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Edited Transcript of SSNC earnings conference call or presentation 27-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 SS&C Technologies Holdings Inc Earnings Call

WINDSOR Apr 30, 2017 (Thomson StreetEvents) -- Edited Transcript of SS&C Technologies Holdings Inc earnings conference call or presentation Thursday, April 27, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Justine Stone

SS&C Technologies Holdings, Inc. - Head of IR

* Normand A. Boulanger

SS&C Technologies Holdings, Inc. - President, COO and Director

* Patrick J. Pedonti

SS&C Technologies Holdings, Inc. - CFO and SVP

* Rahul Kanwar

SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets

* William C. Stone

SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO

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Conference Call Participants

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* Alex Kramm

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers

* Alexander Joseph Ljubich

Jefferies LLC, Research Division - Equity Associate

* Andrew Nicholas

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Brian Lee Essex

Morgan Stanley, Research Division - Equity Analyst

* Christopher Roy Donat

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Daniel R. Perlin

RBC Capital Markets, LLC, Research Division - Analyst

* Jackson Edmund Ader

JP Morgan Chase & Co, Research Division - Analyst

* Patrick Joseph O'Shaughnessy

Raymond James & Associates, Inc., Research Division - Research Analyst

* Rayna Kumar

Evercore ISI, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the SS&C Technologies First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to hand the conference to your host, Ms. Justine Stone, Investor Relations for SS&C Technologies. Ma'am, you may begin.

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Justine Stone, SS&C Technologies Holdings, Inc. - Head of IR [2]

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Hi, everyone. Thank you for joining us for our Q1 2017 earnings call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Norm Boulanger, President and Chief Operating Officer; Rahul Kanwar, Senior Vice President and Head of SS&C GlobeOp; and Patrick Pedonti, 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 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, April 27, 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 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.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [3]

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Thanks, Justine, and thanks, everyone, for being on -- being with us on our first quarter 2017 call. And we have a strong start to 2017. We grew adjusted revenue 19.4% to over $409 million, and we grew adjusted delivery earnings per share 18.9% to $0.44 a share in Q1.

Impressively, we also grew our operating cash flow over 200% primarily due to the high cash flow on our earnings.

Momentum from the back half of '16 continued to build this quarter. We are seeing strength in our core products as well as a resurgence in the alternatives space. Our hedge fund indices that we report each month indicate the market is strengthening, and we believe our robust pipeline supports this.

Now we're happy to add Bhagesh Malde to SS&C GlobeOp, who came on with us in March, and he's running our Real Assets division. This will include fund account and outsourcing services for real estate, infrastructure and hard asset. We believe we can leverage Bhagesh's expertise and comprehensive offering to provide a dynamic and differentiated service. We expect to see results by the end of the year.

As I'm sure you've seen, we are hosting an Analyst Day on May 2 at the NASDAQ market site in New York City. This year's presentation and panel format will showcase our expertise with presentation and panels on our software businesses, institutional outsourcing, SS&C GlobeOp's alternatives business, technology and our sales and marketing organization. Please reach out to Justine if you have any questions or would like to RSVP.

And with that, I'll turn it over to Norm.

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Normand A. Boulanger, SS&C Technologies Holdings, Inc. - President, COO and Director [4]

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Thanks, Bill.

As Bill mentioned, we get off to a strong start in 2017. We continue to see interest on our loan and credit solutions, which include Precision LM loan services and Primatics EVOLV platform. We are monitoring our recent acquisitions closely, and we are pleased with the margin improvement in Citi, Wells and Conifer Fund Admin.

The RIA market presents a big opportunity for SS&C going forward. Earlier this month, we announced that our Black Diamond and Wells platform has reached over 1,000 firms using the technology in outsource service. More than 240 of those clients signed in 2016 alone.

Black Diamond now manages the data of more than 1 million accounts. SS&C is executing on an aggressive road map for Black Diamond in 2017, namely focusing on enhancing and mobilizing conversations with clients and providing features and tools that help advisers scale and [gain] time.

This quarter, we announced the release of Vision FI, a next-generation product advancing the Varden eReportal platform and provides SS&C customers a comprehensive end-to-end solution for designing, producing and distributing both online and printed client communications.

More than 300 customers use SS&C solutions for client communications to cover every segment of the market, ranging from boutiques with $100 million in assets to the very largest firms in the investment.

We believe Vision FI supports investment managers expanded need for a client communication tool that offers flexibility, customization and differentiation.

Now I'd like to review some key deals for Q1. A Northeast-based fixed income asset manager with over $60 million in insurance assets chose to extend their CAMRA license for the rest of the insurance companies under the corporate umbrella. An Atlanta-based mortgage banking company with core businesses in the origination and service of commercial mortgage loans licensed Precision LM to support their loan servicing operation.

An existing client who acquired our specialty asset manager is upgrading from Black Diamond to GWP to support expanding requirement of managing several daily liquidity funds.

A $21 billion asset manager chose SS&C's Evare and Recon solutions. We are providing a comprehensive solution including hosting and outsource reconciliation service.

An existing client, a $6 billion AUM broker, chose Advent outsource solution and Varden for their client portal.

A $42 million AUM current Geneva client purchased SS&C Recon for daily position transaction and cash reconciliations.

A $1.4 billion asset manager chose to upgrade from Axys to APX after a competitive RFP.

An existing broker dealer client chose to license SS&C's Global Wealth Platform solution.

A $2.2 billion in AUM asset manager chose Black Diamond for their portfolio management and reporting process because of our focus on partnerships.

And last, a national bank with total assets exceeding $65 billion signed a multimillion-dollar several year deal to expand its use of Primatics EVOLV to improve the (inaudible) entire loan asset portfolio.

I'll now turn it over to Rahul to discuss the alternatives business.

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [5]

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Thanks, Norm.

SS&C GlobeOp grew 48.5% in revenue for the quarter ended March 31, 2017, compared to March 31, 2016. We continue to see a strong pipeline in private equity, hedge, hybrid and middle office opportunities.

As Bill mentioned, Bhagesh Malde joined SS&C in March to run our newly formed Real Assets division and lead the servicing -- lead our servicing of these important asset classes.

Real assets consisting of infrastructure, real estate, oil and gas, agricultural land and other similar areas continue to attract attention from institutional investors and advisers. We're seeing significant opportunity to help these firms streamline their operations and take advantage of our technology and experts.

Customers include the investment and operating firms as well as the investors who need to consolidate and report on their portfolios across multiple asset classes.

We are confident Bhagesh and his team will bring much-needed value to this space.

Now I'd like to go over key deals for Q1. A $10 billion plus hedge fund and current Geneva customer chose to outsource their fund administration with SS&C GlobeOp.

A $7 billion real estate firm chose SS&C GlobeOp services, citing our capability and flexibility.

An existing client chose SS&C GlobeOp for their new debt and credit fund. We won with our overall expertise in private credit as well as our investor services and wire processing technology.

The existing fund administration client chose to extend their relationship with SS&C through their managed account platform across commodity, long/short equity and global macro strategies.

A Hong Kong-based investment management company chose SS&C GlobeOp fund administration services.

Another Hong Kong-based firm and existing client launched new debt loan funds with SS&C GlobeOp as their administrator.

A Luxembourg fund chose to outsource their middle office with SS&C GlobeOp. We were chosen for the breadth of valuation services and the functionality and depth of our collateral offering.

I will now turn it over to Patrick.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [6]

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Thanks, Rahul.

The results for the first quarter of 2017 are GAAP revenue of $407.7 million, GAAP net income of $48.1 million and GAAP EPS of $0.23.

On an adjusted basis, adjusted revenue was $409.5 million, and that excluded the adjustment for acquired deferred revenue from the Advent acquisition.

Overall, we had a strong quarter. Adjusted revenue was up 19.4%; adjusted operating income was up 15% and adjusted EPS was up 18.9% over 2016.

The adjusted revenue increase was $66.4 million or 19.4%. The acquisitions of Citi Fund Admin, Wells Funds Admin Service business, Salentica and Conifer contributed $58 million.

Foreign exchange had a negative impact of $0.9 million or 0.3% in the quarter, mostly due to the weakness in the British pound.

And adjusting the prior year for only the acquired Citi Fund Administration revenue and also adjusting for the loss of Advent revenue as a result of the acquisitions we did last year, organic growth on a constant currency basis was 3.1%.

Adjusted operating income was $155.4 million, an increase of $20.2 million or 15% from the first quarter of 2016.

Operating margins decreased to 38% from 39.4% in Q1 '16. The operating margins were mainly impacted by the Citi, Wells and Conifer acquisitions, which had a combined margin of 23.3% in the quarter.

Adjusted EBITDA was $161.7 million or 39.5% of adjusted revenue, an increase of 14.2% over 2016.

In the quarter, we repriced our credit facility and reduced our interest rate spread on both the Term be B and the Term A facilities by 75 bps.

Net interest expense for the quarter was $29 million and includes $2.7 million of noncash amortized financing and OID costs. And we expect the average interest rate going forward, assuming current LIBOR rates and including the notes, to be approximately 3.9%.

And we reported a GAAP tax provision of $10.2 million or 7.4% of pretax income.

Also in the first quarter, we adopted the new accounting standard for stock comp, ASU 2016-09. This standard eliminated the stock buyback from excess tax benefit and options when calculating diluted shares and move the actual tax benefit from an entry to equity to a credit to tax provision.

This accounting standard change resulted in our diluted shares increasing by $1.6 million in a quarter. And as an offset, we reduced our income tax rate on an adjusted basis to 28%.

So adjusted net income was $92.9 million and adjusted EPS was $0.44. The adjusted net income excludes $52.4 million of amortization of intangible assets, $10.9 million of stock-based compensation, $2.7 million of noncash debt issuance costs, and we took a $2.3 million loss on the extinguishment of debt when we repriced the debt.

In addition, we had $1.8 million of adjustment on the deferred revenue and approximately $0.7 million of other tax -- other expense items. And as I said, we're using effective tax rate of 28% for the quarter.

For cash and cash flow as of March 31, we had $108.8 million of cash and $2,499,000,000 of gross debt for a net debt position of approximately $2,391,000,000.

Operating cash flow for the 3 months was $56.5 million, a $37.9 million or 203% increase from 2016.

Cash flow in the quarter was mainly driven by improved cash earnings in the quarter.

Also in the quarter, we paid down $60.2 million of debt and now a total of approximately $647 million since we acquired Advent, and that includes that we paid $160 million in cash for the acquisitions of Salentica, the Wells Fund Admin business and Conifer.

In the quarter, we paid $40.7 million of interest compared to $40.8 million last year, and that includes a semi-annual interest payment on the notes.

We paid $10.4 million in cash taxes compared to $5.1 million in 2016.

Our accounts receivable DSO was 54.4 days compared to 52.7 days as of December 2016. But we made some progress on the DSO for the acquisitions, and they went from 68 days as of December 2016 to 64 days as of March.

We used $9.3 million of capital expenditures in capitalized software, mostly for IT and facilities expansion, and we issued our quarterly dividend for $12.7 million for the quarter.

We ended the quarter with a leverage ratio of 3.7x, that's down from 3.9x as of December, and that's based on $639 million of LTM consolidated EBITDA.

For outlook for Q2, our current expectation for the second quarter is adjusted revenue in the range of $408 million to $416 million, adjusted net income of $93.7 million to $98 million and diluted shares in the range of 210 million to 210.4 million.

Our current expectation for the full year of '17 is adjusted revenue in the range of $1,664,000,000 to $1,686,000,000, adjusted net income of $399 million to $412 million and diluted shares for the full year of approximately 210.2 million to 211 million.

We expect the operating cash flow to be about $485 million to $500 million for the full year and capital expenditures in the range of 2.8% to 3.2% of revenue.

And as I said, we expect the tax rate to be about 28% for the full year.

And now I'll turn it back over to Bill for a final comment.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [7]

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Thanks, Patrick.

As you can see -- as all of you can see, our management team is pretty excited about our prospects. We have also -- have any number of potential assets we could acquire over the next few quarters. Prices are firm, but some assets are certainly within our reach. Private equity appears to be our biggest competitor, but as many of you know, we are much more likely to realize more significant synergies than the private equity firms. We will realize these synergies in a much more rapid fashion as well.

Again, thank you for joining our call. And at this point, Valerie, I'd like to open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Alex Kramm of UBS.

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Alex Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [2]

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First off, let's maybe just talk about revenues and organic growth here for a second. It seems like you came in above your high end of the range, but I think you were at the low end for organic growth of what you have guided last quarter. So just curious where the disconnect was, if some of that revenue from the acquisitions from Citi and so on were sticking around longer than you thought it was rolling off. Or is anything else going on that you want to call out why organic growth was lower, but you actually beat -- the guidance overall?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [3]

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Yes, I think I'll take that. I think we feel pretty strong about our quarter. We do have our acquisitions, being particularly steady, have had stronger for revenue, and that doesn't include the stuff that is running off. And so you have primarily Citi in the first quarter as being non-organic. And then as far as organic growth is concerned, we had a number of contracts that we thought we're going to be perpetual licenses, which would have been larger and drop right down at the bottom line and probably kicked up organic growth a bit, but those got switched to term licenses. And actually, on an economic basis, it's better for us, but for an understanding of our analysts, it's not quite as good.

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Alex Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [4]

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All right. Fair enough. And then just maybe secondly, just on the margin side. I would say came a little bit softer than we expected, and you called out the acquisition margin, I think, in the 23% range. I think that actually declined quarter-over-quarter. So maybe just flush it out a little bit more as well. Are some of the costs taking a little bit longer to come out? Is it some other costs from the base business? Just why maybe a little bit softer than where expectations were?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [5]

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Yes, Patrick, you can comment after a second. But I would just like to kind of say, remember, we bought Wells and we bought Conifer in December of 2016, right? So the first time you're going to get down into our full quarter is the first quarter of 2017. So that $18 million or $19 million in revenue is not at our corporate rates of about $40 million to $42 million. It's more at $15 million to $20 million. And so I think that would explain the softness in the overall EBITDA margins and operating margins. But it's not something that we didn't expect. I don't know if you have anything else, Patrick?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [6]

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I think that's right, Bill. That was what I was going to say. I mean, the main impact from Q4 or last year to Q1 was that now, we have Wells and Conifer. And we've only owned them for 3 months and haven't really made a significant impact on our cost structure. We did make a little bit of -- we did see some improvement from where they were running as stand-alone companies last year. But the main reason is Conifer and Wells.

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Alex Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [7]

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All right. Great. And then maybe one last one real quick. Can you just talk about alternatives organic growth and how the growth has changed for maybe what you saw last quarter or last year in terms of hedge funds versus other businesses? And that's it for me then.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [8]

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Well, the alternatives organic growth in Q1 was approximately 8.2%.

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [9]

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Yes. So a couple of things just to comment on that. In that 8.2% are some onetime things that we don't expect to recur. But as Bill pointed out, we did build up a lot of momentum towards the end of last year in terms of pipeline and deals we signed, and we were able to complete some projects. So there's probably a 2 points or so of extra growth in there. But we think that the recurring growth rate, about 6%, is better than we've seen in the last few quarters. Mix continues to be pretty broadly spread. I think it's been pleasant to see the hedge funds come back some and we continue to see good growth in our private equity, hybrid and middle-office and regulatory business.

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Operator [10]

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Our next question comes from John DiFucci.

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Alexander Joseph Ljubich, Jefferies LLC, Research Division - Equity Associate [11]

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This is AJ Ljubich on for John. I did notice the cash flow I think was a bit light relative to expectations. You talked a little bit about it, but if you can just give it a bit more detail on were there some onetime items that were sort of built into that. And you actually have raised the full year cash flow guidance at the midpoint. So just curious how you have conviction that you'll be able to reach that for the full year.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [12]

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I'm not sure. I mean, our view is that Q1 was better than we expected. You've got to remember, in the first quarter is when we pay our annual bonuses. So it's typically the weakest cash flow quarter in the year. But when we gave guidance last quarter, we probably thought that our operating cash flow for Q1 would be around $40 million to $45 million, and we did better than that. So we think we're on target to hit somewhere between $485 million and $500 million operating cash flow for the year.

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Alexander Joseph Ljubich, Jefferies LLC, Research Division - Equity Associate [13]

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Okay, that's helpful. Maybe one for Bill. Last quarter, you talked about as you looked at acquisition candidates that have a lot of assets or sort of extended in valuation, you also talked about if you weren't able to find very attractive acquisition candidates, you might consider returning capital to shareholder. Just so we can get your refreshed thoughts on current valuations as you look at potential M&A and sort of the thought process on the mix of potential M&A versus returning capital.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [14]

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Yes, I think that -- as Patrick reported a little earlier that our leverage ratio is 3.7. So we have some capacity to do some acquisitions if we could find the right assets and get them at a reasonable price. And as always, we're in various discussions with various entities. And so that is one of the highest priorities for our free cash flow. And then once we get -- if we can't find them, and until we pay down debt and increase in our EBITDA and we start moving towards 3x leverage, then maybe we'll increase the dividends or buy back some stock or look at other ways in which to return capital to shareholders. I mean, we're very comfortable at 2.5x to 3.5x leverage, and that doesn't mean we won't keeping paying down if we don't think that -- we're only carrying debt, and we just have more firepower when we find larger acquisitions. But we kind of like the position we're in now. We're one of the only strategic buyers in a number of areas that we're in, and we have both the financial power to do it but we also have the relationships with the major financing banks to be able to move very quickly and get a lot of support from them based on our track record.

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Operator [15]

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

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Christopher Roy Donat, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [16]

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Bill, just a follow-up on the last one with the amendment you just did to your debt. Did that in any way change your view on potential leverage caps or how the fixed income community feels about you taking on more leverage?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [17]

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I don't think so. I mean, I think that we basically did that in about 48 hours, I think, Chris. So I don't think that we have anything. But a really strong following when we repriced that. And as Patrick said, our combined interest rate as of today, including our 5 7/8 notes is 3.9%. We can pay handsome prices for asset if we could borrow money at 3.9%. And we can make a lot of money for equity shareholders.

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Christopher Roy Donat, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [18]

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Okay. And then just...

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [19]

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Chris, the other thing, too, I think is when we reprice the term facility, basically, what happens is people can roll into a new facility. And I think it shows the confidence of the debt holder. I think we've got about 90% of them that rolled into the new facility.

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Christopher Roy Donat, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [20]

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Okay. And then, Patrick, just one sort of housekeeping one on the guidance in 2017. Is the relative to last quarter, the change in the tax rate and the share count, that's just all a function of the new accounting standard, right?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [21]

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All a function of the new accounting standard. It's pretty much -- I mean, it's going to really depend on how many options are exercised by employees for the year because the number could fluctuate a little bit. But yes, basically, the accounting rule on January 1 eliminated the buyback in the diluted share calculation with the tax benefit and instead move that -- and then move that tax benefit straight to equity to the tax provision. So we've got about 1.6 million increase in shares and then we took the tax benefit to reduce the rate to 28%. It's pretty much a wash.

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Operator [22]

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Our next question comes from Brian Essex with Morgan Stanley.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [23]

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I was wondering if maybe you could comment on where you saw the organic growth come from, if you could zero in on that a little bit. Was it primarily asset growth or was it new deal wins? And then on the new deal win side, if you could maybe highlight where those deal wins are coming from, compare the displacement versus new fund starts or any other notable sources?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [24]

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Yes. So in the SS&C GlobeOp business, the organic growth is, I would say, primarily new deal wins with some lift from current clients. And then the new deal wins -- it's definitely a mix of new launches as well as competitive takeaways. But the bigger value deals, the bigger revenue deals tend to be their competitor business takeaways or particularly now private equity and closed-end fund type businesses. They may be outsourcing functions that were previously done internally.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [25]

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Got it. And I'm sorry if I missed it, but where did you guys shake out on AUA for the quarter?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [26]

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AUA at the end of the quarter was $1.35 trillion.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [27]

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Got it. And then -- and maybe if I could just sneak one more in. On the deals that you're seeing, how has pricing trended versus maybe last year? Is the pricing environment getting more favorable for you or are you still maintaining some kind of a discipline on the pricing environment that you're managing in deals?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [28]

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I think it's pretty consistent. We've got -- a lot of times, we've got a broader suite of products and services that we can bring to our prospect. So those broader prospects and -- broader products and services sometimes yield a little more price. But in general, the environment is pretty consistent with last year.

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Brian Lee Essex, Morgan Stanley, Research Division - Equity Analyst [29]

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Are attach rates similar to what they have been in the past or are those increasing in the deals?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [30]

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I think they're pretty similar.

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Operator [31]

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Our next question comes from Dan Perlin of RBC Capital Markets.

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Daniel R. Perlin, RBC Capital Markets, LLC, Research Division - Analyst [32]

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So on the 3 acquisitions you mentioned, Citi, Wells and Conifer, and I think you gave a kind of packaged margin around 23 3, if I was right. Can you just help us think through what the cadence of improvement potentially could be as we think about the next 3 quarters around those assets in particular?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [33]

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Yes. So I think our target on Citi was to get pretty close to our corporate margins, if not, at our corporate margins by the end of the year. And I think we're progressing towards that. On Wells and Conifer, we're obviously a little further behind. We haven't had much time. But we are targeting to get them up in the 40, low-40s by mid next year.

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Daniel R. Perlin, RBC Capital Markets, LLC, Research Division - Analyst [34]

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Okay. So both mid-40s by next year, and Citi's well on its way, I thought, to kind of getting to that point, it sounded like. So this is more back-end loaded clearly for those latter 2 in terms of the ramp? Or should we really be thinking about it more of a -- much more into the '18 time period?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - SVP and MD of Alternative Assets [35]

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No. Look, I think you'll see us consistently improve quarter-over-quarter. As Patrick said earlier, we've only had them for 3, 4 months. So we've made a difference to where they were stand-alone, but we got a ways to go.

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Daniel R. Perlin, RBC Capital Markets, LLC, Research Division - Analyst [36]

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Okay. Can you remind us what percentage of your total revenues again are directly kind of tied to the market's returns? I mean, the market has been pretty strong. Clearly, your clients are doing better. But I just want to be reminded of how much influence that has over your revenue line.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [37]

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Yes, I think, Dan, it's really our long/short equity is about 35% of our asset because obviously, they're not all long, right? So they're 70% long, 30% short. We get -- basically 14% of our hedge fund assets are tied to the market, S&P 500, and that hedge fund revenue is probably 45% of our corporate revenue.

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Daniel R. Perlin, RBC Capital Markets, LLC, Research Division - Analyst [38]

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Okay, okay. That's helpful. Okay, that's great. And I had a question. You mentioned kind of the real accounting space a couple of times in the call. I'm wondering, do you -- in order to kind of get to a scale level, do you need to do additional acquisitions there, or do you think the assets you have currently are enough to kind of build the product portfolio around?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [39]

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I think if you're at our Analyst Day, I think Bhagesh will be there. And he's a good guy. He was at both JPMorgan and State Street prior. He built a pretty big business. And I think he would say we've got a lot of assets. And I don't think that, that would mean that we won't to get more, but I think he's pretty excited about the portfolio he's inheriting.

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Daniel R. Perlin, RBC Capital Markets, LLC, Research Division - Analyst [40]

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Okay. I figured you had to hold something back for the Analyst Day. One just housekeeping, Patrick, do you have the term and maintenance revenue in the quarter specifically?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [41]

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Adjusted in the quarter?

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Daniel R. Perlin, RBC Capital Markets, LLC, Research Division - Analyst [42]

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Yes, for term and maintenance only. We can also follow up. It's not a big deal. I'm just trying to fill up the model.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [43]

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Yes, it's -- so maintenance and term license revenue in total for their adjusted on the quarter was $110.8 million.

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Operator [44]

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Our next question comes from Rayna Kumar of Evercore.

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Rayna Kumar, Evercore ISI, Research Division - Research Analyst [45]

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I see that you had great growth in the alternatives business, 8% organic. So just wondering if you can just talk a little about the softness you may have seen in different parts of your business that got you to 3% in the quarter. And then if you can just tell us your expectations for second quarter and for 2017 organic growth, please.

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Normand A. Boulanger, SS&C Technologies Holdings, Inc. - President, COO and Director [46]

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I can take the first half and Patrick will probably take the second half. The other business that did really did well this quarter was our Primatics business. That's a term license model, but it had a nice quarter. Some of the softness was in our institutional side. Some of that was the -- some of the deals shifted to term and some of the others we had some nice license wins last year, in particular, in our Precision LM in Q1. So Q1 is always a generally little bit softer from a license perspective, and then we had a little bit of a shift in the makeup of the software this year, software sales versus term licensing.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [47]

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So -- this is Patrick. Based on our guidance, for Q2, we expect organic growth to be somewhere between 3.8% and 5.4% for Q2 based on the revenue range we provided. And for the full year, based on that range, we expect organic growth to be between 3.7% and 5% on the high end.

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Rayna Kumar, Evercore ISI, Research Division - Research Analyst [48]

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Great. That's extremely helpful. Can you just discuss here first quarter client retention rate?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [49]

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Yes, we saw an improvement in -- I mean, how we calculate the client retention rate is on an LTM basis, for the last 12 months. And as of December for the full year '16, we ran total retention of 95.4% in all our revenues. And as of March '17 for the last 12 months, we saw an improvement. The last 12 months ran at 96.3% retention.

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Rayna Kumar, Evercore ISI, Research Division - Research Analyst [50]

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Got it. And just one final one for me. You notched up your CapEx guidance a bit. Could you just discuss the drivers to that?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [51]

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I'm sorry, I miss the question?

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Rayna Kumar, Evercore ISI, Research Division - Research Analyst [52]

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You notched up your CapEx guidance for 2017. Can you just discuss the increase?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [53]

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We did. We've got higher than we originally expected capital expenditures in the facility side. As you know, we're consolidating our facilities in New York City, and then we're also getting new facilities to replace the Citi and the Wells facilities in Ireland, Singapore, Hong Kong, Ohio and Minnesota. So we've got higher leasehold improvement expenses than we initially expected.

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Justine Stone, SS&C Technologies Holdings, Inc. - Head of IR [54]

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And everyone, if you guys could try to keep your questions to one question and one follow-up, just to keep things moving along. And if you have additional questions, just get back in the queue. We'd appreciate it. Thank you.

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Operator [55]

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Our next question comes from Sterling Auty of JPMorgan.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [56]

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This is Jackson Ader on for Sterling tonight. If I can just follow up quickly on the retention rate. So of the churn, Patrick, what would you say is due to fund closure versus competitive displacement? And it doesn't have to be the exact number. Just -- I mean, if churn is 5%, it's 2% on closure or ballpark?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - CFO and SVP [57]

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Yes, I mean, that would be -- I would say if we're losing 4% or 5%, right, that probably -- at least probably 60% of that are fund closures or similar. And the rest are either competitive losses or possibly we're on the wrong side of an acquisition and they switched systems to the acquired company.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [58]

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Got you. And for my follow-up, how fast is the Real Assets group that has the new head -- how fast is that growing now? And what is the goal? What's the realistic goal for how quickly that can grow organically?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [59]

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Yes, it's a small business now, probably represents $20 million in revenue. And we'd be disappointed if we're not at a 30%, 35% -- $30 million, $35 million run rate at the end of '17, and then probably $50 million to $60 million in '18.

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Operator [60]

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Our next question comes from Chris Shutler of William Blair.

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Andrew Nicholas, [61]

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This is actually Andrew filling in for Chris, Andrew Nicholas. First question, I'm looking at both first quarter results and kind of the midpoint of guidance for both adjusted revenue and adjusted net income. And it looks like there is a little bit of a ramp in the back half of the year that's implied in those numbers. On the net income side, I'm guessing the margin expansion of the acquired companies is one driver. But is there anything else to call out in terms of what you're expecting in acceleration in the back half of the year?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [62]

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Well, I think really, the biggest drivers in the back half of the year is that we have hired Bhagesh. We also have a couple of new acquisitions in Conifer and Wells, and that's going to give us new opportunities in various areas. In particular, we're also ramping up Citi in Asia, and we think that's going to help us. And our private equity business has been pretty strong as well. And I think Norm mentioned Primatics business. The stuff that is [seasonal], which your current estimate of credit loss, we have a very strong product in that area and we're getting a lot of attention from the banks.

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Andrew Nicholas, [63]

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Great. That's helpful. And then for my follow-up, I think you guys called out a win of a $10 billion fund that was previously a Geneva client or is a Geneva client that is kind of enhancing your relationship to one that includes outsourcing. Just curious how that effort is going. I know it was a key part of some of the revenue synergies you're expected from the Advent acquisition. Just wondering if we can get an update there.

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Normand A. Boulanger, SS&C Technologies Holdings, Inc. - President, COO and Director [64]

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I'll take that, Bill. I think it's going very well, right? I think the teams are really working together. I think that particular deal was a very satisfied Geneva customer. And by the way, they're going to continue to use Geneva. But one of the advantages of that sale was that this organization can continue to use Geneva for shadow accounting while we've become the fund administrator. But the things are working really well together. And I think the market -- there's been a number of cross-sells over the course of this quarter, particularly on our reconciliation tool in the hedge fund space. So we expect that to continue. It took a little bit of work to get people kind of in sync. Particularly, when you're selling outsourcing to a licensed customer, people tend to be a little shy on that. But I expect that to be -- have a good year from a cross-sell perspective. And the pipeline for the Advent products, in particular, look really good, and we're very optimistic about its prospects for the year.

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Operator [65]

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Our next question comes from Ashish Sabadra of Deutsche Bank.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [66]

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Just a quick follow-up on the organic growth question. So the -- Advent's revenue growth that is expected to moderate from 8 to 6, but the organic growth for the full company is expected to improve in the second quarter. And I just wanted to make sure that I understand the puts and takes there. Is that because of the improvement in the I&IM business? If you can just provide some more color on that front.

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Normand A. Boulanger, SS&C Technologies Holdings, Inc. - President, COO and Director [67]

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I think in part it's going to be the improvement in the I&IM business, but we're also expecting the fund services business to continue to do well.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [68]

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Right. But that's 6%. And then if I&IM rebounds, which we expect, and we also think Primatics is going to have a good second quarter. So there's a number of moving parts, but many of them are moving in the right direction.

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Operator [69]

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Our next question comes from Patrick O'Shaughnessy of Raymond James -- I'm sorry, he left the queue. One moment. (Operator Instructions) We have a question from Patrick.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [70]

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Bill, a couple of weeks ago, there was a story saying that the private equity minority owners of a large private competitor of yours on the fund administration side are maybe looking to exit their stake. Do you think that implies anything about the attractiveness of the space to private equity right now? Or is that maybe just their investment term horizon run out and they're looking going to exit for that reason?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [71]

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Yes, I think it's more of the latter, Patrick. I think that minority stakes, when you don't have as much influence as you'd like, I think, become things that you want to liquefy. And I think that would be (inaudible) at some point.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [72]

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Got you. And then my follow-up, and I think I already know the answer to this. A minority stake in a competitor would not be interesting to you and perhaps neither feasible, is that correct?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman and CEO [73]

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Yes, it would be difficult, right? And I think that would be a bad way to put leverage on SS&C.

Thanks, everybody, for being on our call, and we look forward to seeing you next quarter. Thanks.

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Operator [74]

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Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.