SS&C Technologies Holdings (SSNC) William C. Stone on Q2 2016 Results - Earnings Call Transcript

| About: SS&C Technologies (SSNC)

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

Q2 2016 Earnings Call

July 27, 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, SS&C Technologies Holdings, Inc.

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

Analysts

Sterling Auty - JPMorgan Securities LLC

Alexander Joseph Ljubich - Jefferies LLC

Rayna Kumar - Evercore Group LLC

Chris C. Shutler - William Blair & Co. LLC

Daniel Perlin - RBC Capital Markets LLC

Ashish Sabadra - Deutsche Bank Securities, Inc.

Peter J. Heckmann - Avondale Partners LLC

Brian L. Essex - Morgan Stanley & Co. LLC

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

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

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

Operator

Good day, ladies and gentlemen, and welcome to the SS&C Technologies Second Quarter 2016 Earnings 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 call will be recorded.

I would now like to introduce your host for today's conference, Ms. Justine Stone. You may begin.

Justine Stone - Investor Relations

Hi, everyone. Welcome and thank you for joining us for our second quarter 2016 earnings call. I'm Justine Stone, Investor Relations for SS&C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer; Norm Boulanger, President and Chief Operating Officer; Rahul Kanwar, Senior Vice President and 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 on our website.

These forward-looking statements represent our expectations only as of today, July 27, 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 will now turn the call over to Bill.

William C. Stone - Chairman & Chief Executive Officer

Thanks, Justine. SS&C reported record adjusted revenues of $384.4 million for the second quarter and adjusted diluted earnings per share of $0.39. Our sales came in better than expected and our GAAP R&D spend is $40.8 million, which is 11% of our GAAP total revenue and 31.77% of our software and software-related revenues, pushed out a range of new releases to our client base. We're also constantly working to automate and improve our outsourcing business.

We have client service centers in North America, Europe, and India. Each month, 350 enhancements are implemented across our fund administration platform. Significant improvements to reconciliation GoWire and valuations are our top focus, and we have seen results. For example, now 97% of all reconciliations are automated by the system, GoRec, up 40% since 2012. Total wire transfers, 19,000 per month, are 80% automated. The cumulative impact of these product enhancements every month become significant year-over-year and is a huge competitive advantage.

We've now own Citi Alternative Investor Services business for a quarter and we're impressed and excited about the opportunities, which Rahul will discuss later. We're celebrating our one year anniversary of the Advent acquisition on July 8. The cost savings have come in quicker than our industrial expectations and our cross-sales efforts continue to produce large opportunity. Primatics pipeline is building and we expect the new FASB standard current expected credit loss, or CECL, will drive demand over the next couple of years. Primatics evolve as a premier full service solution addressing this new regulation. SS&C continues to add talent, broadening our perspective and deepening our expertise.

On our last earnings call, we introduced Stephanie Miller, Ron Tannenbaum, Mike Sleightholme, Joe Patellaro, and Adam Hall. This past quarter, we expanded our management team further. Rainer Fuchsluger joined SS&C as Managing Director in Hong Kong responsible for developing and executing an Asian business strategy. Will Entwistle joins SS&C in New York and brings nearly two decades of experience driving rapid sales growth, as Senior Vice President of Institutional and Investment Management. Entwistle will help drive growth in North America.

And now I'll turn it over to Norm.

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

Thanks, Bill. SS&C was able to secure several key wins and meet operational goals for the quarter. Integration of our most recent acquisitions continues to progress. As Bill mentioned, we've put to work about $40 million of R&D in Q2. This contributed to significant product upgrades for our clients.

Last month, we announced a major new release of our institutional accounting platform, CAMRA. We invested over 50,000 hours to bring this new release to market. This is a significant release for advancing our technical infrastructure and one of the most comprehensive and functionally-rich new releases of CAMRA ever. We also released SS&C Global Gateway, a SaaS-delivered platform that makes comprehensive investment reporting and analytics simple through dynamic dashboards which are easily customized. This cloud-based solution is designed for insurance companies and other buy-side asset managers. It gives our clients the most sophisticated analytics and superior functionality.

Now, I'd like to review some key wins for Q2. We sold SS&C Direct Services, our institutional outsourcing service, to both the commercial REIT and business development company subsidiaries of the top global asset manager. Multi-line property and casualty insurer chose SS&C's CAMRA and MAXIMIS SaaS solutions as their accounting platform. A $5 billion institutional asset manager chose to outsource their performance measurement and reporting functions with SS&C. A current PORTIA client chose to outsource their middle and back office with SS&C to support their 20% growth rate. A financial advisory firm looking to automate more of their back-office processes, upgraded to hosted CAMRA and our new Global Gateway solution. A large private bank in Singapore chose to replace their existing vendor with SS&C MarginMan because of our large local presence and superior margin and techniques. Three multi-hundred million dollar registered investment advisors chose SS&C's Black Diamond over our competitor. Common themes were our flexibility, quick delivery, and strong partnerships. A $10 billion asset manager chose a product set including Geneva, Moxy, and TradeEx to be the core accounting platform to service them and to consolidate in their five business units. And last, a $1.4 billion hedge fund of middle-market investment bank chose a combination of Geneva and SS&C's reconciliation tool. This was a strong joint sales effort between Advent and the SS&C institutional sales teams.

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

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

Thanks, Norm. Revenue for SS&C's Alternatives business grew 45.7% for the second quarter of 2016 compared to the same quarter in 2015. Citi Alternative Investor Services integration is progressing nicely. We're building pipeline in these groups, remain very focused on customers, and have performed several upgrades to the technology platforms. Systems now run faster, add more functionality, and are more reliable. SaaS morale is high and ongoing client feedback is positive. We're also seeing demand from these customers for all the products and services in the SS&C offering. Technology, real estate, and vendor integration processes are well underway and are on target.

As Bill and Norm mentioned, we continue to focus on innovation and rolling out new products and services. This quarter, we added Solvency II, UK Crown Dependencies and Overseas Territories, or CD/OT, and Common Reporting Standards, or CRS, in our regulatory business. We significantly increased the automated processing of agent notices in our Bank Loan Servicing business, which is a competitive differentiator as we continue to market our services to fund in this asset class.

We also continue to enhance our web and mobile platforms and added collateral processing optimization and wire processing on mobile devices this quarter. Our service offering, which combines the talent and expertise of our professionals with class-leading technology and innovation that help us build a comprehensive offering attractive to all types of investment organizations.

Some sales highlights for Q2 include: an investment firm launching a private equity fund chose SS&C as their fund administrator, leveraging us for all aspects of their back office; a $1 billion hedge fund converted some of their funds to SS&C fund administration from a competitor; SS&C won the fund administration business from a multi-strategy startup fund who cited our strong technology and engaged management team as key reasons for the win; a hedge fund-backed reinsurance company chose SS&C for fund administration and will leverage our transfer agency and insurance expertise; a $1.4 billion AuA real estate private equity fund chose SS&C for their new fund launch; a $1 billion private equity fund, a client of the former Citi Alternative Investment Services unit chose SS&C for their $750 million new fund; a family office of one of the wealthiest families in the United States chose SS&C's private capital co-sourced services for their middle and back office needs.

I will now turn it over to Patrick.

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

Thanks, Rahul. For Q2 of 2016, we reported GAAP revenue of $373.1 million, GAAP net income of $28.2 million, and GAAP EPS of $0.14. Adjusted revenue was $384.4 million, excluding the adjustment for acquired deferred revenue for the Advent, Varden, and Primatics acquisitions. We had a strong quarter. Adjusted revenue was up 80.4%, adjusted operating income increased 64.3%, and adjusted EPS was $0.39, an 18.2% increase over 2015.

So adjusted revenue increased $171.3 million or 80.4% over Q2 of 2015. Advent contributed $111.7 million of adjusted revenue in the quarter, the Citi fund administration acquisition contributed $53.5 million and the two other acquisitions, including Varden and Primatics, contributed combined $15.2 million for the quarter. Foreign exchange had a negative impact of about $1.9 million or 0.9% in the quarter. And, thus, organic growth on a constant currency basis was down 3.4% in the quarter.

On a pro forma basis, comparing Advent, Primatics, and Varden combined to 2015, we had revenue growth of 6.4%, and the Citi fund administration business exceeded our expectation for the quarter.

Adjusted operating income was $140.5 million, an increase of $55 million or 64.3% for the second quarter. Operating margins decreased to 36.6% from 40.1% of revenue in Q2 2015. Operating margins were impacted by the Citi fund administration business, which had 22% operating margins in the quarter. Advent had 47% operating margins in the quarter, and we've implemented annual run rate synergies of approximately $43 million at Advent.

Consolidated EBITDA, defined in Note 3, was $147.5 million or 38.4% of adjusted revenue, an increase of 65% over the prior year. Net interest expense was $32.8 million and includes $2.7 million of non-cash amortized financing costs and OID. The average interest rate in the quarter, including our bonds, was 4.4%.

We recorded a GAAP tax provision of $5 million or 15% of pre-tax income. We expect the GAAP effective tax rate for the full year to be between 19% and 21%, and we continue to project the tax rate for adjusted earnings to be between 27% and 29% for 2016.

Adjusted net income was $79.4 million, and adjusted EPS was $0.39. The adjusted net income excludes $52 million of amortization of intangible assets; $12.6 million of stock-based compensation; $8.6 million of acquisition purchase accounting adjustments, including the deferred revenue adjustment; $300,000 of acquisition deal costs; $2.7 million of non-cash debt issuance costs; $400,000 of severance pay related to Advent employee reductions; and, $600,000, which is mostly related to FX translation of certain balance sheet items. And we used the effective tax rate of 28% with adjusted net income.

For our balance sheet and cash flow for the quarter, we ended the quarter with $95.2 million of cash and approximately $2.665 billion of gross debt, for a net debt position of approximately $2.570 billion. Operating cash flow for the six months ended June was $139.2 million, a $38.6 million or 38.3% increase over 2015. Cash flow for the six months was driven by improved cash earnings and lower tax payments. For the first six months of the year, we've paid down $155.3 million of debt and $415.3 million since the Advent acquisition approximately 12 months ago. We used $16.9 (15:03) million for capital expenditures and capitalized software, mostly for IT and build out for the Citi's fund administration infrastructure. We have paid $67.9 million of interest in 2016 compared to $9 million in 2015, and in the first six months of this year, we've paid $10.6 million of cash taxes.

The accounts receivable DSO as of June was 56 days, an improvement of 5 days from March 2016. The Citi fund administration receivables continue to adversely impact the overall DSO of the company, but we expect them to improve over the next several quarters. And we also, in the last six months, paid $318 million for the acquisition of the Citi fund administration business which we closed on March 11.

LTM consolidated EBITDA, which we use for covenant compliance, was $588.8 million as of June and includes $28.5 million of acquired EBITDA and cost savings related to the acquisitions. And based on the net debt of approximately $2.6 billion, our total leverage was 4.4 as of June.

And now, for outlook for the year – for the full-year 2016, we currently expect adjusted revenue in the range of $1.511 billion to $1.524 billion, adjusted net income of $326 million to $334 million, and diluted shares in the range of 205.2 million to 205.9 million.

We've assumed that out of approximately $42 million of Advent synergies that we've implemented, that we'll get the benefit on the P&L for about $38 million to $40 million of those synergies for the full year 2016. And we've also assumed that adjusted operating margins for the full year will be approximately between 37.8% and 38.2% of adjusted revenue.

For the full year 2016, we expect cash from operating activities to be in the range of $380 million to $395 million, and capital expenditures to be in the range of 2.5% to 2.8% of revenues.

For Q3 of 2016, our current expectation is for adjusted revenue in the range $388 million to $394 million, adjusted net income of $82.5 million to $85 million, and diluted shares in the range of 206 million to 206.4 million.

Now I'll turn it back to Bill for a final comment.

William C. Stone - Chairman & Chief Executive Officer

Thanks, Patrick. As you can see, our business model remains resilient. We've done 44 acquisitions in the last 20 years, and we've added a lot of talent and tremendous stores of intellectual property. We are determined to protect these assets.

Just yesterday on the sales front, we signed a contract with Russell Investment to manage $244 billion in assets globally.

We're going to provide a wide range of middle and back office services including accounting, performance management, reporting, and data management services. Our integrated solution will create scale and harmonize processes across Russell's operating model. This allows Russell to focus on their core competencies: running money, retaining clients, and wining new clients.

And with that, we'll open it up to questions.

Question-and-Answer Session

Operator

Thank you. Our first question comes from Sterling Auty with JPMorgan. Your line is open.

Sterling Auty - JPMorgan Securities LLC

Hey, guys, thanks for taking the questions. Bill, we're going to start with your favorite topic, let's talk about organic growth. See the organic growth in the quarter, I think it's kind of in line with what you guys have discussed, but can you update everyone in terms of what you guys' thoughts are for the full year organic growth for the company?

William C. Stone - Chairman & Chief Executive Officer

Yeah, I think that, our organic growth was a negative 3.4% for Q2, something about not what we've expected, and then Q3 and Q4 looks like it's going to get better. And I think for the whole year, we will be positive on organic revenue growth. And I think Patrick has a number of somewhere between 3% and 4.5%. Is that right, Patrick?

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

Yeah, for the full year, Bill, the range is 3% to about 3.5%. And then, the...

William C. Stone - Chairman & Chief Executive Officer

(20:08) Go ahead.

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

In Q3, we expect about between 4% and a little over 5.5% in the...

William C. Stone - Chairman & Chief Executive Officer

And some – go ahead.

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

...in the range we provided in the guidance.

William C. Stone - Chairman & Chief Executive Officer

And, Sterling, with that said, Advent came in a little bit stronger in Q2 than we had anticipated. So some of the stuff that I thought was going to come in Q3, which I know would have made it organic, but we guided in Q2 and we took it. So we're not really trying to manipulate those numbers, those numbers come in where they – where it's best for our customers and same thing with Citi. Citi was better than we expected, but we've also done a lot of work with Citi, we've provided all kinds of services for Citi. And we don't do intercompany cash or accounting movements, right, we just let the chips fall where they may.

So we're are pretty excited about what's going to happen for the rest of the year, we're excited about winning Russell and we have other huger opportunities in our book of business. And we're going to be selective about who we choose, right. It's gone to the point where we have lots and lots of opportunities and we can get a little more picky and get a little stronger on price.

Sterling Auty - JPMorgan Securities LLC

I think that sounds good. Maybe one follow up and I'll jump back in line, the Citi assets you mentioned did a little bit better than expected. How should we think about the contribution as it flows through the year, I think there was a thought that you would have a little bit of shift in maybe some of the customers that were already in the process of moving off the platform, but maybe now that you've had it for a little while, is there maybe some offset and perhaps you end up with a little bit more contribution than you originally thought for the full year.

William C. Stone - Chairman & Chief Executive Officer

Well, I think we're improving the business, and really we have, I think once they went in the Citi Holdings, which was now almost 18 months ago, they won't allow it to sell again, right, so they couldn't bring in new customers and there's a lot of talented people that we acquired with Citi and now they get to sell again and they're winning. So they're winning a number of new deals and that breeds confidence, which is going to win more deals. And then, SS&C has a pretty good track record about managing our costs to give us maximum flexibility and high margins. And I think Rahul is optimistic about where he can take that business and maybe he will surprise us positively.

Sterling Auty - JPMorgan Securities LLC

Sounds good. Thanks.

Operator

Thank you. And our next question comes from John DiFucci with Jefferies. Your line is open.

Alexander Joseph Ljubich - Jefferies LLC

Hey, there. It's A.J. Ljubich on for John. Thanks for taking the question. Just wondering, last quarter you had outlined a few catalysts to accelerate organic growth in the back half, which included strong growth from Advent, robust sales pipeline, cross-selling from acquired businesses and improved retention rates. Can you just sort of walk us through where those stand and give us sort of a status update for some of those catalysts? And in light of somewhat of a guide down a bit for organic revenue growth, have any of those sort of softened in your perspective?

William C. Stone - Chairman & Chief Executive Officer

Well, I think that the business is as strong as it's ever been. I think Advent was up over 8% in the second quarter and some of that was probably accelerated from the third quarter. But it's going to have a strong quarter in Q3 and I believe it's going to have another strong quarter in Q4. So the business I think is performing pretty well on that basis, I think we are doing more cross-sell and up-sell, I think we had a real good joint win with the Advent and our institutional business this past quarter on a large deal. And I think that our pipeline are strong and the amount of money that we've been spending on R&D has to deliver us new products, new services that that are going to prove to be a very well received by our client base.

And you have to get through these acquisitions and this acquisition accounting and get on a steady state basis, but I think the – we first engaged with Russell probably in February. And I believe that we signed a contract yesterday, which is obviously July, but that's pretty quick for that big of an organization. And I think our teams are getting stronger and our approaches are getting better and I just believe that we're going to have a strong close to 2016 and I think we're going to be well positioned for 2017.

Alexander Joseph Ljubich - Jefferies LLC

Thanks. And just a quick follow up, sort of a bookkeeping item. Do you have the latest AuA figures for the quarter? And if you could, is there any way to parse out what is Citi?

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

Yeah. So the combined AuA at the end of the quarter is $1.056 billion, which is about flat from what it was last quarter. I don't have Citi parsed out at least for the purposes of this call.

Alexander Joseph Ljubich - Jefferies LLC

Great. Thank you.

Operator

Thank you. Our next question comes from Rayna Kumar with Evercore ISI. Your line is now open.

Rayna Kumar - Evercore Group LLC

Good evening. Can you discuss your current acquisition pipeline and what types of acquisitions you are seeking? And secondly, what's your leverage limit in your credit agreement and how much flexibility do you have on leverage so you could do more acquisitions?

William C. Stone - Chairman & Chief Executive Officer

Well, we're seeing a lot of opportunities in the acquisition arena, that we probably have any number of discussions going on and we'd be a little disappointed if we don't close anything by the end of the year. I think that we're still looking for new technologies and we like have an IP. And we're also looking for ways in which to lever certain types of technology across all of our different service businesses, as well as being able to market the technology on its own. As far as leverage is concerned, I think at the end of June, we were at 4.36 times levered and I think our covenant is 5.5 times. Is that right, Patrick?

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

Our covenant – our only leverage covenant is actually on secured leverage excluding the bonds. So our secured leverage is 3.4 times right now. And the covenant is 5.5 times on secured leverage.

William C. Stone - Chairman & Chief Executive Officer

So that gives you basically two-turn, on a $600 million in EBITDA basis, that gives you $1.2 billion. We would acquire some EBITDA obviously depending on what kind of price we paid. We probably have $1.5 billion to $1.7 billion in purchasability. I don't think, we will spend $1.5 billion to $1.7 billion this year, but we're always looking for opportunities to improve and increase shareholder value. And if we saw something that was irresistible, we would move as quickly as we could to secure those assets. And then at the same time, we have a reasonably strong equity currency, that if we had a good enough deal, we would be willing to sell shares.

Rayna Kumar - Evercore Group LLC

Got it. That's very helpful. Your new 3% to 4.5% organic revenue guidance for the full year, it still implies a significant ramp in the back half, I think it's 6% to 7%. How confident are you with those numbers and maybe you can help us by quantifying your current sales pipeline.

William C. Stone - Chairman & Chief Executive Officer

Well, we – on our sales pipeline, we use things like large, strong, we don't really tell you the dollar value that's in the pipeline, but it's as strong as it's been in any of the last several years. And I think that our ability to close is getting better. I think we're getting more disciplined; we're having an approach that's better, some of the people that we talked about as the talent that is coming here. The Russell deal was closed with Tamara Sablic and Amy O'Leary, the top three salespeople we have in the company are now all women, which is great.

They're very effective and I believe that they had a great team around them that helped them close that business, including Jon Anderson and Eamonn Greaves and Rahul Kanwar, the whole organization, right, and we're methodically doing that with large organizations around the world. And we have talented people that are ambitious and I believe are compensated in the right way, to incentivize them in the right way. So I'm very optimistic and we're not once generally to lower anything. So for us to lower our organic growth rate in the second half is not something we're proud of. At the same time, it's something that's prudent. We're running at a really fast clip. I think our revenue was up 80.4% this quarter. And Citi wasn't better than expected because we didn't do anything. It was better than expected because of what we did.

Right? Advent didn't get 47% operating margins because we said, go get them guys, we worked with them on a day-to-day, week-to-week, month-to-month basis. In our lexicon, it's called management. I think that that's what we'll do for rest of the year and I'm optimistic about where we'll end up.

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

And, Bill, just for me – I'll add to that, Bill, one thing you have to remember is if you look across the business, like in Q2, it was a pretty broad-based effort, we had some great sales in Sylvan and Pages as well as HiPortfolio and Geneva. And a lot of these are recurring like – recurring revenue businesses, right, so going into Q3, a lot of that business has been sold. So I'm very comfortable that we've got some achievable targets for Q3 and Q4 and it's not single-threaded through a business.

And that's with a headwind that if you look across Black Diamond, some of the Geneva customer base on the license side in fund services we're not getting the same lift in terms of AUM that we normally get in stronger markets. So I look at the core business and I think it's contributing and it gets stronger. And we still deliver some pretty strong organic growth rates over the next couple of quarters if we execute. And obviously, it comes down to execute on those sales in that pipeline. Russell was great win for us to be able to close yesterday, to be able to announce it for this call. Right? So that's what the game is all about is us getting those prospects and closing them, and I feel pretty good that we have a strong opportunity the rest of the year.

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

This is Patrick. So I think if you look at our business and how we get there in the second half of the year, in Q2 of this year we had a fairly tough license comp from Q2 2015, which we don't have in Q3 and Q4. And if you take out that license comp, basically, the 3.5% negative comes out to somewhere around 2% growth for the rest of the business in Q2. And then, the first thing we have is we've got retention rates this year running about 1.5% better than last year. So the high retention rates start helping us in the second half of the year.

Next, we've got Advent that comes in and becomes organic in the second half of the year. And they're running at 6% to 8% growth and they're about a third of our business, so that's going to add another 2%. So you go from 2%, to 3%, to 5% with Advent and then we've got the rest of our business performing well. So that's how we get there on the math.

Rayna Kumar - Evercore Group LLC

That's very helpful. If I can just sneak two final questions in here, one, could you just discuss your progress with post-trade matching in the U.S.? And second, could you just call out the Alternatives' organic revenue growth rate for the second quarter?

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

I mean, the Alternative – the total Alternative business grew 2.1% in Q2, organically.

Rayna Kumar - Evercore Group LLC

Got it.

William C. Stone - Chairman & Chief Executive Officer

And in post-trade matching, we've had several large scale meetings with all the major custodians and all the major broker-dealers. We're making great progress. Bob Moitoso is driving that for us. And, hopefully, we can get revenue to start rolling in on U.S.-based post-trade matching services by the start of the fourth quarter.

Rayna Kumar - Evercore Group LLC

Thank you.

Operator

Thank you. Our next question comes from Chris Shutler with William Blair. Your line is open.

Chris C. Shutler - William Blair & Co. LLC

Hey, guys, good afternoon. On the Russell win, I'm guessing that was a competitive takeaway. Was that from a big bank, or what type of firm was that from? And what you do think ultimately won it for SS&C and when will that go live?

William C. Stone - Chairman & Chief Executive Officer

Yeah, we would expect the business – parts of what we're going to deliver to Russell to be live in the first quarter of next year. We have their COO going to come out and see us next week – actually, Friday this week, and we're ramping – and their COO is the ex-President of GlobeOp, Vernon Barback; really talented guy. I was – particularly talented that he hired us. But we think that we'll be in full force with Russell by the end of 2017. So we're going to ramp this as quickly as we can. We're going to put a top team on it.

I think we won because we're not a big bank. We move a lot faster. We have way better technology; we're constantly improving it. And I think – well, he knew it, because he built part of the team that did it. And he's very comfortable with those people who are very talented, whether it's Ken Fullerton or Jon Anderson or a number of other of our team. I think that we are poised to really have a great relationship with Russell, and it's a five year contract and I think it's going to be probably in excess of $50 million for that five years. So, I mean, that's just a good start, and we have lots of stuff in our pipeline that I think can allow us to go forward in a pretty strong fashion.

Chris C. Shutler - William Blair & Co. LLC

Got it. And then, Bill, you also – you made the comment earlier that maybe you can get pickier, it sounded like who you choose as customers, maybe be stronger on price. Can you just maybe dive into that comment a little bit more; help us understand what you're talking about?

William C. Stone - Chairman & Chief Executive Officer

Well, there's a lot of people that want us to do stuff for them and there is a lot of, I would call it, stress in some of the large funds, and they are looking to move their internal operations externally and they would prefer lift-outs. But I don't believe that SS&C is too anxious to do lift-outs; very selectively we might. But basically they want you to lift out; they don't want you to change anything. Right? They don't want to spend any more than they are spending now.

Well, how do we make any money if we do that? And all it seems like we do is add heartburn. So we're not going to do those things if we can't see a path to our EBITDA percentages and a great experience for the customer that we acquire in that process, and then also our people that work on those deals. Right? You can't work on the biggest funds in the world and just get clobbered every day because of the intensity and drive of these funds. Now, these are humans and they are important to us. Right?

So we need to have our teams getting really well compensated and the accolades they deserve. I mean, we've taken some of these people from 24th on an LSTA basis to 7. No one talks about that, and that's 17 steps up. Now, they want to know when we're going to get to 6. Now, look, we want to get to 6, too, but you have to celebrate your successes or you create such a grind business. So we're very sensitive to training our people, giving our people realistic goals, making sure that our clients understand what are realistic goals, and then making sure that we're getting paid. Right? So I think those are things that are – really make for a great business and it's something that we're focusing on across our entire range of products and services.

Chris C. Shutler - William Blair & Co. LLC

Okay, thanks for that. And then, just two real quick ones on the organic growth topic. First, you just mentioned the Alternatives grew 2.1% that business. I'm assuming that's the Alternative fund administration business excluding Geneva, or does that include Geneva? And what's (39:13) – go ahead.

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

Well, that that excludes the Geneva portion.

Chris C. Shutler - William Blair & Co. LLC

Okay. So that's pure fund administration. And the second half organic guidance, Patrick, that you talked about, what does that assume for the Alternatives fund administration business?

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

It assumes probably somewhere in the range of 3% to 5%.

Chris C. Shutler - William Blair & Co. LLC

Okay. So slight improvement, I guess, over what we saw in Q2. And then, sort of along the same topic – that same topic, looking at the deferred revenue balance on the balance sheet, so since December 31, deferred revenue increased about $17 million over those six months. If I look back over the last couple of years and include Advent, it look like the deferred revenue was typically down a little bit from 12/31 to 6/30 levels.

So, I guess, I'm just wondering if how much of that higher deferred revenue balance is related to sales which will flow through into the P&L where it's maybe projects that will flow into the P&L over the next few quarters or how much of it is due to I think in the 10-Q you called out collection of annual maintenance fees. So maybe just help us decipher that a little bit better. Thanks.

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

I think when you look at the deferred revenue, you also have to remember the adjusted for that haircut we took on deferred revenue when we acquired Advent because that's making it look artificially low. But – yeah, if you look at the – I mean if you look at the SS&C business, I mean, pretty much all – vast majority of the deferred revenue is really maintenance – related to maintenance – annual maintenance contracts.

On the Advent business, they both have some maintenance related to some of their legacy license deals and then they've got all the deferred term license in there. In addition, they've also got some deferral on projects that are waiting to be implemented. And for the second half of the year, there is probably somewhere around $5 million to $8 million of potential deferred revenue to be recognized assuming we complete projects.

Chris C. Shutler - William Blair & Co. LLC

Okay. Thank you.

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

They pretty much have that every quarter, right. I mean it's pretty much every quarter there is some amount of deferred revenue being recognized based on project completion.

Chris C. Shutler - William Blair & Co. LLC

Pretty standard, not outsized then.

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

Yeah, pretty standard.

Chris C. Shutler - William Blair & Co. LLC

Okay. Thanks, Patrick.

Operator

Thank you. Our next question comes from Dan Perlin with RBC Capital Markets. Your line is open.

Daniel Perlin - RBC Capital Markets LLC

Thanks. Hey, Bill, you had alluded to I think at our conference that there was, in the back half, there might be large institutional license deals that you thought would be recognized in the third quarter and fourth quarter. I wonder did any of that getting pulled into this quarter, are those still on track, has anything changed there? If you could just kind of elaborate on that a little bit, please.

William C. Stone - Chairman & Chief Executive Officer

I would have said that we're still expecting to get some of that in Q3 and Q4. And then I would say that – I think Patrick said that, Advent revenue in Q2 was $111 million I think, and that's up from I think about $101.5 million. So I think it was over 8% growth in Q2, and I think some of those big projects got completed in Q2 and that revenue flowed into Q2. So I still think we have some large ones coming in in Q3 and Q4, and then some of them got done in Q2.

Daniel Perlin - RBC Capital Markets LLC

Good. Okay, then it's a high quality problem, so that's good. The Citi revenue came in I think a lot better at least than we had anticipated. And if we look at how that run rates, I think you had recently guided to $150 million for 2016, but if it's still running at $53.5 million a quarter, that puts you like 15% above that target. Is there any reason to believe that there is something that's going to kind of dovetail off in the back of the year or do you think that's an achievable target?

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

It is going to – I mean, I think you have to remember, we've said that – I think we've said that we bought about $187 million of annual run rate revenue when we acquired the Citi fund administration business. And there were some clients that we are going to continue to have revenue for in the first couple of quarters that have not come off the platform yet. So we'll expect – we expect currently that revenue from Citi will be lower in the second half of the year than this Q2 run rate.

Daniel Perlin - RBC Capital Markets LLC

Okay. Got it. The other thing I'd just want to explore a little bit, you talked a lot about R&D yielding lot of new products that you've pushed out. I'm trying to get a better sense of how we should be thinking about ring-fencing that – just that new product growth versus kind of maybe its legacy growth. So that will be one.

And then the second, really just goes back to pricing. Are these new products that you are rolling out, are they enabling you to actually take up pricing as opposed to the comment before where you're being more picky in who you choose. I'm wondering if it's a mix shift of these new products that you spend on this R&D on that might enable you to have better pricing? Thanks.

William C. Stone - Chairman & Chief Executive Officer

I think the new stuff in the legacy businesses help us both retain clients and then also get new clients, because you have the functionality of 2016. I think a number of the improvements and modules that we have created allow us to deliver a way richer proposal to our prospects and current clients that want to upgrade and I think all of those things make for winning things like, Russell. Right? I mean Russell interviewed everybody, right? Started off with like 11, and you get down and you compete through the process. And I think when these things happen, I think when we can get in and pitch against the major competitors we have, that that we have an awfully strong product and service offering and great references. And I think that's what all this new technology should bring to the fore.

Daniel Perlin - RBC Capital Markets LLC

Got it. One last one for Patrick, you said retention rate were up 1.5 points better than last year. I think last quarter you had alluded, it was only up 1 point. Is that just a nuance or is it actually better? Thanks.

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

So retention rates and we calculate this on an LTM 12-month basis. So if you compare the retention rates, 6/30 LTM were 95.7%. And at the end of Q1, we reported they were 95.1%. So we got a little over 0.5% improvement from Q1 to Q2. And then now we're running about a 1.5% better than the full year 2015.

Daniel Perlin - RBC Capital Markets LLC

Excellent. Thank you, guys.

Operator

Thank you. Our next question comes from Ashish Sabadra with Deutsche Bank. Your line is open.

Ashish Sabadra - Deutsche Bank Securities, Inc.

My question is about the Alternatives revenue growth that moderated a bit from 5% to 2.1% in the second quarter. Were there any puts and takes there in terms of fund flows or redemptions? And then when you think about the back half and 3% to 5% growth in the back half, what are the expectations around again the fund flows and redemptions there?

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

Yeah, so, I think that the – probably the single biggest change from Q2 of last year to Q2 of this year, as we've said a few times, we're not seeing the AuA lift that we've seen historically. Right? So obviously that's had a little bit of a dampening effect on the growth rate. I think as it relates to Q3 and Q4, we're expecting, from an AuA perspective, a pretty similar neutral to slightly down environment, which is what we've experienced in Q2.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Okay. And that's helpful. And just on – a quick question on margins, it looks like the synergies from the acquisitions have been tracking ahead of expectations. Just on the core business, just wondering how are those margins tracking, any comments there.

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

I am not sure I understand the question.

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

You mean on the core business, how the margins are tracking on the core business?

Ashish Sabadra - Deutsche Bank Securities, Inc.

Yeah. Yes.

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

The margins on the core business, operating margins on the core business continue to track where we've been historically around high-39% range on operating margins. So they continue to track there.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Okay. No, that's helpful. And maybe one final question. When we think about the pro forma organic growth, that was 6.4% in the second quarter. Is there a way for us to think about the pro forma organic growth in the back half of the year? Or does the organic growth be equal to – almost equal to the pro forma growth?

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

Yeah. I think the organic – I mean the only thing that's going to be different in the second of the half year is the Citi acquisition.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Yes.

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

It's going to be tough to measure the Citi acquisition because obviously their revenue run rate in 2015 was a lot higher than what we acquired from them. But if you take out without Citi, excluding Citi which I think – we think it will continue to perform well, a little better than we expected and start growing in 2017. The organic revenue is pretty similar.

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

You also got to remember that Citi was a Geneva customer, so that revenue goes out of the Advent business.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Sure. No, that helps. And then maybe one final question is more around like, Bill, again you talked about a lot of new events in the quarter and you had a – you have a very strong pipeline. But how should we think about organic growth going forward. You have the headwinds from potentially redemptions of fund flows being pretty modest versus you have the deal inflow, so how should we think about once these acquisitions anniversary organic growth going forward?

William C. Stone - Chairman & Chief Executive Officer

Well. Again, I think you run your business in order to maximize your cash flow and maximize your opportunities, I mean we do live in a 90-day world but we're also trying to make sure that we have stuff that's going to come on line in 2017, stuff that's going to come on line in 2018. And again, if we can buy acquisitions and get tremendous amounts of EBITDA in short periods of time, we're going to do it, right, and that's going to take a lot of management because you've got to manage these things or it doesn't happen. And if we get 80% growth a year – year-over-year, I'll be happy. Right?

You guys might say, boy, that's always 80% acquisition and we're getting 40% margins on it and we're only paying X times EBITDA, I'm taking it, right? So we're still spending $41 million this quarter to build new software. And we're not building new software, not to sell it. So I think that we have opportunities to be in excess of 5% organic revenue growth. And if the economy was ever to grow again, right, like, oh surprise, 4% or something, we grow faster.

But you're in a 2% economy growth and the financial services industry as a whole is the whipping boy of at least one of the parties and maybe both of them. And so you're not going to have tremendous bank formation or insurance company formation or mutual fund formation, you're still going to have hedge funds, private equity funds, real estate investment trust, RIA. Those are the four areas you might get a little fund of funds, but not much. And so, with that backdrop, if we can get back to 5% organic revenue growth, I think we're doing pretty well. And when we talk about Q2 of 2015 being a tough comp, Q2 of 2015 had $13 million in license revenue, perpetual license revenue. This quarter had $5 million. Right?

Ashish Sabadra - Deutsche Bank Securities, Inc.

Yeah.

William C. Stone - Chairman & Chief Executive Officer

HPA, which is the HiPortfolios business that we bought from DST in December of 2014, in the second quarter of 2015 has its best quarter, I think, in 10 years, and did are over $18 million in revenue, but a lot of that was pent up, right, because they've been for sale for a while, and people weren't buying. So there is probably an additional $4 million or so in HiPortfolios that didn't come in in Q2 of 2016. It still had a great quarter, probably had over 50% margins, or real high 40% and it's been a great acquisition.

But just on a Q2 2015, tough comp. So that is $8 million in perpetual license and another $4 million in DST, and part of that might be in the perpetual license, but most of it isn't. And so, you've got $10 million, $11 million that we don't have in Q3 or Q4, as comp. Is that right, Patrick?

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

That's right.

Ashish Sabadra - Deutsche Bank Securities, Inc.

Thanks. Thanks for the color. Thanks, Bill.

Operator

Thank you. Our next question comes from Peter Heckmann with Avondale. Your line is open.

Peter J. Heckmann - Avondale Partners LLC

Good afternoon everyone. My questions have mostly been answered. I'm just wondering if, Bill, you could give an update on the revenue synergies around Advent and talk about if you've had any success moving hosting over to SS&C here, or convincing in-house license customers to move to outsourcing relationships.

William C. Stone - Chairman & Chief Executive Officer

Yes. We've won several. We have several in the queue. We're still ramping that process up. We've started taking – a number of the large-scale Geneva customers have gone through our Yorktown Heights data center and it's a very impressive facility, probably 30 miles outside of New York. And so, I think that as they get more comfortable and see what we do, I think that's a natural kind of river of revenue that's coming towards us and it will get larger, I think, year-over-year for the next several years.

Peter J. Heckmann - Avondale Partners LLC

Okay. And then, when you think about – and I'm probably following up on someone else's question, but just on the revenue synergies at a $43 million run rate, would have thought there is the possibility of you raising the cost synergy – the guide here. Is there a target in mind, some sort of investment that you're considering, or some other expense that you're looking to potentially eliminating before you would increase that cost synergy guidance?

William C. Stone - Chairman & Chief Executive Officer

Well, we're at $43 million at the end of the first year. I think we've said we'd get to $45 million by the end of three years. So we think we're well on our way. Now, whether or not we're able to do more, I think it's probably pretty obvious that we can. But I don't think that we've really spent a whole lot of time trying to figure out how to raise guidance on cost synergies on Advent. Right? Worrying about – that's not a high priority thing when you're trying to integrate Citi, you're trying to make sure that you got new product releases going out, you're training a sales force. You know, there's a lot of things that are going on, and I think Patrick's area is integrating five acquisitions in the last 2.5 years. And it's 3,500 people and $700 million in revenue, that takes time and it takes effort.

And his team, right – I mean, I think today is the 27th of July and it's the, I think, 16th business day, and last year we reported on the 18th business day. So that's an improvement of 10%, and that's pretty impressive of Patrick and his team, Marc Beliveau and Jeff Castellani (57:40) and those guys, Dave Jonathan (57:43). So they've done a great job and there's a lot of work to do to be able to get all of this information. We're a global business. We have a lot of business units. So I think that we're managing this well. We're getting a lot of cost synergies. Nandini Sankar out in India has built the Gurgaon office, done a great job with that. We have Stephanie Miller who has been to our India operation, been out to London; she's getting very involved in our pitch and putting in some really strong process in our sales culture. So I just think we're doing the right things. We're adding a lot of talent, and we're still in a hurry.

Peter J. Heckmann - Avondale Partners LLC

Got it, got it. Fair enough. I appreciate the commentary.

Operator

Thank you. Our next question comes from Brian Essex with Morgan Stanley. Your line is open.

Brian L. Essex - Morgan Stanley & Co. LLC

Great. Thanks for taking the question. I was wondering if you could circle back on that prior question a little bit and maybe put a finer point on it. And so, if we were to look at Citi and Advent, in particular, how far away from them – I guess, how far away from corporate average operating margins are they, and is there anything substantial left to get them up to corporate average margins?

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

I'll take Advent, Bill. Advent is already at our...

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

Above.

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

...above our operating margins for the last couple of quarters. And to pick up on Bill's point from the previous question, we're trying to focus on the right things. And that's what products to invest and what products to roll out where we can drive revenue growth, and a lot of the synergies are a result of thinking through those processes. They're not a result of a synergy target, right? So what we're trying to do is grow the business and satisfy our customers and compete against our competitors. So I think there is more opportunity as we continue to explore that, and there's things like Syncova as a service that Advent wasn't in a position to offer as a service that we're having some success with and fund administration business is taking over the services for that.

So I think there's lots of opportunity for us to continue to improve the business and drive more revenue synergies. But I don't want to have the impression that we're shooting for specific targets versus the quality of the business we're trying to grow and whether that's another two more points or it's two points less; we're not thinking of it that way.

Brian L. Essex - Morgan Stanley & Co. LLC

Okay. And on the Citi side, is there substantial room to go or...

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

As Patrick said in the quarter, Citi was 22%. That's probably a little higher than their normalized baseline because we got a little more revenue, but we think that that Citi business will run like the rest of our fund administration business in the low-40%s over the next 24 months or so.

Brian L. Essex - Morgan Stanley & Co. LLC

Got it.

William C. Stone - Chairman & Chief Executive Officer

So I think what Rahul is saying, too, is that Q2 was at 22%, but that's with $53.5 million in revenue and that's going to probably drop to high-40%s by the end of Q4. But it's starting to grow again, too. I mean, we've got new business to come in besides the legacy roll-off. But you're going to have some margin pressure as that revenue rolls off that might dip below the 22% in the year at – somewhere between the 20% – around 20%. And then, I think it will slowly march to 40%, maybe 41%, 42%. I mean, we're doing a lot of things. We're getting great feedback. We've saved several customers, and I think that the user experience inside SS&C has been very, very good for the Citi clients.

Brian L. Essex - Morgan Stanley & Co. LLC

Great. Very helpful. Thank you very much.

Operator

Thank you. Our next question comes from Hugh Miller with Macquarie. Your line is open.

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

Thanks so much for taking the questions. Just, I guess, one quick one that wasn't touched upon. As you guys think about kind of consolidation in the fund admin business, are there any triggers, say, over the next 12 months to 18 months that you think could be a catalyst for M&A in this space among the larger providers?

William C. Stone - Chairman & Chief Executive Officer

Again, I think that – are they going to get more regulated? If they get more regulated that – I believe they're talking about a financial transaction tax and a trade tax and this tax and that tax. And it doesn't look like the Fed's lightening up on the capital requirements. And so, some of these businesses become capital hogs where the large banks can't get the returns they want. You're not going to have the big processing banks getting out of this, but the ones that are major international banks, where this is a $200 million to $300 million in revenue business, is it something that – they're $5 billion a quarter and they're going to have this business that's really not even a rounding error for them. So I think if it gets more and more regulated, you'll see them move more quickly to exit.

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

Got it. That's helpful. And then one quick follow-up just to double check. You guys mentioned for the second half 2016, organic growth of fund admin of 3% to 5%. That was assuming flat to modestly negative asset flows for the industry. Is that how you're viewing it?

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

That's right.

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

Okay. Great. Thank you so much.

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

Just to add to that, that's for hedge funds. You'd think it'd be private equity funds where the asset flows don't impact that.

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

Right, right. Thank you.

Operator

Thank you. Our next question comes from Patrick O'Shaughnessy with Raymond James. Your line is open.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

Hey, good evening. I wanted to refresh my memory. How are you guys thinking about your pricing power right now? And would it be fair to say that, in this environment, you probably have more pricing power on the software side of things?

William C. Stone - Chairman & Chief Executive Officer

Patrick, I don't really think so. I think that we're starting to see some pushback when we go out with, hey, we think this would be a $2 million deal and people say, well, that sounds really good. And then we go, oh, [obscenity] (64:20), we should have said, $2.5 million. Right? But I think you didn't get that for the last couple of years. The last couple of years, you said $2 million, they said $1.5 million. So I think there's just been – there are less providers of the services that we provide than there used to be and we have begun to differentiate ourselves on a technology and expertise basis. And we are articulating that better than we have in the past.

And I think that's a combination of things that that is giving us some confidence that maybe we're looking at getting another 0.5 basis point or 1 basis point on our services than what we might have gotten in the last couple of years.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

That's interesting. Thank you. And then my follow-up question. So one of the pockets of growth that you talked about was the advisor space. What sort of opportunities are you seeing there right now, I think, in particular with your Black Diamond product, but also are there any acquisitions that you think might be in your future at some point?

William C. Stone - Chairman & Chief Executive Officer

Well, Dave Welling is the guy that runs that business for us. He's doing a really good job. He's looking at all kinds of things as far as how to augment his offering and, obviously, he has a talented development team down there and I think in Jacksonville, and he's looking at a number of acquisitions. And again, I think that there's a lot of technology that's for sale now. There's a lot of people that see that the stock market is trading at highs again. They think they can get some liquidity. And I think that we're a pretty good home. And I think there'll be opportunities for us to build out the Black Diamond space and that continues to grow well and we expect it will for the rest of the year.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.

All right, great. Thank you.

Operator

Thank you. Our next question comes from Christian (sic) [Crispin] Love with Sandler O'Neill.

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

Yeah, it's actually Chris Donat. I hijacked Crispin's line. Just had one quick question for Patrick on the revenue guidance for the full-year. Just comparing it to the guidance from a quarter ago and having the effect of the significant depreciation of the pound versus the dollar. I thought I'd see a little bit more effect on the revenue side and obviously some offsets on expenses. But just wondering what's your – it's like how do you model currency rates going forward. And was there any positive stuff to offset the negativity of the impact of the pound?

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

There is actually. So we had about $1.9 million in negative FX in Q2. And then in the second half of the year, based on current FX rates, I mean obviously it's going to be hard to predict where they end up – but based on current FX rate, we're no longer going to have negative FX from the Canadian dollar, because that's current FX rates in the Canadian dollars are pretty similar to where they were in the second half of last year. Obviously, the British pound has dropped and that's going to affect us.

So they're kind of going to both offset each other. And we think right now based on current rates that the FX impact in the second half of the year will be a little bit less than it was in Q2.

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

Okay. That's helpful. And then just to slide one in for Rahul here. So we'd look at the GlobeOp hedge fund in excess on a monthly basis. Do those now incorporate Citi and is there any pitfall to using the redemption index and just the value index as proxies for how business is for you on a monthly basis?

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

I think to the first part of that question, they don't as yet incorporate Citi. They usually – we'll probably target the first of the year to roll in that book of business. I think that the – as to the second part, they're a reasonable proxy to kind of what we're experiencing in the hedge fund business.

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

Okay. Got it. Thank you.

Operator

Thank you. And I'm not showing any further questions at this time. I'd like to turn the call back to Mr. Bill Stone for any closing remarks.

William C. Stone - Chairman & Chief Executive Officer

Well, thanks everybody and we appreciate the questions. Hopefully it was informative, and we look forward to talking to you at the end of next quarter. Thanks again.

Operator

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

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