelligence for fund managers in Europe that continues to be - that process of building technology in areas where they could really benefit from and continues to be pretty important for us though. So across DST we have a number of opportunities that we feel good about.
And we also have a huge infrastructure in India that we’re opening up - possibility of our large clients being able to co-locate with us, be able to have small technology groups that we manage for them. There’s a whole series of things that we can give them that gives them better productivity, a more secure employee base where we have a large organization that knows how to recruit and retain people in India and I think that’s something that is really resonating with our large client.
Got it. Thank you for that. And then good to see the pick up on the organic growth. I was wondering if you could peak into that a little bit more especially the outperformance relative to expectations. It’s good to see the pickup in traditional asset management, so I guess particularly whether you’re seeing any change there in terms of just acceptance of solutions and shift outsourcing. Obviously, those guys have been under pressure sometime, but wondering whether you’re seeing a more sustained shift now versus historically.
Again I think Q3 of this year particularly September it became more volatility in the market, a number of our clients even saw inflows in their active accounts. So you know, most of these things when it comes to buying technology and doing new initiatives it comes with confidence. So I think and I’m not an economist or anything, but the Fed cutting interest rate again, the market’s performing pretty strongly. The prospect that we do get a deal with China, there’s a lot of opportunities that come with that. We have again large sophisticated clients, across our client base and we have large opportunities, it all comes down to getting ink on paper and we’re optimistic. We sold big business in Australia, big business in Europe, big business in North America and that’s kind of strength of our model.
All right, thank you very much guys.
And your next question comes from the line of Mayank Tandon from Needham. Your line is open.
Bill, last quarter you had mentioned that several large deals slipped. I think particularly on the DST side, could you just comment on where the pipeline is, conversion is and how do you expect that to shake out for 2020 in terms of organic growth potential?
Mayank, I think that similar to Q3, we have had a number of deals that have slipped to Q4, but we’ve also had some pretty good success in October about bringing those home, so we’re pretty optimistic about that. I think the large scale that we’re doing and I think the more we get to get inside of these great big organization and show them how we do things versus how they do things, has started to resonate increasingly. And so I think that in 2020, as we keep rolling out more technology and more solution based businesses, the ability to marry Eclipse with Geneva or marry Eclipse with APX be able to have multiple platforms where people that use different level of sophistication gives us [indiscernible] price differently. We’re also going through our entire client base and making sure that we get more methodical about price increases and making sure that we know where we are in the market and how we can maximize our opportunity in our current client base. So there’s lots of opportunity around the world, if we can show big cost savings for them it tends to give us a great opportunity. I think we can accelerate organic revenue growth in 2020 to 3% to 5% and maybe better if we get some tailwind.
That’s helpful and then for Patrick. Patrick, in terms of margins, I’m looking at a model this year. I think we’re going to end up with about 37% operating margin or 39% EBITDA margin, if my math is correct. How do you think margins shake out for 2020 in the absence of any more acquisitions maybe break it down between organic versus any additional synergies that you hope to capture to drive margin improvement in 2020?
I think that the midpoint for this year operating margins will be about 37%, maybe a little bit under 36.9%, 37% for the full year and we continue to target 50, to 100 basis points improvement year-to-year excluding maybe some synergies. We can also achieve that Intralinks.
Got it. Well, good job guys. Great bounce back quarter.
Your next question comes from the line of Surinder Thind from Jefferies. Your line is open.
Just a follow-up question on DST. You guys talked about the significant jump in the cost synergies, can you walk me through a little bit about what that change was? I understand that you guys were at one point looking at moving some operations to India, was that the delta or was there something else?
It’s pretty widespread, there are still a number of initiatives in India that haven’t kicked in yet, that we expect to be able to realize towards the middle of next year, but really across DST whether it’s productivity and automation or how we manage our third party relationships with vendors and contractors or IT spend process. There’s been a pretty big cultural shift. I think the management there is very, very focused on making sure that they’re getting value for what they’re spending and that’s coming through the numbers.
Understood and I guess related to that. I think the suggestion was, that there’s still a decent amount of more to potentially come, is there any color you can provide on that?
And we look around, right. We’re not done yet; I don’t know that if we’re going to keep calling it synergies or keep signing up for bigger and bigger targets. But we do expect continuous operating income improvement in DST and really across our business.
Well I mean, we run a large operation, so we expect operating leverage. We have probably 7,000 people in our engineering department. They’re supposed to engineer. All right and we engineered to get better. Right not to stay the same, not to get worse. So it’s nothing where, we get a little more insistent about what we think and what we want to do and we have the talent and capability to get it done.
Understood and as my follow-up question. Can you talk a little bit about maybe the flexibility and cost structure? It seems like we’ve had a little bit of fix and starts when it comes to the macro environment, but is there was, let’s say sustained downturn. Can you talk a little bit about that in terms of the sales force and the leverage there? Is it like kind of 70-30 where 70% is base and 30 is variable? Any color you can provide there and maybe the size of the sales force relative to the size of the engineering teams, for the rest of the firm?
Well I think if you look at our operating expenses for Q3, you’ll see I think R&D rose from $85 million to $94 million and sales and marketing raised from $50 million to $88.7 million. So I think, I mean you can see we’re both investing more in R&D and remember, when you look at our R&D, we have about $800 million services business. All right, so also sell the same R&D as software licenses where we use Geneva or we use Eclipse or we use our derivatives or whatever it is in our services business and we also get the benefit of being able to have world class products that we can sell independently. So that $94 million is a way higher percentage of our software revenue and it is our overall business revenue.
And then I think as far as sales marketing is concerned, we believe we have a big opportunity and we want to make sure we’re investing and investing in the right people and putting things in like our real assets business. We’re investing heavily in R&D, investing heavily in sales and marketing and we believe have a huge opportunity. Similarly, Black Diamond we’ve got similar kind of opportunities in Black Diamond and we think we have a huge opportunity with Eclipse. We’re rolling out new product called Singularity that we have made a few sales we’re getting some traction; we liked our opportunity and I think as you go through as we get our message out into the marketplaces. I think our ability and our capability it’s not matched by any of our competitors.
Thank you. That’s very helpful.
Your next question comes from the line of Chris Schuttler from William Blair. Your line is open.
What’s the Q4 organic revenue guidance I think if you include the clients that were lost prior to closing DST. I think it looks like 1.4%, but if you could confirm that and then just for Q3, it’s 1.4% and then what would think it would be for Q4?
Well I think we said 26% to 2.9% and 3.2% for Q3, so I mean those are the calculations we have.
Yes, I’m sorry Bill I wasn’t clear. If you’re to also consider the clients you lost prior to the DST deal. If you’re to include those in the calculation of organic, would it be like similar impact to Q3 I’m guessing.
We’re just taking the treated [ph] revenue prior to us a client DST, we’re just taking it out of the calculation.
Okay, fair enough. And then the - what’s in the Q4 revenue guide for Investrack and I’m guessing Algorithmics is not in the guide, correct?
Investrack is negligible.
Okay.
Okay, we have no added Algorithmics either into the revenue or cash flow forecast.
And then lastly for 2020, any updated thoughts on tax rate given the reduction that we’ve seen in India and UK?
We don’t have a large impact in India because we really have just the service business there. We really don’t have any revenue, so the profit margins are fairly low and cost plus, we should get a little bit of help in the - as you said in the UK, but we don’t expect something materially [ph] different.
Okay, thank you.
And your next question comes from the line of Jackson Ader from JPMorgan. Your line is open.
First one, Bill. You mentioned Eamonn, the new Global, Head of Sales early in your prepared remarks and then you kind of - you emphasized that there were opportunities here in the short-term. So I just wanted to see if you wanted to maybe rank or the priority that you think here in the short-term or the lowest hanging fruit Eamonn, has to go after here in the next three to six months.
Tell me what you - I’ve got prospect names and what we’ve been?
Yes, that would be perfect, thank you.
Yes, but that’s not likely either. I think he’s got really great opportunities across both the institutional market and as well as the hedge in private equity market. So we have all kinds of opportunity to close on deals that range from $5 million to $50 million. It’s a first time we’ve had an overlay over the entire sales organization which is what Eamonn represents, right. So Eamonn gets to draw in the entire business. Eamonn reports to Rahul which gives him a lot of organizational pull and lot of organizational responsibility and recognition. So our ability to use parts of our institutional business or parts of our real estate business or parts of our fund administration business to give somebody a solution of what they need.
There’s a large client opportunity for us in Australia and it’s a complex delivery of both in IBOR and all kinds of middle office services and being able to get the entire organization to work together is really Eamonn’s responsibility and he’s the man for the job. He’s been here since we acquired GlobeOp in 2012 and he was with GlobeOp for about seven years prior to us buying them. So we’re very confident in his capability, we’re very confident in the new guys we have in both Intralinks and Eze and there’s lots of commonality in those products too. So I think the ability for us to up sell and cross sell and deliver into our client base both new products and new services and also be able to close, these big opportunities.
Okay, great. Thanks for the color and then the follow-up is for you Rahul in the one of the customer wins that you mentioned was a startup hedge fund that selected GlobeOp for outsourcing. I’m just curious what would you estimate maybe SS&C’s win rate is for - to brand new fund starts that end up going with outsourcing solutions.
It’s a pretty close to 50%, maybe a little less than 50% that win rate goes down a little as the opportunities get bigger. But in the startup section we really both from a technology and expertise standpoint have a very, very strong offering and it’s been that way for many years.
Okay, cool. Thank you.
Your next question comes from the line of Chris Donat from Sandler O’Neill. Your line is open.
I had another one for Rahul looking at the alternative assets under administration your Slide 9 on the deck. It looks like growth has picked up the past couple of quarters in AUA. And I’m wondering if you could give us some color on, is that more performance or flows? I suspect this on the flow side, but just wondering what dynamics you drive in particularly last couple quarters.
There’s obviously a few different things going on there and flows are part of it. The other thing that’s a pretty big part of it is, just new wins in the marketplace. Right so we’ve been able to do takeaways of existing funds that have assets and that’s true in our real assets business, it’s also true in our private equity and hedge businesses and that have contributed and then asset flows, have remained reasonably positive and in the last mid of it is performance as you point out.
Okay and just going to help me roughly size between flows and new wins, which ones have been bigger over the last few years or so?
New wins have been bigger. So new clients several win or current clients starting new funds or by far the biggest impact.
Got it. Okay. Thanks very much.
And your next question comes from the line of Ashish Sabadra from Deutsche Bank. Your line is open.
Question around health business, you called out taking on some more solutions, buying some more solutions from you. I was just wondering how big is the cross sell opportunity in your existing customer base and also, how are the conversations going with other Blue Cross Blue Shield customers, which may not apply today? Thanks.
We think one of the nice things about having Sean Hogan in that business, is Sean is really looking at both our pharmacy business and our medical claims business and looking and identifying lots of opportunities close to bring them together. One of the things traditionally in that DST client base was there was not a lot of share clients between those two groups and we think they ought to be because they buy the same services from other vendors, so we’ve been working on that and we think that opportunity will remain valuable for us, for the next several quarters to years. And then we’re not commenting on any individual prospect I would say that, the areas where we have won customers, we think that there are others in those families that we can go after.
That’s how slow [ph] and maybe just question for you, Bill. When you think about the progress, you’re making on the organic growth front, the pipeline seems to be progressing pretty well and as some of these headwinds come off, how should we think about organic growth in 2020 and 2021, any preliminary thoughts there?
Well Ashish as you know right, it’s a bunch a different presentations around the world, where it’s always competitive. We have to get prepared in a very detailed way and we need to be able to take all the best parts of our business and put them into a solution. We need to have the people in our organization. Make sure they’re asking the smartest people in the organization, how we can succeed. Right. This is not a lone ranger. This is a posse. People need to make sure that they’re getting the best advice they can get; they can’t try to do it on their own without getting help from Rahul or Patrick or me or Anthony or any of our other top executives and subject matter experts.
We have the opportunity; it’s really getting people to understand that it’s getting in further that prospect and somewhat overwhelming them with our capabilities and being able to show them in a very articulate fashion. So I think given that background and that we execute we ought to start moving organic revenue growth to the mid-single digits by the middle of 2020 and hopefully moving towards the higher single-digit in 2021. But we got to execute and talk cheap and we need to make sure that we post results. Post results. It’s a great this or it’s a great that. And you say well, how much revenue did we put in this quarter? That’s all I ever ask people is, how are those numbers? When people start telling me about leading indicators, I ask them how much revenue we get to book on those leading indicators.
Yes, thanks Bill and congrats once again.
Thank you.
Your next question comes from the line of Peter Heckmann from D.A. Davidson and Company. Your line is open.
Could you comment a little bit about some of the trends in the third quarter on some of those metrics like M&A volume or Intralinks trading volumes whereas as well as could you just talk about the organic growth rate that you’re seeing out of the health solutions piece of the business.
Yes, I think Peter if you think of the trends. I mean obviously in Q3, September we had some volatility and as that had helped to improve some of the transaction volumes that we’ve posted through as in Intralinks. As far as the M&A, when you see things like - Fiat Chrysler - Peugeot merger those kinds of things create immediacy. So as you get immediacy, the CEO’s of these various companies know that really the path to greater earnings per share is probably through more scale. Right, so I think that’s the same thing that we’re seeing in financial service. If CBC and SunTrust can merge, maybe other big banks can merge to and the more you start thinking that, the more it tends to help, Intralinks business. It tends to - I think improve the overall speed in which the economy will grow and then as just as in financial services where you have so many new IRAs coming out of the large wirehouses I just think that’s a real positive thing for with the country and it’s a positive thing for SS&C.
Great, that’s helpful and I don’t think you had provided a purchase price for Algorithmics. I don’t know if it’s totally settled but can you give us an idea where that leverage would stand post-closing [indiscernible].
Pete, I don’t think it’s really - particularly meaningful to us. It’s quite a bit less than $500 million.
All right. Thank you.
And your next question comes from the line of James Fawcett from Morgan Stanley. Your line is open.
I just wanted to ask, quick question as it relates to development on pipeline etc. and can you talk a little bit about what your first retention rates on the DTC product and then also on conversion rates around pipeline. I think you kind of indicated that, sometimes only the indicators can look good. But I’m wondering how what those conversions rates look like to customers and how those are tracking and where you think there may be room for improvement. Thanks.
First there’s room for improvement everywhere. Right. And I think from a standpoint of pipeline. I think that we have a strong pipeline as we’ve ever had. In different parts of our business they use different metrics in which to estimate. But I would say that in general on sales cycle large deals. Large deals probably take somewhere between six months and 18 months to get them done and I would say in general, we probably have closed 10 to 15 large deals in each last of couple of years. I think we would be shooting for 30 to 40 large deals closing in 2020 and I would say a large deal is, $4 million to $50 million.
Got it and then what about, that’s actually really helpful and then what about in terms of customer and client retention, the larger they build on those new deals, what does that look like and - should we also anticipate some improvement in those metrics?
This is Patrick. Overall client retention for the last 12 months and this is calculated based on revenue was running at 96.4%. So that’s generally on the high end of range that we would be in probably 94% to 97% generally, for the past several years.
Okay, great. Thanks a lot.
There are no further questions at this time. Mr. Bill Stone I turn the call back over to you for any closing remarks.
Again we appreciate everybody getting on this call today. I know it’s Halloween and a bunch of you’re probably going, you’re still young, you’re going trick-or-treating or maybe you have youngsters and you’re going trick-or-treating but I wish you well and I look forward talking to you, at the end of the fourth quarter. Thanks.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.