Q3 2019 Earnings Call
Thank you for standing by and welcome to the S. S and see technologies third quarter 2019 earnings conference call. At this time, all participants are any listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one of your telephone.
Please be advised to today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Ms. Justine stone. Thank you. Please go ahead.
Hi, everyone welcome and thank you for joining us for our third quarter 2019 earnings conference call on Justine Stone Investor Relations for FMC technologies.
With me today, Bill Stone, Chairman and Chief Executive Officer, Rahul Kanwar, President and she bought her operating officer, and Patrick Donkey or keep financial officer before we get started me to review the Safe Harbor statement. Please note. The various remarks, we make today about future expansion expectations plans and prospects, including the financial outlook, we provide constitute more.
He statements for the purposes or the safe Harbor provision.
The private securities.
Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking statements as a result with various important factors, including those discussed in the risk factor section of our most recent annual report on Form 10-K , which is on file with the FCC and can also be accessed on our website.
These forward looking statements represent our expectations only as of today October 31st 2019, while the company may elect to update before the <unk> looking statements. It specifically disclaims any obligation to do so.
During today's call, we'll be referring 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 Dot [laughter] detect dotcom.
I'll now turn the call over to Bill.
Thanks, Justin and thanks, everyone for joining us today.
What 90 days different Tonight.
Our results for the quarter EUR 1 billion 150.8 million.
Hours in adjusted revenue was 93 cents, an adjusted diluted earnings per share.
Our adjusted consolidated EBITDA was 445.8 million.
Our adjusted consolidated EBITDA margin was 38.7%.
Three organic revenue growth was 3.2%.
We've made a number of organizational changes to streamline our process, even enhance our card offering and ultimately drive revenue.
Buttressing canvas copy were Gordon Coburn general managers.
See intralinks.
My partner was promoted to general manager of FMC is.
Even green.
Greece is now our global head of sales, whose charter developing a strategy of process across the company to maximize our revenue opportunities in the short term.
And we'll focus on large and strategic accounts.
Rob Stone is now.
Head of alternative asset sales.
We were expecting between 1.16.
Billion and 1.2 billion in operating cash flow for 2019.
And cheerful.
Shareholder focused capital allocation.
It's always a top priority.
In August the Borderfree 500 million dollar common stock repurchase program.
And then the third quarter we.
Purchased 60 million or 1.3 million shares at an average price of $45.
Let's talk about buybacks, we bought been a priority priority lately, we are inclined to direct some cash towards repurchases, we feel our stock is undervalued.
We continue to pay down debt.
Have you paid down to 629 million so far in 2009.
10 times more debt repayment and stock repurchase.
Bringing our secured leverage to 2.98 times in our total leverage to 4.05.
We're also expanding the M&A market.
We acquired investment.
In the Middle East earlier this month.
And we expect to close algorithmic, we're buying from Ivy EM.
We ended the year.
This year.
These acquisitions will provide enhanced technology talented new employees, new capability, and new markets and with that I will turn it over to roll.
Thanks, Bill we had a strong quarter operationally and continued to capitalize on market trends in the financial services healthcare industries.
We're gaining momentum in several of our businesses SNC gold up our fund services business continues to win new launches and conversions from other administrators. The real assets business has gained momentum in open ended real estate opportunities own funds and our private equity business is benefiting from increased outsourcing amongst private equity firms.
Black Diamond is very well positioned with new launches in the are a space and across the company. We're building new products enhancing our service offerings and expanding our relationships with large and strategic customers.
We're also gaining momentum internationally, we've increased our ground presence in the Asia Pacific region, and last several quarters and the investments are paying off or add Ben as and private equity groups have capitalize on the growing assets and Newport launches in Asia, and we're seeing more opportunity within DS. These international business in the UK and Australia.
Delivering new technology to these customers such as our wallet share application that we rolled out in Europe is helping enhance their business intelligence and ability to use information to derive important insights now I will mention some key deals for Q3 2019.
$50 billion plus asset manager expanded their relationship to include cloud delivery and I'd been outsourcing services.
And Australian investment management company extended their GWP and recon licenses to include a new acquisition.
400 billion dollar plus publicly traded bank extended their prime medix relationship to use our seasonal accounting solution for the banks entire loan portfolio.
100 billion dollar plus alternative asset manager and existing fund administration client chose intralinks fundraising portal to replace a competitor system.
A large mutual fund client extended their relationship to unload event Center services.
And existing Blue Cross Blue Shield client chose SNC health solutions for their Medicare operations.
A 9 billion dollar a you a hedge fund who is a Geneva client wanted to consolidate operational processes under one roof and chose SNC. Its fund administration Middle office, Investor and regulatory services, a multibillion dollar startup hedge fund chose SNC goal, Bob for their fund administration and reporting requirements.
And existing private equity services client chose to combine fund administration services with DST Alps transfer agency services for their interval fund.
I'll now turn it over to Patrick to run through the financials.
Thanks Roe.
Results for the third quarter, where GAAP revenues of 1 billion 144.2 million GAAP net income of 95 million and diluted EPS of 36 cents.
Adjusted revenue was 1 billion 150.8 million, excluding the impact of the adoption or the revenue Saturn six so six.
And the acquired revenue adjustment for DST and Intralinks acquisitions.
Overall, we had a strong quarter adjusted revenue was up 14.7%.
Adjusted operating income increased 23.5%.
Adjusted diluted EPS was 93 cents is 17.7% increase over Q3 2018.
Adjusted revenue increased 147.9 million for 2.7% in the quarter.
The acquisitions of as Intralinks contributed 148.8 million.
Foreign exchange had an unfavorable impact of 9 million <unk>, 0.9% on the quarter.
Organic growth was 3.2% driven by strength in numbers in our institutional management alternatives and had been businesses.
Adjusted operating income for the quarter was 425.6 million, an increase of 80.9 million or 23.5%.
Well the from the third quarter of 2018.
Foreign exchange had a positive impact of 7.5 million on expenses in the quarter.
Adjusted operating margins improved from 34.4% <unk> third quarter of 2018.
37% <unk> third quarter of 2019.
D.S.T. adjusted operating margins were 35.1% in third quarter of 2019 and annual run rate implemented cost synergies.
Reached 320.5 million at the end of the quarter.
Adjusted consolidated EBITDA was 445.8 million or 38.7% of adjusted revenue increased 21.8% what was Q3 2018.
Net interest expense in the quarter.
Was 98.5 million and includes 4.5 million of non cash amortize financing costs and all I'd.
The average interest rate in the quarter for the credit facility, including the senior notes.
4.84% compared to 4.59% in the third quarter 2018.
We recorded a GAAP tax <unk> provision of 23.7 million or 20% or pre tax income.
We currently expect the GAAP tax rate to be approximately 22% for the full year.
Adjusted net income was 245.3 million and adjusted EPS was 93 cents.
Adjusted net income excludes 160.2 million of amortization of intangible assets.
17.1 million of stock based compensation.
4.5 billion of amortization of non cash financing costs and all I'd.
11.4 million to purchase accounting adjustment, mostly deferred revenue adjustment and depreciation related to revaluation of assets 4.1 million revenue adjustments related to adoption of.
Yes, see six so six and 15.4 million of non operating costs, including 10.5 million loss.
For Mark to market adjustment on investments.
$2.8 million of severance related to staff reductions.
In fact of tax rate, we use for adjusted net income was 26%.
Diluted shares increased 4% over Q3 2018, mostly due to the shares issued for the Intralinks acquisition in the fourth quarter of 2018 and option issuance those were offset in Q3 by share repurchases.
On the balance sheet and cash flow, we ended the quarter would approximately 158.9 a cash.
Cash equivalents in approximately 7.7 billion of gross debt.
Our net debt position of approximately 7.6 billion.
Operating cash for the nine months in 2019 was 755 million.
433 million, 134% increase compared to the same period.
In 2018.
Couple of highlights for the nine months, we've paid down to 629 million a debt.
And that puts us oh paying down 1.553 billion of total debt since we did the DST acquisition in April 2018.
We paid 294.6 like cash interest compared to 171.7 million in the same period last year.
And the nine months this year, we've paid 180.3 million a cash taxes compared to 95 million last year.
Accounts receivable dsos at the end of the quarter was 51.2 days.
And that compares to 51.8 days at the end of June 2019.
We use 99 million in for capital expenditures and capitalized software, mostly for ice tea and lease hold improvements.
Declared and paid 76 million of common stock dividends as compared to 50.7 million same period last year.
Treasury stock buybacks in the quarter worse total of $60.3 million repurchased 1.3 million shares at an average price of $45.
The impact on diluted shares in the quarter was 571000 shares on a weighted average basis.
Our LTM EBITDA, which we use for our covenants was 1.868 billion.
That includes 85 million of acquired EBITDA in cost savings related to the acquisition.
They saw net debt of 7.6 million, our total leverage ratio was 4.05 times.
Secured leverage ratio was 2.98 times.
Oh, it looks for the fourth quarter, Oh, our current expectation for the fourth quarter.
This adjusted revenue in the range of 1.154 billion to 1.184 billion adjusted net income.
And the range of 247 million to 264 million.
And diluted shares in a range of 265 million to 267 million.
Expected organic growth.
We'll be in the range of 0.6% to 2.9% for the quarter.
For the year, we could tell you expect to have the adjusted tax rate at 26% <unk>.
We expect cash from operating activities to be in the range of 1.160 billion.
To 1.2 billion and capital expenditures to be in the range of 2.7% to 3% of revenues.
I'll turn it over to Bill for final comments.
[noise].
Thanks, Patrick.
Last month, we hope to remark largest client conference to date in Orlando, Florida.
With over 800 clients from 1300 attendees, we had an excellent presentation workshops panel discussion.
The client conference call to be delivered because of our commitment to deliver to our clients.
We welcome clients, who you 40 different FMC products and services and we've had very positive impact.
This week, we hope to the hundred 75, S&P personnel at our first top talent event.
We again had overwhelmingly positive response as we continue to bring a diverse group of talented employees together.
No we service some of the largest financial services in real estate organizations in the world.
With a wide array of detailed products and a whole host of both hosted and BPM services.
It's the deep matter deep subject matter expertise, we have in all of the different asset classes.
In a very large and talented engineering capability, which is the core of our success.
We intend to deliver for our shareholders as well.
Now we take some question.
As a reminder to ask a question you will lead to press star one in your telephone to withdraw your question press the pound key.
Please limit yourself to one question and one follow up question.
And your first question comes from the line of Dan Perlin from RBC capital markets. Your line is open.
Thanks, Good evening, and you're right built like what what a change in 90 days. So congratulations on the ship.
I'm just got deep hundred Bucks on.
What's that.
Just got smarter.
[laughter] I hear you.
Talk about a lot of those changes you made a lot of management changes you stepped into the buyback you did a couple of the additional acquisitions as you called out I'm wondering though do you feel like you've got with all of those changes in particularly management do you think you have like the sustainability and kind of better communication services.
Nation to give you that line of sight into 2020.
And maybe you can you talk anecdotally about why that would be the case.
Well I think that's great question for starters I mean, you know, obviously, you're putting anthem.
Yeah, we're putting in some very talented people and the people that left us our talented people as well. Although you know they were owned by private equity firms in the case of Ah Onez and and Intralinks and they got big payouts.
They left and when that happens all the time you know the new people that we put in by Petrakian.
And can best coffee in Intralinks and my partner in and as our you know the next generation the leaders and older. They are ambitious they're smart.
No, they're hungry and we have a lot of a lot of hope and a lot of faith in that no, but but tell you. You know 30 60 days then that were a 100% confidence that all is going to play out well I I would be I'd be guessing you and well do that so what.
I want I wouldn't say is we're optimistic and you know we have a lot of things that are really working out well for us.
We still have to execute its an execution game, but but there's a lot of positive theres a lot of really good smart people in the business you know and we have to you know look herself in the mayor and make sure we're making the right.
You know we need to make sure that our best people are getting the best opportunities, we're extending the contracting capabilities of our best people that have proven results to us right that we're not doing things on wind and I think as we execute through that process.
And gets the best people I mean, that's what our real estate organization is growing so well is it look we've been selling commercial loan systems and property management systems for over 20 years, but you know Budd Bugatch mildly who came in from State Street and JP Morgan has done a wonderful job, we get all kinds of talent that he's brought in and all kinds of talented people, they're trying to come.
More process. So we're really optimistic about that part of that business. We're optimistic as Rahul talked about black Diamond, we have huge opportunities and health care and strong Hogan, that's a great opportunity to take advantage to that so there's a lot of great things that we're doing and I and I'm really excited about 2020 and I'm excited about Q4.
That's great Patrick I wanted to ask your what why why would you expect maybe the downdraft on the organic growth I think you said for Q you guys implies on the under current definition on slide 560, Bips, the 2.9% organic growth.
So that is a bit of a downdraft from what you've done in the past couple of quarters, it's been pretty reasonable and I'm wondering if you could also just.
And give us a sense of what what's going to be the puts and takes the gets to the low into that range versus behind it that range. Thank you.
[noise].
Well I think though.
The the organic growth going down slightly sequentially.
There's really mostly due to the DSD business when you compare to Q4.
2018, when that had a fairly strong core at EUR 564 million in revenue.
Oh overall, if you look at you know, what we would call our core business.
Which you know is is there are alternatives and software business, excluding PST interlink soon.
I see acquisitions within 2018, our core business continues to perform really well.
Fact in Q3 of their core business was up organically about 5.4%.
And then we expect that accelerate a little bit total over 6% in Q4. So our core business is doing really well and we're getting a little bit a drag on DST.
Oh, you know working hard to turn that business around inside signed some new deals for clients.
Okay, and does that explain kind of range there as well I mean is that to that delta in terms of the 60 bips in 2.9% like it's all dependent yes. It is is yeah the ranges DST.
You know, which you know the revenue really depends on transaction volume, which is.
Hard to predict precisely.
We do have a lot of license deals to sign to hit our target until there's a range for that.
Okay, and I guess, that's one more sneak it in invest track an algorithm is can you just give us some framework in terms of revenue contribution.
That you would expect either on an annualized basis or.
Quarterly basis, and then what kind of margin profile of those businesses have as we think about it compared to to your core thanks, guys, Hey, Dan and I want to take that I mean, I think that you know, we expect that to invest track and arrhythmics something on on line up of $50 million to $60 million than revenue.
And profitability when I have to do some work on both of those companies, but now we expect a good profitability up to our our standards in the next.
12 months and.
We take five questions from everybody, we're going to be here don't midnight.
Thanks [laughter].
And again, we ask that you. Please limit yourself to one question and one follow up. Your next question comes from a line of Rayna Kumar from Evercore ISI. Your line is open.
Hi, Thanks for taking my question. Good results here can you flush out a little bit on on just the steep performance in the quarter, specifically for health care and also for financial services.
Thank God.
As we've talked about over the last Uh huh.
Several weeks, we continued to see progress at DST and progress measured by.
Increasing pipeline as well as more more executions and that's that's I think thats kind of what we saw in the quarter. There is obviously somebody asked Patrick talked about there's some things we're trying to overcome year over year. There's also some client attrition that we knew about going into it that you know obviously is going to continue to happen over the next up.
Next up 12 to 15 months or so, but you know were poor performing really well on both the.
Pipeline and revenue acquisition or you know opportunity front as well as on the expense management front. You know you think one of the other things that was that was we're at about 320 million in synergies, which is obviously really strong and we expect to be able to keep both of those engines going.
Understood and just some just two quick housekeeping question could we just get the organic revenue growth rate on the definition for the third quarter and also your expectations for the fourth quarter and what was the alternatives revenue growth for the third quarter. Please.
Now we ran away we we.
Have a slide deck of all kinds of numbers in that you can go look up how we calculate before some afterwards and I think again, we expect a.
Our our fundamental suppression business to grow 5% to 7% in the fourth quarter.
And what was it in the third quarter alternatives gross.
It was about four and a half goodbye.
Uh huh.
Thank you.
Your next question comes from the line of Andrew Schmidt from Citi. Your line is open.
Hey, guys. Thanks for taking my questions here.
D.S.T., particularly a transfer agency, where did you talked a little bit about.
Just the pipeline as you see it today and then heading into 2020 what.
It has gives you confidence to stabilize that and get that back to the low single digit growth did you guys are expecting.
So you know, we think our opportunities that BST, our fall into several different categories right. It's a big complicated business with lots of big customers and you know many different areas that we address so just just to run through some of them. Most of the Big Mutual Fund company is another phone manner. So that we have had big operations where.
They're performing several of the same things that we do one and outsource basis, whether that is.
Transfer agency that they're doing on their own book or on the investment side of the house investment operations and the technology and other systems required to support that so as we as we talk to these customers you know we are seeing.
Lots of opportunities for to go in there and be able to either enhance what they have more help them get to the next generation or you know in some cases convert over some portion of their bulk and we think that will continue. So so you know that's the that's the big part of the T.A. opportunity there, but there's also DST hasn't worked full product called either.
D, which has a strong business that we have done a number of releases on over the course of this year and we think that that'll that'll continue to grow.
I talk a little bit about how we rolled out our wallet share, which is sales intelligence and distribution intelligence for fund managers in Europe and that continues to be that that process of building technology in areas, where they could really benefit from it continues to be pretty important for us so across DSD, we have a number of opportunities that way.
That we feel good about and we also have a huge infrastructure in India that that you know, we're opening up a possibility of of our large clients being able to.
Co locate without being able to have.
Small technology groups that we managed for them, there's a whole series of things that we can give them.
Gives them better productivity.
A more secure.
[noise] employee base, where where we have a large organization that knows how to recruit and retain a people in India and I think thats something that is really resonating with our large client.
Got it. Thank you for that and then a good to see the pickup on the organic growth as we could dig into that a little bit more especially you know with the outperformance relative to expectations. It's good it's good to see the pick up in traditional asset management, So I guess, particularly weather.
You know you're seeing any change there in terms of just acceptance of solutions and shipped outsourcing Ivy. So these guys had been are under pressure some time, but wondering whether you're seeing a more sustained shift now versus historically.
Well again I think good Q3 of this year you know it correctly.
September .
No. There you know it became a little more volatility in the markets you know a number of our clients even so inflows in their active active accounts and so you know that most of this thing when it comes to buying technology.
And doing new initiatives come from confident.
You know so I think you know not I'm, not an economist or anything, but but you know the fed cutting a interest rates again the markets performing pretty strongly.
You know that.
Prospect and you know that we do get to deal with China.
There's a lot of opportunities like that that come with that and you know we have again large.
Mr. Kato clients across our client base and we have large opportunities is it all comes down to getting ink on paper and and we're optimistic we so big business in Australia Big business in Europe Big business in North America, you know and that's kind of the strength of our model.
Alright, Thank you very much guys.
Your next question comes from the line of May and Tandon from Needham Your line is open.
Thank you Bill last quarter, you had mentioned that several large deals slipped I think particularly on the DST side could you just comment on where the pipeline is conversion isn't how do you expect that to shake out for 2020 in terms of organic growth potential.
Yeah I.
May I think that you know similar to two Q3, you know we have had a number of deals that slipped to Q4, but we've also had some pretty a pretty good success in October about about bringing those home. So we're pretty optimistic about that.
I think be the large scale that we're doing and I think the more we get to get inside of these great big organizations and show them, how we do things versus how they do things.
Has started to resonate increasingly and so I think that you know in 2020, as we keep rolling out more technology and more solution base.
Business as you know the ability to you know Mary Eclipse with Geneva, or Mary Eclipse with BPX <unk>.
Be able to have.
You know multiple.
Platforms for people that use different levels of sophistication gives us way to priced differently. We're also going through our entire client base.
And making sure that we get more methodical about price increases and and making sure that we know where we are in the market and how we can now we can maximize our opportunity in our current client base. So there's lots of opportunity around the world. You know if we can show big cost savings for them.
It tends to give us a great opportunity and you know I think we can accelerate.
You know organic revenue growth in 2022, you know, 3% to 5% and maybe better if we get some.
If we get some.
Some some some tailwind.
That's helpful and then for Patrick Patrick in terms of margins I'm looking at the model. This year I think we're going to end up at about a 37% operating margin for 39% EBITDA margin. If my math is correct. How do you think margin shake out for 2020 in the absence of any more acquisitions, maybe break it down between organic versus any additional center.
Did you use that you hope to capture to drive margin improvement in 2020.
Well we.
I think at the midpoint for this year operating margins will be about 37%, maybe a little bit under 36.9, 37% for the full year.
And you know we continue to target 50 to 100 basis 400 basis points improvement year to year.
You know excluding maybe some synergies we can also cheese that intralinks it as.
Got it Oh, well good job guys, great bounced back quarter.
Your next question comes from the line of Sir Anderson from Jefferies. Your line is open.
Good afternoon.
So congratulations on the quarter guys.
Just a follow up question on T.S.T.
You guys talked about the significant jump in the cost synergies can you walk me through a little bit about what that change was I understand that you guys were at one point looking at moving some operations, India was was that the delta or is there something else.
You know, it's it's pretty widespread right. There are still a number of initiatives in India that haven't kicked in yet that we expect to be able to realize towards the middle of next year, but.
It's really across DSD, whether its productivity and automation or how we manage our third party relationships with vendors and contractors or you know the I.T. spend process. There there's been a pretty big cultural shift I think the management, there's very very focused on making sure that they're getting value for what they're spending and that's.
Coming through in the numbers.
Understood and I guess related to that I think the suggestion wise that theres still a decent amount more to potentially come is there any color you can provide on that.
Well you know we as we look around right. We're not we're not done yet right and I don't know that we're going to keep calling it synergies or keep son in our for bigger and bigger targets, but we do expect continuous operating income improvement in the SDN really across our business yeah right. I mean, we we yeah, we run a large operation house, we expect copper.
Any leverage.
We have Uh huh.
You know probably 7000 people in our engineering departments.
We're supposed to engineer.
Right, we engineer to get better right not stay the same not to get worse.
So you know, it's something where we get a little more insistent about what we think and what we want to do and and we have the talent and capability to get it done.
Understood and as my follow up question can you talk a little bit about maybe the flexibility and cost structure.
You know we it seems like we've had a little bit it fits and starts when it comes to the macro environment.
But if there was let's say sustained downturn.
Can you talk a little bit about that in terms of des sales force in the leverage there.
Is it like kind of a 70 30, where 70% is based in Thirtys variable.
Any color you can provide there and maybe the size of the salesforce relative to the size of the engineering teams.
For the rest of the from.
Well I think if you look at our at our operating expenses for Q3, you'll see that I think oh.
R&D.
Rose from 85 million at 94 million and.
Sales and marketing race from 50 million to 80.7 million. So I think you can see where where we are both investing more in R&D.
And remember when you look at our R&D, we have about an 800 million dollar services business.
Right. So we also sell the same R&D.
As software licenses, we use Geneva are we use.
So we use.
Our derivatives or whatever it is in our services business and we also get the benefit of being able to have world class products that we can sell.
[noise] independently so that 94 million is a way higher percentage of our software revenue. It is our overall business revenue.
And then I think as far as.
Sales and marketing is concerned you know we believe we have a a big opportunity you know and we want to make sure. We're investing in investing in the right people you know putting things in like our real assets business. You know, we're investing heavily in in RMB investing heavily in sales and marketing.
And we believe hammer huge opportunity similarly, black Diamond, we've got some more kind of opportunities and black Diamond and we think we have a huge opportunity with eclipse you know, we're rolling out a new product called singularity that we have.
I have.
Made a few sales we're getting some traction we like our opportunity and I think you know as you as you go through as we get our message out into the marketplaces, I think that our ability and our capability.
Not unmatched by any of our bankers.
Thank you that's very helpful.
Your next question comes from the line of Chris Shutler from William Blair. Your line is open.
Hi, guys.
What's the Q4 organic revenue guidance if you.
I think if you. If you include the clients that were lost.
Prior to closing DS to your thing I think it looks like 1.4%, but if you could confirm that and then just or for Q3. It's 1.4 and then what what would you think it would be for for Q4.
Hi, I think we said 0.6 to 2.9 in and three two for Q3, so I mean, that's <unk>.
That's those are the calculations we have.
I'm, sorry, Bill I wasn't clear if you were to also consider the decline. So you lost prior to the D.S.T. deal sure to include those in the calculation of organic.
Would it be similar I'd like to similar impact Q3 I'm guessing.
So what do you got it okay brand to be we're just taken pig in the.
The.
You know.
Treated revenue prior to acquiring VIP and just taking it out of the calculation.
Okay fair enough.
And then the what's in the Q4 revenue guide for invest tracking I'm guessing algorithmic upwards Nexus not in the guide correct.
Invest track is negligible.
Okay.
And and we have not we have not added Oh.
Algorithm next either into though.
Revenue or cash flow forecast.
And then lastly for 2020 any any updated thoughts on tax rate given the reduction that we've seen in India and UK.
We don't.
We don't have a large impact in India.
Because we really have just the service business are we really don't have any revenue.
So the profit margins are fairly low at cost plus.
We should get a little bit of help and.
And the as you said in the UK, but.
Oh, we don't expect them to the materially different.
Okay. Thank you.
And your next question comes from a line of Jackson after from Jpmorgan. Your line is open.
Oh, Thanks for taking my questions guys first one bill.
You mentioned Amen, the new global head of sales early in your prepared remarks, and you cannot.
You emphasize that there were opportunities here in the short term.
So I just wanted to see a.
If you wanted to maybe.
Rank order the priorities that you think here in the short term or are the lowest hanging fruit aiming has to go after the next maybe three to six months.
We would you like our prospect names and what we've bid.
Yes, yes that would be perfect. Thank you.
That's not likely either.
No I think you've got really great opportunities across both the institutional market.
As well as the hedge and Uh huh.
And private equity markets. So we have all kinds of opportunity to to close on deals that range from.
Five to 50 million.
So when you know I. It's the first time, we've had an overlay over the entire sales organization, which is what what EAME and represents right. So even.
It gets to draw on the entire business and you know him and reports through Rahul which gives him.
You know a lot of a lot of organizational pulling a lot of organizational responsibility.
And recognition so.
Our ability to use.
Part of our institutional business or parts of our real estate business or parts of our or our fundamental station business. So to give somebody a solution of what they need.
There's a large client opportunity for us in Australia, and it's a complex delivery of.
Both and I bore and all kinds of Middle office services and being able to get the entire organization to work together is really.
Siemens responsibility and and you know he is demand for the job he's been been here since we acquired global open in 2012, and he was with global for about seven years prior to us buying them. So we're very confident this capability. We're very confident you know in the new guys we had.
Evan.
In both Intralinks in his and there's lots of commonalities in those products too. So I think the ability for us to upsell and cross selling and deliver into our client base.
Hello.
New products New services.
And also be able to.
To close these big opportunities.
Okay.
Great. Thanks for any color on the follow up is.
Core you Rahul in the one of the one of the customer win that you mentioned walls, a startup hedge fund that that's selected global outsourcing I'm. Just curious what would you estimate maybe assessment sees win rate is for the brand New fund starts that that.
End up going outsourcing solutions.
You know he I'd say pretty close to 50%, maybe a little less than 50% that win rate goes down a little as the opportunities get bigger, but you know in the start up section, we really both from a technology and expertise standpoint have a very very strong offering and it's been that way for.
Many years.
Okay, well thank you.
Your next question comes from a line of Christian that's from Sandler O'neill. Your line is open.
Good afternoon. Thanks for taking my questions had another one for ROE of looking at the.
The alternative assets under administration your slide nine of the deck.
It looks like growth has picked up the past couple of quarters in your a delay and I'm wondering if you can give us some color on is that more performance or flows I suspect. It's on the flow side, but just just wondering what dynamics are driving it particularly last couple of quarters.
And then there's obviously a.
A few different things going on there and and close or part of it via the other thing that's a pretty big part of it is just new wins in the marketplace.
Right. So so we've been we've been able to do takeaways of existing funds that have assets and that's true in our real assets business. That's also true in our private equity in hedge business isn't that have contributed and then asset flows.
Have remained.
You know reasonably positive and and the last bit of it is performance as you point out.
Okay and then just can help me is roughly size between flows in new wins is it which one's been bigger over the last year. So.
A new wins has been bigger.
So no no clients that we win or current clients starting new funds are by far the biggest impact.
Got it okay. Thanks very much.
Your next question comes from the line of Ashish Sabadra from Deutsche Bank. Your line is open.
Hi, Thanks for taking my question congrats.
Okay.
Turning around defense business, you called out the client taking on some more solutions. Thanks. So much solutions from you I was just wondering how big is the cross sell opportunity in your existing customer base and also how are the conversations going that you Crosby sheet customers, which may not be applying today. Thanks.
Yeah. So you know we think one of the nice things about having shown Hogan in that in that business is Sean is really looking at both our pharmacy business and our medical claims business and looking at and identifying lots of opportunities for us to bring them together one one other things traditionally in that DSD client base was there was not a lot of share clients between.
Those two groups and we think there ought to be because they buy the same services from other vendors. So you know we've been we've been working on that and we think did that opportunity will remain valuable for us for the next several quarters two years.
He and then you know without commenting on any individual prospect I would say that the areas, where we have one customers. We think that there are others and those families that we can go after.
Okay. That's helpful and maybe just a question can you believe is when you think about the progress that you're making on the on dog unequaled shrank the pipeline seems to be focusing pretty well and as some of these headwinds come off how should we think about organic a little bit 2020 in 22 anyone any and you can you maybe talk today.
Well you know she says you as you know right is it it's a bunch of different presentations around the world.
Where it's almost always competitive.
We have to get prepared a enough in a very detailed way and we need to be able to take all the best parts of our because of our business.
And put them into a solution you know we need to have the people in our organization make sure they're asking the smartest people in the organization, how we can succeed.
Right. You know this is not a you know a loan lone Ranger right.
Poppy right. So we know people need to make sure that they're getting the best advice, they can get and they can't try to do it on their own without.
Getting no help from Rahul our Patrick our me are our Anthony or any of our other top executives then and subject matter experts.
So we have the opportunity you know, it's really getting people to understand that it's getting in front of that prospect and somewhat overwhelming them with our capabilities and being able to show them in a very articulate fashion. So I think you know given that background in that we had.
Thank you you know we ought to start moving our organic revenue growth to the mid single digits, you know by the middle of 2020, and hopefully moving towards the higher single digit in 21, but no we got to execute and talks cheap and and we need to make sure that.
That we you know we pulled result.
You got post result.
Good.
Great this or it's been very bad news they will how much revenue that we put in this quarter.
That's all I ever happy with how those numbers.
Right and you know when people start told me about leading indicators.
Estimate how much revenue, we get a book on those leading indicators.
Yes. Thanks. Thanks.
Congrats once again.
Thank you.
Your next question comes on line of Peter Heckmann from D.A. Davidson and company. Your line is open.
Hey, good afternoon, everyone could you comment a little bit about some of the trend in the third quarter on some of those metrics like M&A volumes for Intralinks trading volumes for ads as well as could you just talked about the organic growth rates that you're seeing out of the health solution.
Piece the business.
Yeah, I think Peter if you think of of the trends I mean, obviously in in Q3 September we had some volatility in and that helped to improve some of the <unk>.
When the transaction volumes that we that we posted through through as an intralinks.
As far as the M&A you know when you see things like.
You know there.
See I'd, Chrysler who show merger.
Those kinds of things create.
Immediacy.
So as you get immediately.
The CEO , who these very various companies know that really the path to you know greater earnings per share is probably more scale.
Right. So I think thats the same thing that that we're seeing in financial services, if it's BBP and Suntrust could emerge maybe other big banks to emerge too.
And the more than one or.
The more pinned to help.
You know intralinks business intends to I think improves the overall speed in which the economy will grow and then you know just doesn't.
In financial services, where you have.
No so many new or I am days.
Coming out of the large wire houses I, just think that so that's a real positive thing for for the country and it's a very positive thing for us.
Great Great. That's helpful. And then I don't think you had provided.
Purchase rights for algorithmic settling up it's totally settled but could you give us an idea where that leverage would stand up post closing of that deal.
You know Pete I don't think it's really a particularly a.
Particularly.
Meaningful to us that you know would go.
It's quite a bit less than $500 million.
Okay.
Alright, thank you.
Your next question comes from a line of James Faucette from Morgan Stanley . Your line is open.
Great. Thank you very much I just wanted to ask a quick question as it relates to development.
On pipeline et cetera, and can you talk a little bit about.
What youre conversion rates are on first retention rates on on the DTC product and then also on conversion rates around pipeline I think you kind of indicated that.
Sometimes leading indicators can look good, but but I'm wondering how what post conversion rates look like to customers and how those are tracking where do you think there may be room for improvement. Thanks.
First there's room for improvement everywhere.
Right and I think from a standpoint of pipelines I think that.
No we have strong pipelines as we've ever had.
In different parts of our business they use different.
Metrics in which to.
Which to estimate, but I would say that in general.
You know on sales cycles of large deals large deals probably take somewhere between.
You know six month, an 18 month to get them done.
And I would say in general we probably.
Have closed 10 to 15 large deals in each of.
You did last couple of years and I think we would be shooting for.
30 to 40.
Large deals closing and Uh huh.
In 2020, and I would say a large deal is.
You know 40 50 million.
Got it got it and what about that's actually really helpful. And then what about in terms of customer and client retention.
That allows you to build on on those new deals <unk>, what does that look like in and are you also <unk> should we also anticipate some improvement in those metrics.
Hi, This is Patrick overall client retention.
For the last 12 bonds.
This is calculated based on revenue.
It's running at 96.4%.
So thats generally on the high end.
A range that we would be.
And probably 94, 97% generally.
The past several years.
Okay, great. Thanks, a lot.
Thank you.
There are no further questions at this time Mr. Bill Stone I turn the call back over to you for any closing remarks.
Again, we appreciate everybody getting on this call today, I I know with Halloween and.
A bunch of you are probably going you're still young you're going trick or treating.
Or maybe you have youngsters in going trick or treating but you know I wish you well and I look forward starting to.
At the end of the fourth quarter.
Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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