DST Systems Q3 2006 Earnings Call Transcript

DST Systems, Inc. (DST)
Q3 2006 Earnings Call
October 24, 2006 11:00 am ET

Executives

Tom McDonnell - President and CEO
Ken Hager - VP and CFO
Tom McCullough - EVP and COO

Analysts

Pat Burton - Citigroup
James Kissane - Bear Stearns
Greg Smith - Merrill Lynch
Pete Heckmann - A. G. Edwards
Ken [Kawasi] - Bear Stearns
Charles Murphy - Morgan Stanley
Bryan Keane - Prudential
David Koning - Robert W. Baird
Phil Mickelson - J.P. Morgan
[Jeff Miller] - JMG Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter Investor Relations Conference Call. At this time, all participants are in a listen-only mode and later we will conduct a question and answer session. Instructions will be given at that time. (Operator Instructions). As a reminder this conference is being recorded. I would now like to turn the conference over to our host, the President and CEO, Mr. Tom McDonnell, please go ahead.

Tom McDonnell

Thank you and good morning. Before proceeding, I would like to make a statement under the SEC procedures and rules. If in the course of our conference call today, we make forward-looking statements respecting DST and its businesses, such statements would be based on our views as of today and actual results could differ. There could be a number of factors affecting future results including those set forth in DST's latest periodic report, which we filed with the SEC. All such factors should be considered in evaluating any forward-looking statements, which we may make today.

Turning to third quarter results; all of the comments on the financial results are based on those results excluding certain items set forth in the release under the section "Use of Non-GAAP Financial Information". A reconciliation of the reported GAAP results to income adjusted for the non-GAAP items is accompanying the press release.

Our net income for the third quarter on that basis totaled $50.1 million and that is $0.70 per diluted share versus $53.8 million or $0.69 per diluted share for the third quarter of 2005. There was a decrease of 6.9% in net income, but an increase of 1.4% in diluted EPS.

Consolidated operating revenues increased $7.9 million or 2% over the third quarter of 2005 to $373.7 million. That excludes the 2005 lock\line revenues.

Financial Services revenues decreased $2.9 million or 1.2%, as higher mutual funds shareowner processing revenues and increased DST International Professional Services revenues were offset by lower professional services and health solutions and a $6.3 million decline in license fee revenues across AWD Health Solutions and DSTi.

Well license fees represent only a small percentage of our Financial Services operating revenues; they significantly impact earnings when they are recognized.

Output Solutions revenues increased by $10.7 million or 8.9%; that was from higher overall processing volumes; increased international revenues from new customer relationships in Canada and the UK, and increased revenues from the billing of paper stock, which had previously been provided directly by the client.

Items mailed increased 20.1% to $637 million and images produced increased 37.3% to $4.1 billion.

However lower per unit pricing for certain large daily cycle billing clients and higher volumes from those clients at the lower prices retarded the revenue growth.

Consolidated income from operations in the third quarter of 2006 decreased by $9.9 million or 12.2% to $71.2 million.

Consolidated operating margin for the quarter was 19.1% compared to 19.7% for the prior year quarter. Financial Services income from ops decreased by $3.8 million or 5.4% over the third quarter of 2005 to a level of $67.1 million; that reflected lower license fees in the absence of lock\line operating income. Lock\line which merged in to Asurion, those Asurion earnings are now recorded in equity and earnings of unconsolidated affiliates.

Output solutions income from operations declined by $6.7 million or 89.3% to $800,000; that reflected lower unit pricing that I mentioned, but also increased cost to support the higher volumes and the continued expenditures for the implementation of new printing and inserting technologies.

Equity and earnings of unconsolidated affiliates increased by $1.8 million from the 2005 third quarter to $10.4 million; the change was principally from the inclusion of equity and earnings of Asurion, and from higher earnings at BFDS and Argus Health Systems. That was partially offset by lower earnings from international financial data services.

The higher earnings at BFDS were the result of increased accounts service and overall our operation improvement. The earnings decrease at IFDS primarily reflected the comparison to a higher earnings level in 2005 that benefited from certain deferred tax items.

Earnings at Argus increased from both new client acquisitions and processing of increased levels of Medicare Part D claims.

Talking for a moment about the quarter, we received on July 13th, a $254.8 million cash distribution from Asurion. That payment was part of a debt finance distribution made by Asurion to all of its shareholders. Asurion also made dividend-equivalent bonus payments to its vested stock option holders, and the resulting compensation expense allocatable to DST's interest in Asurion reduced our equity in their earnings by approximately $12.7 million in the third quarter of 2006. As this item was one-time in nature it is treated as a non-GAAP adjustment in our results. However there are interest costs associated with the debt incurred by Asurion to finance that distribution and those interest costs reduced DST's equity in earnings of Asurion by approximately $4 million in the quarter and that financing cost is expected to continue to negatively affect Asurion's earnings and therefore DST's equity in those. From an accounting standpoint, under the equity method of accounting the distribution from Asurion was not treated as income to DST but the carrying value of DST's investment in Asurion was reduced by the amount of that distribution.

Looking at the intangible amortization, the combined amortization of intangibles reflected in DST's equity in earnings of Asurion during the three and nine months ended September 30, 2006 was $1.7 million and $4.8 million respectively. DST also recorded approximately $1.4 million and $4.4 million of intangible asset amortization during the three and nine month periods ended September 30th from the acquisition of DST Health Solutions.

The effective income tax rate for the 2006 third quarter was 34.5% compared to 36.4% for the 2005 third quarter. If we exclude the effects of discrete period items and the Asurion distribution, DST currently expects its effective tax rate for the remainder of 2006 to be 34.7%. To address the actual tax accrual in the quarter, for income tax purposes, DST will use a dividends received deduction for a portion of the distribution received from Asurion which reduces the amount of tax owed on the taxable portion of the distribution. The dividends received deduction rate is approximately 8% as compared to the federal tax statutory rate of 35% that was the -- statutory rate was the one which was used previously to provide for the deferred taxes. It's currently estimated that using the dividends where you'd see deduction will reduce DST's taxes on the dividend by approximately $11.3 million of which $8.3 million was recognized in the third quarter and $3 million is estimated to be recognized in the fourth quarter. The tax benefit was actually an accounting entry to reduce deferred taxes and has been treated as a non-GAAP adjustment.

On August 1, DST increased its share repurchase authorization by 6 million shares. During the quarter DST repurchased 3.7 million shares of its common stock at an aggregate cost of $219.5 million. Those repurchases were primarily financed from the proceeds from the Asurion distribution. There is approximately 4.8 million shares remaining under the existing share repurchase authorization at September 30, 2006. On an outstanding basis, the company has 66.1 million shares outstanding at September 30 and that includes 2,500,000 shares of unvested restricted stock which are excluded from average shares outstanding. The effect of the share repurchases and shares issued from stock option exercises resulted in a net decrease in total shares outstanding of 3.4 million or 4.9% for the quarter and 5.6 million shares or 7.8% year to date. The average diluted shares outstanding for the third quarter of 2006 were 72 million and that’s a decrease of 1.2 million or 1.6% from the second quarter. The dilutive effects of the convertible debentures, outstanding stock options, and restricted stock were 2.8 million shares, 1.8 million shares, and 1.2 million shares respectively. The higher average DST share prices during the quarter increased the dilutive impact of the convertible debentures by approximately 1.8 million shares compared to the prior year quarter.

Total stock options and restricted stock equity units outstanding at September 30, 2006 were 11,600,000 shares or a decrease of 400,000 shares or 3.3% from the June 30th quarter. U.S. mutual fund open shareowner accounts processed totaled 104.7 million at September 30, that was a net increase of 600,000 or six-tenths of a percent since June 30, 2006, and an increase of 2.5 million or 2.4% since December 31, 2005.

Tax advantage retirement and educational savings accounts serviced grew to 40.3 million at June 30th -- that was an increase of 300,000 or eight-tenths of a percent since -- actually I was -- at September 30, 2006. That was an increase of 300,000, or eight-tenths of a percent since June 30th and an increase of 1.3 million, or 3.3% since December 31st. We received no new client contract awards during the period.

On October 2nd, 2006, DST acquired ASI for approximately $138 million, and that was net of cash acquired. ASI provides services similar to DST Health Solutions for the US commercial healthcare industry. ASI reported revenues of approximately $83.3 million for the nine months ended September 30, 2006. Over the next few quarters, ASI will be integrated with DST Health Solutions which will then be operated as a single entity under the DST Health Solutions corporate entity. The acquisition should not have a significant financial impact on DST's results for the fourth quarter of 2006 but that quarter and possibly a subsequent quarter will reflect ongoing integration costs.

At this point we would like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). One moment please for the first question. And our first question comes from the line of Mr. Pat Burton from Citigroup. Please go ahead.

Pat Burton - Citigroup

Hi, good morning and congratulations on the quarter. I guess my question will deal with the software component of your business Tom and Ken. And that is can you again just refresh us on the lumpiness of the nature and has anything changed with the long term outlook for either the AWD product line or now what you are doing with the DST Healthcare Solutions? And then I have a follow up, thanks.

Tom McDonnell

I don’t think anything has changed with ongoing or longer term outlook. Software sales were -- a number of reasons tend to cluster around the end of quarters, and they also are tied into the annual budgets usually of the buyers. And on a comparative basis, that number was down over 6 million from last year and throughout the quarter we anticipated that there would be more contracts for software close, but they did not occur in the quarter. We anticipate that a number of them have just simply slipped into the fourth quarter, that’s particularly the case with DST International and AWD. Health Solutions, there may be a little structural change there, because as we integrate with ASI, we will be not only bringing multiple claims processing systems to the marketplace, we intend to continue to offer the full range of those products, but we'll be integrating AWD in front of them and to some extent that may delay certain license decisions until we have successful integration of that particular technology. So, I think until we get a good sense of what the timing of the integration of that technology is and, therefore, sort of the resulting set of products that we'll be offering to the marketplace. There may be some delay in license revenues from that particular area. Currently, we anticipate that the shortfall of licenses as to DSTi and AWD will be at least partially reversed in the fourth quarter. But, on a longer term basis, those are -- licensing is the key element of all of those products and we'll tell you that strategically we are trying to move more of the business lines to more of a recurring model, a processing model and so forth. But both as to, AWD and DSTi in particular, licenses will still be a significant part of those revenue streams.

Pat Burton - Citigroup

Thank you. The follow-up, Tom, is actually for Ken relating to the GAAP, non-GGAP reconciliation. When you talk about the 6.9 million related to sales and use tax, the favorable reversal there, the question now that I have is, in that paragraph you reference reduced depreciation expense and reduced costs, will those costs continue to be permanently gone on a go forward basis? That’s the question.

Ken Hager

The costs that were reversed will be permanently gone in the future. In other words, if we had a reversed cost that will ramp to P&L or assets, where we had sales tax accrued on there, we reversed the accrual of that sales tax and that will no longer be there.

Tom McDonnell

But I think that, I think what we were saying there was where we had sales tax capitalized before, it's become uncapitalized, so the depreciable base in those assets has declined and therefore the ongoing period cost of that depreciation will reduce or -- that clarifies for you at all, Pat?

Pat Burton - Citigroup

Yes. So the future costs are gone. It's just that this quarter got the benefit of the 6.9 million, which you back out in the reconciliation.

Tom McDonnell

Correct.

Pat Burton - Citigroup

Okay, thank you.

Operator

Thank you. And our question comes from the line of James Kissane from Bear Stearns. Please go ahead.

James Kissane - Bear Stearns

Tom, is their any mutual fund business awarded in the quarter that you were competing for?

Tom McDonnell

Not that we are aware of.

James Kissane - Bear Stearns

Okay, great. And the quarter transfer agency margins are seen extremely strong. Are they peaking out or do you think there is still more room to expand those?

Tom McDonnell

Well, you like to never think they are peaking out, but they were strong and some of that had to do is some cost actions and some product repositioning and the managed account area and so forth, Jim. So, I -- you certainly would not look for order of magnitude changes there. And probably, given normal -- excluding license sales now for the moment, I would anticipate that with year-end activity and we bring in capacity and so forth to handle projected year-end volumes, you probably won't see much movement for the next couple of quarters.

James Kissane - Bear Stearns

Okay. I get lots of questions about your role in hedge fund business. I mean, you don’t seem to have a play there today. What's your interest in the hedge fund market?

Tom McDonnell

Well, basically we really don’t have a play there with the exception of periodically some of the DST International's software is used by hedge fund managers. That's usually reflected, Jim, in a license sale. Hedge fund business is pretty much concentrated, fairly limited number of providers, and is much more from a total sort of content standpoint oriented at the portfolio accounting side of the business with large numbers of individual shareholders. So, it's really an industry that we don’t participate in very much with the exception of some license sales and we really don’t have a particular strategy to address that.

James Kissane - Bear Stearns

Okay. So bottom line is, it's just not a standardized business that you can put through the factory?

Tom McDonnell

It has a lot of elements of non-standardization and lack of high volume unit holder accounting, which is where we usually do the best.

James Kissane - Bear Stearns

Okay. If I can get one last question, I apologize. Just can you elaborate a little bit more on the strategy in the healthcare business, especially since you are doubling down with the ASI acquisition?

Tom McDonnell

Well, it's probably two- to three-fold strategy. One, we have been on the periphery of claims processing for quite some time with Argus Health Solutions, which is our prescription claim process in joint venture and have looked periodically at a broader exposure to health claims processing. We think that the whole area of claims processing and healthcare provision is obviously a huge area in the United States. We think there is a lot of potential there because of regulatory change, product changes and also just in the need for increased efficiency to take transactional clause out of that business. We felt it was opportunistic to enter that business a year and a half ago now with the transaction with CSC, which was a business we said at that time had that we felt it needed some initial incremental investment in its technology, we believe by bringing in ASI was. And then over time we think we can produce a broader look at the sort of at the participant level or the insured level by immigrating the databases of the health claims and the prescription claims.

James Kissane - Bear Stearns

Great. Thanks Tom.

Operator

Thank you. And our next question comes from the line of Greg Smith with Merrill Lynch. Please go ahead.

Greg Smith - Merrill Lynch

Yes, hi guys. First on Asurion, obviously they have the interest expense. But still if you X that out, it looks like profits were down or revenue was down. Is there any color you can provide on seasonality in the business or stepped up investments, has anything changed in the directory -- trajectory of the business?

Tom McDonnell

Well, they rationalized a couple of their businesses, maybe in that obviously like all businesses they had some initiatives that they weren't really thought they should be, so they incurred some costs there. But also this particular quarter seasonally a little light for the software and insurance, or at least that was our experience in the couple of years, so we had it lock\line. I don't know that I can authoritatively extrapolate that for extended periods but the couple of years we were involved the business kind of tended to slow down in this period. So we think it's just a combination of those two things, and while we are talking about Asurion we describe the repurchase of stock which occurred throughout the quarter. We anticipated that that repurchase would offset to a significant degree the flow through of interest cost that occurs in the equity in earnings line but for all practical purpose the financing was in place pretty much for the full quarter and the stock repurchases took place throughout the quarter and therefore the number of shares used in the per share computation reflected the average shares for the quarter. It really didn't reflect the full impact of the shares repurchased. So if you kind of try to put Asurion in sort of a -- an overall perspective we felt that the use of the dividend proceeds could be used to substantially negate the negative impact of the financing but there was sort of a timing difference between when the financing cost started to impact their earnings and the timing of when the share repurchases and therefore the average number of shares comes into play. So we think that will straighten out a little bit in the fourth quarter and then we anticipate that with the holiday and gift-giving season in the fourth quarter you tend to see a pick-up in overall cell phone sales and activities and promotions and usually that will drive increased activity in the insurance side also.

Greg Smith - Merrill Lynch

Okay. And just one more on Asurion, are they a corporate tax payer? It just seems like the 4 million impact from interest expense was heavy or may be they are not getting a tax benefit.

Tom McDonnell

No they are a C-Corp.

Greg Smith - Merrill Lynch

Okay so it is there. I mean they have significant NOLs or anything.

Tom McDonnell

No.

Greg Smith - Merrill Lynch

Okay. So it’s a full corporate tax payer. Okay and then switching gears to IFDS as we look at how things are progressing in '06, the profits you're recognizing are quite a bit below '05, was it just the tax benefit they had in '05 or anything else?

Tom McDonnell

On a quarter-to-quarter because they did have that big deferred tax benefit that occurred in this quarter. Again you should see more normalized going forward. There has been some growth -- when we talk IFDS, we really talk about the combined Canadian and U.K. businesses. We continue to see some growth there. Their markets have been somewhat better like ours, and particularly in the U.K. where we provide the technology support for one of the fund supermarkets, they’re called co-funds, so that business has been stronger also. So I think pretty much the total negative impact or negative comparison was the previously-recognized tax benefit in the quarter in '05.

Greg Smith - Merrill Lynch

Okay, great, and then just quickly tax rate in 2007. It sounds like we should still expect it to tick up a little bit from where you're thinking for 4Q '06.

Ken Hager

Hey Greg, this is Ken, I think that's correct.

Greg Smith - Merrill Lynch

Okay, I mean a modest jump, maybe 100 basis points, that type of thing.

Ken Hager

It's somewhere in that line, we'll give you a better idea on that in our fourth quarter release.

Greg Smith - Merrill Lynch

Okay, thank you very much.

Operator

Thank you, and our next question comes from the line of Pete Heckmann from A. G. Edwards, please go ahead.

Pete Heckmann - A. G. Edwards

Good morning, guys. In terms of modeling the timetable for the conversion of those 7 million accounts from that one large customer, would we be safe modeling that to going live in the second quarter of '07 or would it be later?

Tom McDonnell

I’d say third quarter probably -- probably early July. We'd try to do some of these major conversions around 3-day weekends and stuff. So mid -- it -- certainly the end to July rather be the first part, mid or whatever but it’s the third quarter of it as opposed to second quarter.

Pete Heckmann - A. G. Edwards

Okay, great and then can you talk a little bit about the IRS processing facility that went live just recently. Can you talk about how -- can you give a little bit of the magnitude of the earnings potential from that and how it's going to flow through the income statement?

Ken Hager

No I can't give you a good -- off the top of my head, the description of that, I don’t have the numbers here in front of me, but it is basically a million square-foot facility. It is owned in a joint venture. So that come in equity in earnings. The IRS has just recently begun to occupy it. The ribbon cutting was about a week ago. There will probably be full occupancy after the second quarter of next year. And at that point you will see cash flow from it but it -- again it is a real estate property, so it has depreciation and so forth associated with it. So probably it's -- how it's -- probably for a year or so I'd look at it as neutral.

Pete Heckmann - A. G. Edwards

Okay, are we seeing any negative effects from it now in equity in earnings?

Ken Hager

Not any significant negative impact, we only had some -- because a lot of the construction interest and everything was capitalized but we did have pre-opening costs in turning over the center but nothing significant Pete.

Pete Heckmann - A. G. Edwards

Okay thanks a lot.

Operator

Thank you and our next question comes from the line of Ken [Kawasi] from Bear Stearns. Please go ahead.

Ken Kawasi - Bear Stearns

Hi, just a quick question on pension reform legislation, could this longer term potentially impacting the growth of accounts?

Tom McDonnell

You are talking primarily about things like being able to --

Ken Kawasi - Bear Stearns

Automatic enrolments that kind of things.

Tom McDonnell

Well, I think it should have -- there would be more 401(k) accounts and we get some reasonable share of those but kind of in that global thing you are also going to see over the next several years some shifts in tax policy as to what can -- who can have a Roth IRA and you can see the ability to move from other retirement structures into either a Roth 401(k) or a Roth IRA. So I think all of that’s net positive. It's extremely difficult to project to what order of magnitude but that plus the -- just the increased -- scheduled increase in contribution amounts are all very positive.

Ken Kawasi - Bear Stearns

Thank you.

Operator

Thank you. And our next question comes from the line of Charles Murphy with Morgan Stanley. Please go ahead.

Charles Murphy - Morgan Stanley

Thanks very much. Could you isolate, if any, how much in conversion expenses during the third quarter you incurred from converting those 7.8 million accounts?

Tom McDonnell

No. We really never break that out but we do incur expenses really right up to and probably for a month or two after an actual conversion but we never break those out.

Charles Murphy - Morgan Stanley

Okay. Any perspective on the targeted '07 operating margin for the health business within financial services?

Tom McDonnell

Not at this point. We are -- as I say we are in the process, have already begun integrating the operations. We're trying to do it in a pretty structured and thoughtful way to get the best outcome. We've yet to make established timetables for the integration of AWD and consolidation of certain activities. So it probably will be first quarter of next year before we would really have good visibility as to where we think the margins on that business might fall into kind of the overall array of margins.

Charles Murphy - Morgan Stanley

Okay great. And then Tom you talked a little bit about 22c-2 last quarter. Do you have any more perspective on the potential for that to enhance revenue growth?

Tom McDonnell

I will let McCullough answer that.

Tom McCullough

What we are seeing is, I think, continued opportunity for outsourcing some of the clerical functions that are being done in house today and we will continue to see more opportunities in that area because of 22c-2.

Tom McDonnell

And a number of those shop at Boston Financial.

Tom McCullough

Right.

Charles Murphy - Morgan Stanley

Great, thanks very much.

Operator

Thank you. And our next question comes from the line of Bryan Keane with Prudential. Please go ahead.

Bryan Keane - Prudential

Hi, good morning. Just a question on the timing of the rebound in Output Solutions. Sounds like some of the new prints stuff will carry over to '07, and then you have a customer that’s migrating off. So, is that more of a -- will margins not improving until ’08 now for Output?

Tom McCullough

Well, I think they will improve in '07, it's just a question of which quarters. And also I think we have to be a little careful, because usually there is more strength in Output in the fourth quarter and particularly in the first quarter in the year, we basically have, as we indicated before, we brought on -- we adjusted customer pricing to develop long-term relationships in anticipation of broad implementation of the new technology. That implementation in that technology was, took longer than we anticipated. We are pretty well completed with probably two-thirds of the implementation. So, it should start to have some positive impact. You will have the one customer run off, but in what we believe to be some offsetting growth in the other client base from internal growth and the potential of a couple of new clients, that should be sort of washed out of the mix in a couple of quarters and then you should start to see comparative better margins gone in the second, third and fourth quarter next year.

Bryan Keane - Prudential

Okay. And then just switching gears, just the overall US mutual fund accounts. The growth kind of continues at it's kind of -- I think this quarter was just up slightly. But can you talk to us about fundamentally what's going on in the industry for account growth? Is there any change in dynamics or is it continued to be slow, slower than I guess historical?

Tom McDonnell

It has continued to be slower than historical, but I guess I personally was little encouraged by the statistics for equity fund sales in the last 30 days. I think that our sense, and again we don't necessarily consider ourselves expert in projecting consumer trends and, therefore, when people start buying mutual funds again. But we felt it took several quarters of improving markets to get back some of the confidence so that it actually was lost several years with the bubble, and I think recent equity fund sales in particular are positive indicator, but we have seen a little positive from that. But you certainly at this point aren’t in a position to say that there has been a significant reversal of the slow growth trend. But, some other things like return the confidence to the market plus the question asked earlier about the pension reform bill and some expansion in retirement savings, hopefully will turn out to be positives over the next 12 to 24 months.

Bryan Keane - Prudential

Okay, great. Thanks.

Operator

Thank you. And our next question comes from the line of Dave Koning with Robert W. Baird. Please go ahead.

David Koning - Robert W. Baird

Good morning. One other question on Output margins. It looks like G&A in that segment was up, I think, 2.8 million year-over-year, which would imply a 2% drag from that, the accelerating depreciation. And I am just wondering, is Q2 of '07, I think you said that's when Output margins start to get better. Is that when that accelerating depreciation starts to fall of?

Tom McDonnell

Well, it will fall off in any one quarter, because our policy is to use accelerated depreciation methods for GAAP, as well as for tax. So, as equipment has come in through the year depending on when it was acquired, and once you get past the 12 month anniversary you see a decline in the depreciation on that particular piece or set of equipment or groupings of equipment. But, you should see some modification of its --of the accelerated depreciation impact that it won't like all of a sudden fall off in one quarter. It will probably start to be recognized about the second quarter next year, but then it will sort of kind of blend in over probably as much as six to eight quarters after that.

David Koning - Robert W. Baird

Great. And then just one other question. Could you color on the repurchases, I think next quarter it sounds like diluted shares go down 2 or 3 million sequentially because of the late quarter repurchase activity. But does that also imply that interest expense goes up quite a bit sequentially, given the late quarter spend and repurchases and the Amisys acquisition?

Tom McDonnell

Well, not exactly, because the cash that came in from Asurion -- there will be some elements of that, correct. But the cash that came on from the Asurion in the quarter didn't have much of an investment alternative until we utilized it for share repurchases. The cost at Asurion were fully recognized, so probably the difference will mostly be attributed to the financing of the acquisition of ASI, but then will be picking up the earnings at ASI. So, you kind of have to blend all those together. That rounded your question?

David Koning - Robert W. Baird

Yes, that helps out. That's great, thank you.

Operator

Thank you. And our next question comes from the line of Phil Mickelson with J.P. Morgan, please go ahead.

Phil Mickelson - J.P. Morgan

Good morning. Quick question on the deals that -- the software deals or transactions that were pushed from the third to the fourth quarter. First of all, did you sign any of those deals, post the close of this quarter or in the fourth quarter?

Tom McDonnell

One small and yes.

Phil Mickelson - J.P. Morgan

Okay. And then what's the magnitude of those types of deals? I mean, are we talking a large number of smaller deals or -- I mean, could you give us a range of how large these deals could possibly be to any one client?

Tom McDonnell

Any one client, they can be 2, 3 or 4 million, that’s unusual. They tend to cluster in half a million to a million a client, but there is also a lot of smaller deals too. But still they are kind of all over the block, but you do usually reach successful quarter, see a couple of the high end.

Phil Mickelson - J.P. Morgan

And, I mean, do you attribute the -- not being able to close these deals, the seasonality is just the September quarter is weaker or is -- are they aggressive on pricing and it's just not a game that you would like to play in the software side?

Tom McDonnell

Well, the ladder is sort of a game we never like to play and we are more inclined to get those full revenues we can, no matter which quarter it occurs in. But, lot of it is just buying patterns and lot of it has to do with our year-end budgets, a lot of it just has to do, and in some cases it's harder to get things done in July and August because a lot of people are off doing other things, so, it's -- I wouldn’t call it a truly predictable seasonality, but nothing much came together for us in the third quarter this year, and I said I think we anticipate recovery to a significant extent in the fourth quarter, but you can't just say it's clearly a third quarter seasonality, it's much more complicated than that. Particularly when you're dealing with some of the transactions at the higher end of the spectrum, if you just can't get together with the people at the right time, and they have their decision processes, sometimes they just don’t fall in place for you.

Phil Mickelson - J.P. Morgan

So, if you kind of compare the pipeline of software business for an AWD and the DST International businesses, would you say it's very similar where we are now at this time of the year where we were in the same time last year.

Tom McDonnell

Probably not terribly different, mix might be a little bit different as to products and so forth, but order of magnitude about the same.

Phil Mickelson - J.P. Morgan

Okay, and then when you kind of -- when you characterize, now that you have combined the health with Amisys acquisition, can you give us kind of a rough sense of the revenue breakdown between -- quarter-to-quarter might jump around, but on an annual basis of percentage of how much of that is license revenue, how much of that is for maintenance or contracted revenue, can you kind of give us a split to see what kind of a license component is in that business?

Tom McDonnell

I really can't give that to you today with any degree of accuracy and I don’t want to just throw out some speculations, but, we will see if we can.

Phil Mickelson - J.P. Morgan

Well why couldn’t you give a historical kind of --

Tom McDonnell

-- solutions in Amisys, I think we'll -- ASI will try and look at how we best portray that on a going forward basis.

Phil Mickelson - J.P. Morgan

I understand you don’t have forward-looking numbers, but you would have a sense of what it was historically for the last 12 months?

Tom McDonnell

Yeah, a lot of sense, but I don’t have numbers here in front of me and I don’t want to just throw stuff off the top of my head and we haven’t decided how we are going to report that area going forward either. So it wouldn’t be productive for me to throw out some numbers that may or may not be sufficiently accurate for the purposes you are looking for.

Phil Mickelson - J.P. Morgan

Gotcha. I think it was cited in the press release that the health services component was softer than expected or down year-over-year. What kind of revenue does that comprise, is that -- is it like implementation revenue or is that consulting, how does that kind of -- how would you give some color on that revenue?

Tom McDonnell

Well I think we mentioned in the shortfalls there were licenses and professional services.

Phil Mickelson - J.P. Morgan

But that professional service incorporates what kind of businesses? I mean is it an integration service or is it?

Tom McDonnell

Usually some integration, some product enhancement, some just general -- a specific client request for development for their particular needs and so we just lump all that under professional services.

Phil Mickelson - J.P. Morgan

Okay. Alright, thank you.

Operator

Thank you and our next question comes from the line of [Jeff Miller] with JMG Capital. Please go ahead.

Jeff Miller - JMG Capital

Hi, I just had a few questions on your revolver. How much is outstanding on that and what interest rate are you currently paying for it?

Ken Hager

This is Ken Hager, the overall -- at the end of the quarter I can't tell you the exact amount on the revolver but if you look at our total debt number of 1.291 billion, 840 million of that are convertibles and so 90% of the rest is the revolver and the rate is roughly LIBOR plus a little under 50 basis points.

Jeff Miller - JMG Capital

Thank you.

Operator

Thank you. And we have no further questions at this time. Please continue.

Tom McDonnell

Well, thank you all for joining us and we look forward to scheduling a call after the first of the year.

Operator

Thank you. Ladies and gentlemen, it does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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