SS&C Technologies Holdings (SSNC) William C. Stone on Q4 2015 Results - Earnings Call Transcript

| About: SS&C Technologies (SSNC)

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)

Q4 2015 Earnings Call

February 11, 2016 5:00 pm ET

Executives

Justine Stone - Investor Relations

William C. Stone - Chairman & Chief Executive Officer

Normand A. Boulanger - President, Chief Operating Officer & Director

Rahul Kanwar - Senior Vice President & Managing Director, Alternative Assets, SS&C Technologies Holdings, Inc.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Analysts

Christopher R. Donat - Sandler O'Neill & Partners LP

Peter J. Heckmann - Avondale Partners LLC

Hugh M. Miller - Macquarie Capital (NYSE:USA), Inc.

Rayna Kumar - Evercore ISI

Alexander Joseph Ljubich - Jefferies LLC

Ashish Sabadra - Deutsche Bank Securities, Inc.

Mayank Tandon - Needham & Co. LLC

Andrew Nicholas - William Blair & Co. LLC

Operator

Good day, ladies and gentlemen, and welcome to the SS&C Technologies' Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

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

Justine Stone - Investor Relations

Hi, everyone. Thank you for joining us for our Q4 and full year 2015 earnings call. I'm Justine Stone, Investor Relations for SS&C Technologies. On the call with me today is Bill Stone, Chairman and Chief Executive Officer; Norm Boulanger, President and Chief Operating Officer; Rahul Kanwar, Senior Vice President, Managing Director of Alternative Assets; 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 the 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 via our website.

These forward-looking statements represent our expectations only as of today, February 11, 2016. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.

During today's call, we'll be referring to certain non-GAAP 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'll now turn the call over to Bill.

William C. Stone - Chairman & Chief Executive Officer

Thanks, Justine. And thanks, everyone, for being with us on our fourth quarter and 2015 year-end conference call.

We are just crossing our 30th year in business and I'm happy to report $1.056 billion in 2015 adjusted revenue. Our first year in 1986 we did $86,000 in revenue. This is a 38.4% compounded annual growth rate, a pretty good 29-year track record.

SS&C finished 2015, as I said, with over $1 billion in adjusted revenue, 42% EBITDA margins, and we earned $2.66 in adjusted diluted earnings per share. Obviously, we had a strong year financially and we have become a dominant force in financial technology and fund services industries.

We acquired four companies in the past 14 months and we are set to close Citi Alternative Investor Services in Q1. This will propel SS&C to being the second largest fund administrator in the world. And I'd remind you, we started in fund administration in 2002. We believe technology ownership, size and scale are key elements of our strategy.

We added game-changing projects through both acquisitions and our research and development efforts. Precision LM, our comprehensive loan origination and servicing system, and Primatics EVOLV, an end-to-end loan risk and finance solution, expanded our offerings to loan portfolios and banks. We have enhanced our Fund Services portal to include performance attribution and tax optimization modules. Very impressive analytical tools that we believe may help performance for our fund administrative and other clients.

Finally, we have added the capability of servicing RIAs with Black Diamond, one of the products that we acquired with the Advent acquisition, and it services one of the fastest growing segments in financial services, the RIA market.

This quarter SS&C has also received approval from the Securities and Exchange Commission to bring its disruptive cloud-based post-trade matching service, SSCNet to the U.S. market. We own about 80% of the Canadian market today, and we've been trying to get this exemption for 10 years. Our technologists have had a free hand to develop the SSCNet technology and we're excited to bring it to the United States, and we will be at a compelling price point.

At SS&C, we value and thank our shareholders for their continued support. We aim to maximize shareholder value, and our capital allocation strategy reflects this objective. In 2015, our operating cash flow was $230.6 million, and that was after paying $67 million in financing charges and other expenses with the Advent and Primatics acquisitions that went through our operating cash flow. So otherwise it would have been about $300 million. We spent $2.7 billion on acquisitions this year. We believe these acquisitions are a good way to deliver shareholder return. We continued our quarterly dividend and gave a total of $45 million back to our shareholders. And now with $2.4 billion in net debt on our balance sheet, we will focus on bringing our leverage down quickly.

Now, I will turn it over to Norm.

Normand A. Boulanger - President, Chief Operating Officer & Director

Thanks, Bill. SS&C saw successes in a number of different ways throughout 2015. We were able to close four acquisitions in the past 14 months, including Advent Software. All of these acquisitions bring new software and capabilities. Today and in the future, technology ownership will be a key part of our strategy.

As part of SS&C, Advent had its biggest quarter in three years, and Black Diamond, our premier RIA solution, had their biggest quarter ever. The cross-sale and up-sale opportunities are gaining momentum. In this quarter included an Advent client that switched to full outsourcing with SS&C, increasing revenue five times.

We launched the new generation of Advent hosting and integrated data services, Advent OnDemand, which is growing faster than expected. Geneva, Advent's sophisticated portfolio management platform, continues to be market leading and remains the premier choice for fund administrators and prime brokers.

Our Institutional business also remained strong. Customers increasingly choose more holistic solution than a traditional license. For example, we see a trend in providing co-source trade reconciliation solutions to large insurance companies as well as new license clients opting to host software in our data centers rather than internally. A strong area of growth within Institutional Investment Management is our loan service and the (7:22) mortgage REIT solutions. We now provide software technologies to over 30% of all publicly traded mortgage REITs. Additionally, in 2015, we released our comprehensive residential loan shadow solution, enabling us to fully support the rapid growth in nonbank lenders of all types of performing and nonperforming residential loans.

I'd like to review some key deals for Q4. Two large banks relicensed our Money Market Manager product. SS&C Technologies processes over 95% of all commercial paper in the United States. An existing PORTIA client recently made a large acquisition and they expanded their modules and number of users to support the ongoing business and needs of the acquisition. A Russian asset manager awarded us a mandate to provide our Global Wealth Platform risk report and performance attribution hosted services. A Top 20 fund administrator relicensed Geneva, reiterating its strength in the market.

A large money manager in Saudi Arabia replaced a competitor's solution with SS&C's Advent Portfolio accounting system APX and our trading system Moxy. This is one of a number of key wins in the Middle East region in 2015. Two existing SS&C Advent clients licensed SS&C's Recon in a key cross-sale opportunity created by the acquisition. And last, a PORTIA client moved to Advent Portfolio Exchange, Moxy, Advent Custodial Data and Advent OnDemand. This was a yearlong evaluation to replace eight different systems. SS&C's revenue increased about six times as a result of that sale.

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

Rahul Kanwar - Senior Vice President & Managing Director, Alternative Assets, SS&C Technologies Holdings, Inc.

Thanks, Norm. SS&C's Alternatives business saw a 6.9% increase in revenue for the year ended December 31, 2015 compared to December 31, 2014. Despite the volatility in the markets, we continued to sign new clients, and saw asset stability in current clients, and are pleased with how our unique combination of technology ownership and delivery, combined with class-leading expertise, is being embraced in the marketplace.

During the quarter, we closed on Primatics Financial. Primatics has 384 people headquartered in McLean, Virginia. It is a leader in accounting, forecasting, regulatory reporting, reserving and stress testing solutions to financial institutions holding or acquiring loans. Jeff Sant, Umar Syyid and Michael Therrien, the original founders, remain at SS&C and we are eager to help them grow the business both through new sales, leveraging our larger sales force, as well as cross-selling their capabilities into SS&C's current client base.

We remain focused on closing our acquisition of Citi Fund Services and are working on various customer experience enhancement initiatives for Citi clients as well as integration. We expect to close in Q1 2016.

We won a number of new mandates this quarter. Our Private Capital Group, headed by Bob Shepro, is gaining traction. Our Hybrid Fund Solutions, run by George Schnell, targets the complex structure of hybrid funds, which are becoming more common in the asset management industry.

Key deals for Q4 2015 include: a $70 billion asset manager chose to convert a portion of their hedge fund assets from a competitor to SS&C fund administration; an investment firm with over $780 billion (10:48) in assets under management chose SS&C fund administration for their private equity business; a high profile hedge fund launch chose SS&C as their fund administrator and chose to license Geneva for their in-house accounting platform; an existing Advent client chose to outsource their middle-office functions to SS&C. As Norm mentioned earlier, this increases revenue by a multiple of 5 on this client and is indicative of other similar upsell opportunities we have with the Advent client base. A $1.7 billion hybrid fund shows SS&C over their current big bank administrator for three new hybrid loan funds targeting $2 billion in assets; a $500 million London-based alternatives manager converted their private equity loan hybrid to SS&C fund administration from a competitor. SS&C had two competitive takeaways from a fund administrator who was recently acquired by a large international bank.

I will now turn it over to Patrick.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Thanks, Rahul. Results for the fourth quarter of 2015 were GAAP revenue of $300.9 million, GAAP net income of $12.1 million and diluted earnings per share of $0.12. Adjusted revenue was $325.8 million, excluding the adjustment for the acquired deferred revenue for the Advent, Primatics and HPA acquisitions and we closed the Primatics acquisition on November 16.

We had a strong quarter. Adjusted revenue was up 61.9%, expanded adjusted operating margins to 40.9% and adjusted diluted EPS was $0.72. Adjusted revenue increased $124.6 million, or 62% over Q4 2014. Advent contributed $108.2 million of revenue in the quarter, and the other three acquisitions contributed $19 million. Foreign exchange continued to have a negative impact on revenue, and that was about $3.6 million in the quarter, or 1.8%.

Adjusted operating income for the fourth quarter was $133.3 million. It increased $53.1 million or 66.2% from the fourth quarter of 2014. Operating margins increased to 40.9% of revenue from 39.9% in Q4 2014.

The acquisitions had strong performances in the quarter, with both Advent and the HPA business having operating margins over 45%. Synergies at both acquisitions are progressing ahead of plan. Advent had cost synergies of $7.8 million in the quarter, and currently we've implemented synergies at an annual run rate of $34 million, and the HPA synergies are running at $14.2 million on an annual basis.

Adjusted consolidated EBITDA was $139.8 million, or 42.9% of revenue. It increased $55.7 million, or 66.2% from 2014.

Net interest expense for the quarter was $33.7 million, and includes $2.7 million of non-cash amortized financing costs and OID. Interest expense increased over Q4 2014 through the term debt facility and the notes we've put in place to acquire Advent.

We recorded a GAAP tax provision in the quarter of $1.1 million or 8.4% of pre-tax income. For the full year, we recorded a tax provision of 29.6%. The tax provision was impacted by certain acquisition costs that are non-deductible for tax purposes, and non-cash deferred tax adjustments. Excluding those non-cash items, the tax rate was 27.4% for the year.

Adjusted net income was $73.6 million, and adjusted EPS was $0.72. Adjusted net income excludes $44.1 million of amortization of intangible assets, $12.6 million of stock-based compensation, $600,000 of acquisition deal costs, mostly Primatics in the quarter, $2.7 million of non-cash debt issuing costs and $2.7 million of severance cost related to Advent and HPA, and $1.5 million of capital-based taxes. In addition, we had $2.9 million of costs, mostly FX translation on certain balance sheet items. And for adjusted net income we use an effective tax rate of 28%.

On the balance sheet and cash flow, we ended the year with $434.2 million in cash and $2.820 billion of gross debt for a net deposition of $2.385 billion. Operating cash flow for the year ended 2015 was $230.6 million, approximately $22 million decrease from 2014. But we had approximately $67 million of acquisition and financing costs that negatively impacted cash flow during the year.

A better representation of the business' cash flow generation post Advent acquisition was Q4 2015. In the fourth quarter we had operating cash flow of $110.1 million. So, for the year, highlights on the cash flow, since the Advent acquisition we've paid down $260 million of debt. We used about $18 million for capital expenditures and capitalized software, which is about 1.7% of revenue, which is a little lower than our normal years. We paid $42.2 million in cash taxes compared to $33.4 million in 2014 and our DSO was 47 days as of December 15.

In financing activities we had proceeds from option exercises of $30 million, and a tax benefit related to those option exercised of $33 million. We issued a $12.2 million dividend in the fourth quarter, and year-to-date the dividend was $45.5 million. Our LTM consolidated EBITDA, which includes acquisitions as if they were owned for the full period and cost savings was $551.5 million and includes $109.5 million of acquired EBITDA and cost savings related to the acquisitions. Based on a net debt of approximately $2.4 billion, our total leverage ratio is now at 4.3 times.

On the outlook for the year, this outlook does not include the Citi acquisition, which we expect to close sometime in the first quarter. When we do close that acquisition we will update guidance for the full year. It also assumes that we'll hold that cash about $430 million on the balance sheet for the full year. So for the full year 2016, we expect revenue in the range of $1.360 billion to $1.380 billion, adjusted net income of $312.5 million to $325 million, and diluted shares in the range of $102.5 million to $103.5 million.

We assume that we'll achieve about $35 million to $40 million of synergies with the Advent acquisition for the full year. And our total adjusted operating margins for the company will be in the range of 40.5% to 41.1% of revenue, an improvement over 39.9% for the full year 2015.

For the full year, we expect cash from operating activities to be in the range of $355 million to $370 million, and capital expenditures to range between 2.5% to 3% of total revenues.

For the first quarter of 2016 our current expectation is revenue in the range of $327 million to $333 million, adjusted net income of $72 million to $75 million, and diluted shares in the range of $102 million to $102.5 million.

And now I'll turn it over to Bill.

William C. Stone - Chairman & Chief Executive Officer

Thanks, Patrick. SS&C was founded in February of 1986. So this month marks our 30th anniversary. We've gone from 3 employees at the end of 1986 to over 6,100 professionals across the globe. We're proud of our accomplishment and we'll continue to work hard to delight our customers, challenge and reward our employees, and deliver excellent shareholder returns.

We're now open for questions.

Question-and-Answer Session

Operator

Thank you. And our first question comes from Chris Donat of Sandler O'Neill. Your line is now open. Please go ahead.

Christopher R. Donat - Sandler O'Neill & Partners LP

Hi. Good afternoon. Thanks for taking my questions. Bill, I wanted to ask something you've talked about on prior earnings calls and investor presentations. But with the – you know with the direction the market has taken in the first month-and-a-half of 2016, I know you talked about your exposure on the hedge fund side, long only and long-short funds.

But I wonder if you can walk us back through time what you thought during the financial crisis when you made some pretty decisive moves to reduce your head count by 9%? I'm just wondering as we think about the volatility here and what's going on in the market, what sort of trigger points you have for your decision making as far as what the market would have to do to cause you to make some decisions about expenses?

William C. Stone - Chairman & Chief Executive Officer

Yeah. Well, Chris, we ended the year at about 39.9% operating margins and 42% EBITDA margins. So one of the things we have is a lot of flexibility. And we really have a great workforce. Right now we have no intention of reducing our workforce. We are happy with what we have. We see just tremendous opportunity.

You know it's a funny world out there but we have a great client. There was a PORTIA client and they had been looking at systems for a long time, and they chose a whole collection of systems from us, primarily the APX system from Advent and some ancillary systems around that. And our revenue goes down $250,000 on PORTIA and it goes up $1.250 million or so on the Advent books. So our organic books goes down $250,000 and acquisition revenue goes up $1.250 million and I get told we ought to work on that organic growth.

So we do these acquisitions in order to please our customers, and we have all these opportunities around the world. And so we're going to go after them, and go after them hard. There's an awful lot of money managers in the world that are trying to control their costs. And as they try to control their costs they are going to want to do more outsourcing, and they are going to want to have a company like SS&C show up with expertise. Right?

So we are a long way away from anything that would make us feel like we had to go into a cost cutting mode. Right now, we are trying to take advantage of all of the opportunities that are there. The CEO of Varden is in London talking to clients. I was just in our Boston office and talking with those people and they can't imagine all the incoming they have. Norm talked about Advent OnDemand and it's growing faster. We are setting up an operation in India right now so that we can hire people. Nandini Sankar, in Mumbai, and Pete Hess, in San Francisco, are spearheading that for us. And so there's just a lot of things going on. And right now, hey, all bets are off, the market falls another 7,000 points or something. But right now, we're pretty sanguine about where we are on our expense ratios.

Christopher R. Donat - Sandler O'Neill & Partners LP

Okay. Great. And then just one numbers question for Patrick as we think about the purchase accounting adjustments to deferred revenue. Will those exist for another three or fourth quarters or so? Is that mostly tied to Advent and it shrinks to zero after another few quarters? Or is there something else going on there with that?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Yeah. I think we've got about $51 million left on that. And the majority of it will be – 90% of it will be gone by the second quarter.

Christopher R. Donat - Sandler O'Neill & Partners LP

Got it. Okay. Thank you.

Operator

Thank you. And our next question comes from Peter Heckmann of Avondale. Your line is now open. Please go ahead.

Peter J. Heckmann - Avondale Partners LLC

Good morning. Thanks for taking my question. Can you give us a year-end AuA number for end of fourth quarter?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Sure. We ended the year at $658 billion in assets.

Peter J. Heckmann - Avondale Partners LLC

$658 billion, great. Okay, and then – either Bill or Patrick – are you prepared at this time to provide a more narrow range for the anticipated revenue and purchase price for Citi, or is that premature?

William C. Stone - Chairman & Chief Executive Officer

Yeah. Pete, we're down to the last few things. We think the revenue should be around $175 million, and we think the purchase price should be in the $300 million to $350 million range.

Peter J. Heckmann - Avondale Partners LLC

Great. That's helpful. And then my last question before I get back in the queue, I saw your press release with regards to SSCNet. It seems like an interesting opportunity. Within that press release, you also note the market moving to a T+2 settlement timeframe. Do you feel that it is potentially a catalyst for spending among the buy side or is that primarily a broker-dealer issue?

William C. Stone - Chairman & Chief Executive Officer

We think that the broker-dealer issue is probably the first area. We have a marketing plan right now with 100 Canadian brokers that we are already on our thing that we're moving into the U.S., a marketing plan for them. And then we also think the buy side is going to start driving some business there as well. There's been really a monopoly here in the United States for the last 15 years or 20 years. And generally you get a good opportunity if you have better technology and a strong marketing force. Bob Moitoso and his sales force that sell our fixed network and our Market Trader Execution Management System is spearheading that with Bob Shaw, who is one of the founders and developers of SSCNet. So we're excited about our opportunity and we got some talented people working on it, and they know we have some high expectations.

Peter J. Heckmann - Avondale Partners LLC

Got it. Got it, thanks so much.

Operator

Thank you. And our next question comes from Hugh Miller of Macquarie. Your line is now open. Please go ahead.

Hugh M. Miller - Macquarie Capital (USA), Inc.

Hi, good afternoon. I had a question just, I guess, a housekeeping question. You had mentioned $175 million for Citi revenue. Is that kind of how we should think about that as an annualized figure for 2016 or is that what your expectation is post the close that you'd actually expect to generate?

William C. Stone - Chairman & Chief Executive Officer

That's an annualized number.

Hugh M. Miller - Macquarie Capital (USA), Inc.

Okay. And as we consider kind of the impacts from market depreciation, I realize that the business is diversified and there was some hedging benefits. But can you give us a sense as you've given us your revenue guidance for the year, excluding Citi, what's the impact that you guys expect from the year-to-date market depreciation that you're thinking about in terms of the revenue guidance?

William C. Stone - Chairman & Chief Executive Officer

Yeah. Hugh, I would not say that it's more than 1% maybe.

Hugh M. Miller - Macquarie Capital (USA), Inc.

Okay.

William C. Stone - Chairman & Chief Executive Officer

Again, it depends what happens, right? I mean that – today's what, February 10 or 11 and so a lot depends on what happens. And if everything falls out of bed it will be more than 1%. But, in general, most of our contracts are across all kinds of asset classes, all kinds of strategies and an awful lot of our perpetual licenses and maintenance are not impacted at all.

Hugh M. Miller - Macquarie Capital (USA), Inc.

That's helpful. I just wanted to kind of get a sense. So 1% is kind of somewhere in the wheelhouse of what the impact would be given the current weakness?

William C. Stone - Chairman & Chief Executive Officer

Right. We would prefer to get the current strength and go up 1%. But...

Hugh M. Miller - Macquarie Capital (USA), Inc.

Noted. Absolutely. And then can you give us a sense of what you guys make out of the news from some of the larger firms like AIG that kind of recently decided to pare back its exposure and allocation to the hedge fund world? Are you seeing that kind of in other large institutions? Or what are you seeing in terms of kind of the market and demand for flows into hedge funds?

William C. Stone - Chairman & Chief Executive Officer

I'll take a crack at it. Then maybe Rahul can comment. When you start looking at an AIG and you get Carl Icahn in there as an activist investor, it's hard to say what major insurance companies are going to do as far as allocation to Alternatives. And even their allocation for their size of their balance sheet and how much money they're putting into it is not very big to start with. So we're not going to be impacted too much by that. Last year it was CalPERS, right? CalPERS is cutting back. CalPERS did not have a very good track record of investing in funds and so they scaled back. That's very natural.

So I don't see much of that causing a problem. Very low interest rates are going to cause major institutions to go search for yield, search for return. And you're not finding it in treasuries, you're not finding it in bunds and you're not going to find it in JGBs either, right? So you're going to have to go find yield somewhere. And high yield is under attack, and so I think that there's going to be plenty of opportunity for the alternatives industry to garner a pretty good share of allocation. Rahul?

Rahul Kanwar - Senior Vice President & Managing Director, Alternative Assets, SS&C Technologies Holdings, Inc.

Yeah, Bill. The thing I would add to that is the visibility we have, if you look at some of the indices we publish on future redemptions and capital flows, everything we're seeing currently seems to be pretty consistent with what we saw in 2015 and 2014. So we're certainly not seeing – while there's individual funds that will make decisions as to how much they're going to allocate in alternatives, we're certainly not seeing anything that's more broad based than that.

Hugh M. Miller - Macquarie Capital (USA), Inc.

Okay. That's definitely helpful. I appreciate the color. Last from me, obviously your exposure post the Citi deal to the PE fund admin business is going to increase. Can you give us a sense of as of year-end 2015 what percentage of PE fund admin was outsourced and the trends that you're kind of seeing there?

Rahul Kanwar - Senior Vice President & Managing Director, Alternative Assets, SS&C Technologies Holdings, Inc.

Great. So you know what? I think – and these percentages are based on less than concrete data. It's the visibility that we have. I think our sense is it's somewhere less than 30% to 40% of the private equity industry, measured in terms of AuA, not necessarily in terms of the number of funds, is currently outsourced. And even in the percentage that's currently outsourced, there's probably some opportunity to crack into services modules functions that they haven't as yet outsourced yet.

We think what Citi does is make us a lot bigger player in that private equity market. We think that we are likely going to be the largest private equity fund administrator. And we're hoping that what that's going to do, and we're starting to see signs of it in our pipeline now, is make a lot of these great big institutions that have big infrastructures look at us as a viable alternative.

Hugh M. Miller - Macquarie Capital (USA), Inc.

Great. Thank you so much.

Operator

Thank you. And our next question comes from Rayna Kumar of Evercore ISI. Your line is now open. Please go ahead.

Rayna Kumar - Evercore ISI

Good evening. Could you call out the organic growth rate for the quarter and your expectations for 2016?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

The organic growth rate for the fourth quarter of 2015 was about 0.5%. And for the full year 2016, if you look at the full year guidance that we've provided, the range of organic growth there is between 4% and 5.5% for the full year.

Rayna Kumar - Evercore ISI

What are the key drivers to get to the 4% to 5%?

William C. Stone - Chairman & Chief Executive Officer

The keyest driver is to sell more. I think the way we sell more is, is that we deliver on the software that we're building. We're quite excited about our opportunity to push Varden throughout our client base. It's gotten tremendous receptivity and we're going to sell a whole lot of Varden and we're going to record it as acquisition growth. So it's not going to change organic, but it's still something that we're going to be able to use across all of our businesses.

Our Precision LM product that we're going after residential mortgages and the investments on residential mortgages we think is also a very good opportunity for us. And we're also bringing out some additional capabilities that we talked about, about the tax optimization performance, performance attribution that's going to be available to our funds clients through our portal and mobility technology. So we think those are all great opportunities for us to drive farther. And we think that our regulatory solutions business and our REITs business is also quite positive.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

The other thing too is I think we've had good growth over the past six months in the Advent business. But the problem is, is it's not counted as organic. It will be counted as organic starting in July of 2016, and that will naturally help our numbers too because that business is growing at a pretty good pace.

Rayna Kumar - Evercore ISI

That's very helpful. Could you discuss your acquisition pipeline and what kind of acquisitions you're seeking?

William C. Stone - Chairman & Chief Executive Officer

Yeah. I mean we have always looked at accretive acquisitions is pretty much the first thing that we look for, and now we're at $1.360 billion to $1.380 billion for 2016. You have to do bigger acquisitions in order to have it – have much impact in what you do financially initially. But Varden's about a $25 million acquisition, but the technology and the talent that we acquired is going to allow us to leverage that across that entire $1.360 billion to $1.380 billion. So we're excited about finding the right technologies and being able to find the right group of people and being able to distribute it throughout our client base.

Now there's still going to be fund administrators for sale and there will be other technology companies for sale. And I think SS&C has a pretty good track record of finding acquisitions and getting to deals and closing deals, and then working very closely with the management teams that we acquire. So we haven't changed. We're methodically opportunistic. We look at four, five, six a month. We buy somewhere between one and five a year. So I think that's what we'd expect in 2016.

Rayna Kumar - Evercore ISI

Great. And just one final question from me. Could you just discuss the timeline of bringing margins from the Citi and Primatics acquisitions up to your consolidated margins?

William C. Stone - Chairman & Chief Executive Officer

Sure. I mean, again, we have some really talented people that are working with both of those groups. The people that we're getting in from Citi, Mike Sleightholme runs their hedge fund business, and Joe Patellaro runs their private equity business, we've been working with them on plans and objectives for a long time. Obviously, we announced this last August. So we're very excited about the talent and capability that they bring to the table. They got a great operation in Columbus, Ohio, as well as in New Jersey and in New York. So we're excited about that, and they have a really nice private equity business in the Far East. So we would imagine that they will get up to our margins in the next 18 months or so. There's still a lot of work. As you know, Citi is an awfully big enterprise and making sure that we do it right. We are already building out a facility in India to take over about 500 people there. So we're excited, we're moving, we're very capable in what we do, and so we're very excited about that.

Primatics is a little different. They're already quite profitable, not quite to our standards, but they've got really talented people. And we have Alan Smith who worked in the loans business at Citi for 25 years that's working with the founders of Primatics, and they're coming up with new ideas, new products and new opportunities, and they get access to our 150 salespeople. So that's going to change how many opportunities they have, and then also the ability for us to have some pricing power and to drive margin.

Rayna Kumar - Evercore ISI

Thank you.

Operator

Thank you. And our next question comes from John DiFucci of Jefferies. Your line is now open. Please go ahead.

Alexander Joseph Ljubich - Jefferies LLC

Hey, guys. This is A.J. Ljubich on for John. Bill, you mentioned the need to potentially do larger deals on the M&A front. Can you talk about your willingness to do so, in terms of potentially needing to lever further up? And also your ability, given recent market dynamics, if you think there's been any change there?

William C. Stone - Chairman & Chief Executive Officer

Well, as Patrick mentioned earlier we're at 4.3 times levered, and we generated $110 million in cash flow in Q4. If you just multiply that by four, that's $440 million in cash flow in 2016. Our interest is going to be about $33 million in Q4. So if you just multiply that, it's $132 million. So that leaves us with $308 million. We're going to spend $20 million, $30 million on CapEx. So we have an opportunity to pay down $250 million more of debt and still have $60 million, $70 million in cash generated from our operating cash flow. We closed the year at $434 million in cash.

You know, like I said, we're going to use $300 million to $350 million to buy Citi's business. So that leaves us another say $100 million. So I think that there's some capacity for us to lever. You know we'll probably pay down quicker than we lever up. But if we got it down to say 4 times or 3.8 times and then we found some acquisition that took us back up to 4.8 times, that's probably given us, what, $600 million?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

$600 million.

William C. Stone - Chairman & Chief Executive Officer

Yeah, $600 million. So I mean that's just something. And again, we have some cash in our balance sheet that we could use. So, we have some capacity on a leverage standpoint. And then if it's a good enough deal we have – we still have a pretty attractive equity.

Alexander Joseph Ljubich - Jefferies LLC

Great. Thanks. And just one quick follow-up. You talked about the revenue guidance for 2016 in your organic growth expectation there. Can you maybe talk about how much you are allocating to each acquisition, Primatics, Varden and Advent?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Allocating in what sense?

William C. Stone - Chairman & Chief Executive Officer

How much – you mean how much...?

Alexander Joseph Ljubich - Jefferies LLC

Yeah, the revenue contribution from each.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Yeah. This excludes Citi, right? So, the acquisitions, Primatics, Varden and then six months of Advent should be somewhere around $270 million of revenue for 2016.

Alexander Joseph Ljubich - Jefferies LLC

Okay. Thank you.

Operator

Thank you. And our next question comes from Ashish Sabadra of Deutsche Bank. Your line is now open. Please go ahead.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Sure. My question was about the organic growth, just a quick follow-up on that one. The organic growth slowed down from like 3% in the third quarter to 0.5% in the fourth. Just what caused that slowdown? And is there a way for us to think about the growth including Advent? Like, for example, you talked about Advent is growing really fast. I think if I do my math, it's more like high single digit growth. So I was just wondering if you can help us understand what caused the slowdown in organic growth. And if you look on a pro forma basis what it will be?

Normand A. Boulanger - President, Chief Operating Officer & Director

This is Norm. I'll take it and Bill can fill in if he'd like. And a couple of things. We had announced on previous quarters some attrition in our institutional asset management business. So part of it is paying the price of where we ended up on the comparables for Q4. We're also very focused on driving growth across the business. And as Bill mentioned, on some of the – his previous comments, right, the growth happens to be coming from acquisitions. But it could be products from other acquisitions that we're selling. For example, the Varden reporting tool is really doing very well for us. It's going to be a real hot seller I think in the Advent client base. And a lot of that's going to kind of – so I think it's going to drive top line growth where it counts from organic perspective. Until we start getting some year-over-year comparables, it's going to affect kind of the optics of how we're doing.

What we are focused on is making sure we get growth and we position each of our businesses. The Primatics acquisition, for example, has a really super strong loan accounting capability that can do tremendous volumes and we think that's going to be something we can penetrate our Institutional side. And that's going to drive growth I think in the Institutional business. I'm not sure where Patrick's going to count that revenue.

So it's a combination of attrition and making sure our return on revenue businesses stay strong and that we take advantage of the opportunity we have to cross-sell things like the Advent client – customer base, outsourcing solutions for the Advent customer base. And so I'm pretty comfortable we have a strong opportunity for organic growth in 2016. But optically it'll depend on kind of what gets sold to who until we have more comparable businesses year-over-year.

William C. Stone - Chairman & Chief Executive Officer

Yeah. And I would also add to that is, is that the ability for us to drive revenue in Q3 to Q4, you go from 3% to 0.5% for the whole company. And if you calculated high-single digits for Advent, but obviously high single digits, let's say 7%, 7.5%, you know that's 15 times a 0.5%, right? So that's pretty quick relative to the overall company. But we added $277 million in revenue from acquisitions in 2015.

And in 2014 we did $768 million in revenue. So I think $277 million divided by $768 million is 35%, 36%, 37%. And what I always tell our analysts and our shareholders is, is that look, we expect to do 5% to 10% organically, and we expect to do 5% to 10% acquisition. So everybody wants to concentrate that we didn't do 5% to 10% on organic and that's a fact. We're not happy about it either, but we did do 36% on acquisition, which is a lot more than 5% to 10%. So, for 30 years we've had a compound annual growth rate of over 35% and we're not doing anything different in 2015, 2016, 2017. We hire the best people, we build the best products, we have the best sales force and those kinds of things tend to work out pretty well over the long term.

Short term, occasionally there's a bloody nose and nobody likes it and we bought it there and we had a great big client that paid us $4 million or $5 million a year and this is unlike a $12 million business. When that client goes away that business has a little heartburn, but does that mean you don't take that $4 million or $5 million? That's not the way SS&C operates. We're taking that $4 million to $5 million for as long as we can keep it. So I think that's what we've done. I think we've got all kinds of opportunities throughout this organization and we have all kinds of ways in which to pull levers to drive organic growth or organic earnings. But what we want to have is growth in earnings, right, and we're going to go do growth in earnings wherever we can and we're going to do it as fast and as well as we can.

And all of our managers, all of our executives from Pete Hess to Rob Roley to Dave Welling to Rahul Kanwar to Tim Reilly to Christy Bremner to Richard Shalowitz and Tom McMackin, everybody at SS&C works so does Norm Boulanger, Patrick Pedonti and Bill Stone. Although occasionally I do get up in my ivory tower and think great thoughts.

Ashish Sabadra - Deutsche Bank Securities, Inc.

No. Thanks for that color. No. I really appreciate that. And maybe given that, as you mentioned some of the sales might be going from one product to another, which might be skewing the organic growth. A better way for us to think would be the pro forma organic growth assuming that you had these companies in the prior-year quarter and thinking about what the real growth would have been. I think that will be a good way for us, but I think it's very encouraging to look at the 2016 organic growth guidance of 4% to 5.5%, so I think that's very encouraging.

Just a quick question around sensitivity of revenues to AuA. That's a question that we get a lot. Is there a way to quantify like every $10 billion of AuA movement, how much impact does it have on revenues?

William C. Stone - Chairman & Chief Executive Officer

When it moves up, revenues go up. Moves down, revenues go down.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Yeah. Just in terms of like a percentage or some way for us to have built in that kind of sensitivity into our model or some way to think about what percentage of your revenue comes from AuA. So that way investors get more comfortable that even if the AuA goes down, because I believe you have a significant percentage of your revenues coming from fixed fee. Also you have floors in your contract which prevent you from the full downside. So, is there some way for us to think about it?

William C. Stone - Chairman & Chief Executive Officer

I'll let Rahul take that one.

Rahul Kanwar - Senior Vice President & Managing Director, Alternative Assets, SS&C Technologies Holdings, Inc.

Yeah. Unfortunately it's really not easy to do. Some of what happens is it depends on what kind of fund that $10 billion came out of, right? Because we're talking about the incremental tier of assets and there's a pretty wide spread depending on complexity where on a complex derivatives fund, we might be somewhere in the 10 basis point to 15 basis point range, even on that last year on a long short-equity fund we might be a lot lower as you pointed out. If it's private equity, it really won't have any impact. So very hard to come up with a statistical way to be able to kind of correlate those two things.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Okay. No, thanks. Yeah, I understand it's a difficult one. Every contract is going to be different. Just maybe one final question. This is more related to BlueCrest Capital and them potentially converting into a family office. I believe that was one of – a big customer for you. Is there a way for us to think about the revenue impact from that transition?

William C. Stone - Chairman & Chief Executive Officer

I would say it's negative, but how negative is not nearly as much as you would think, right? Because BlueCrest is still a great client. They got great people. Mike Platt knows what he's doing. And Systematica, which got spun out of BlueCrest. Leda Braga is a very talented investor and that's a great client of ours and that fund is doing very, very well now. And so I think Systematica is about a $12 billion to $14 billion fund. I think Mike's family office is still $5 billion to $8 billion or something like that, and then the payout of the BlueCrest assets is going to probably take several quarters. So the impact is a few million dollars, but it's not as dramatic as it would seem when you go from a mid $30 billion hedge fund down to a family office in a sub $10 billion range.

Ashish Sabadra - Deutsche Bank Securities, Inc.

No, that's great color. Thanks, Bill. And maybe, Patrick, one final question for you. In the first quarter 2016 guidance, what's the assumption around organic growth there?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

In the range we provided, it's about 2% to 4%.

Ashish Sabadra - Deutsche Bank Securities, Inc.

2% to 4%. Okay. Thank you very much. Thanks.

Operator

Thank you. And our next question comes from Mayank Tandon of Needham & Company. Your line is now open. Please go ahead.

Mayank Tandon - Needham & Co. LLC

Great. Thanks for squeezing me in. Bill, just maybe you already touched on this, but I probably missed it. In terms of the broad exposure to various asset classes, can you give us a sense of how much is straight equity versus long/short versus other asset classes? Just broadly in terms of the exposure that SS&C has across its businesses?

William C. Stone - Chairman & Chief Executive Officer

Yeah. Primarily, Mayank, on the stuff where we get paid based on asset fluctuations, we have about 35% of our assets in equities, but those equities are not all long. Right? It's primarily long/short equity, and it's about 70% long and 30% short or about 14% overall, right. So of the $658 billion that Rahul spoke about, about 14% of that would be directly correlated to equity markets. So that would be about $90 billion out of the $658 billion. So that's on that. And then if you look at the rest of the businesses, right, it's private equity or it's a perpetual license, a term license, it's a maintenance contract, or it's a fixed fee contract, so those things tend not to be very market correlated.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

I think the other thing to think about is the market's been hammered for the first six weeks of the year, and there's been no material changes in our AuA or our fees related to that. So, again, as Bill mentioned, we don't really know what's going to happen in the future, but at least so far, we feel pretty good that our revenue is holding up.

Mayank Tandon - Needham & Co. LLC

Got it. That's very helpful perspective. And then just a couple of questions for Patrick. Patrick, I don't know if you mentioned this, but what was the currency headwind in the fourth quarter and for all of fiscal 2015? And then what are you building into fiscal 2016 guidance?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

Yeah. For the full year 2015, the FX impact was a negative $13.9 million. In the fourth quarter, I think it was $3.7 million.

Mayank Tandon - Needham & Co. LLC

Okay.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

And we think at where rates are today – well, I don't know about today, I looked yesterday – but where rates were over the last week or so, we think it's about $11 million to $12 million negative FX in 2016.

Mayank Tandon - Needham & Co. LLC

Okay. Great. And then final question for me. In terms of guidance, going back to EPS, if I look at the midpoint – or rather the high end, I think you've got $3.14 before the impact of Citi. Initially when you did Advent, you've given guidance of $3.05 to $3.15. Could you just give us sort of a walkthrough in terms of, is the incremental EPS increase related to closing acquisitions? Or is there some organic plus acquisitions? Just kind of give us a sense of the delta between the initial guidance versus what you're guiding to today?

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

I think we've – remember when we did the Advent acquisition in the spring, we guided to $3.05 to $3.15 for 2016. And since then, we raised a little bit more cash through the equity offering, and we ended up selling $600 million of notes instead of $500 million of notes that the $3.05 to $3.15 was based on. But then we bought Primatics, which is helping our earnings. And I think if you look at our guidance today, the midpoint is about $3.10 and the range is about $3.05 to $3.15, so it's about the same.

Mayank Tandon - Needham & Co. LLC

Right. I miscalculated. Thank you. Yes, you're right.

Patrick J. Pedonti - Senior Vice President & Chief Financial Officer

So the Primatics acquisition kind of offsets the additional dilution that happened when we raised additional cash. But we haven't deployed that cash yet, right. We haven't deployed $325 million of that cash. It's kind of hurting us. But, hey, when we deploy it, when we buy Citi, then we'll be above this current range.

Mayank Tandon - Needham & Co. LLC

Right. Got it. That's very helpful. Thank you very much, guys.

Operator

Thank you. And our next question comes from Chris Shutler of William Blair. Your line is open. Please go ahead.

Andrew Nicholas - William Blair & Co. LLC

Hi. This is actually Andrew Nicholas filling in for Chris. Most of my questions have been asked, but just one quickly for Rahul. I was hoping you could provide some additional color on the sales pipeline in your business, and if there are any early indications as to how market volatility has impacted that pipeline, particularly in terms of new fund launches but also in terms of competitive takeaways?

Rahul Kanwar - Senior Vice President & Managing Director, Alternative Assets, SS&C Technologies Holdings, Inc.

Sure. So we had a particularly strong Q4 in terms of sales, and we actually think and Bill said this early in the call, but sometimes what happens or a lot of times when we see what happens when there is volatility, is some of the money managers come under some pressures as well and they start to look at both who their providers are but also the split between what's done internally and what can be outsourced. And, generally speaking, because we're doing this at scale and for lots and lots of clients, we can take entire portions of the operation and make it more efficient for them than it was before. So we've got a very, very strong pipeline. It is focused on competitive takeaways and also outsourcing parts of middle office, et cetera, for pretty large money managers. But we are still seeing a steady flow of new fund formation, so things look pretty healthy.

Andrew Nicholas - William Blair & Co. LLC

All right. Thank you. That's all I had.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to management for closing remarks.

William C. Stone - Chairman & Chief Executive Officer

So, again, we really appreciate everyone getting on the call. We're excited about where we are, and we're more than aware of organic revenue growth. At the same time, we're going to deliver a lot of earnings and we're going to generate a lot of cash. And we're going to make some smart investments, and that's going to help us to drive our growth further. So we look forward to seeing you after next quarter. Thanks.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

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