SS&C Technologies Holdings, Inc. (SSNC) Q3 2013 Earnings Report, Transcript and Summary

Good afternoon. My name is Nicole, and I'll be your operator on today's call. At this time, I'd like to welcome everyone to the SS&C Technologies 2013 Third Quarter Conference Call. [Operator Instructions] Please note that this conference is being recorded and will be made available on SS&C's website, www.ssctech.com. I'd now like to turn the call over to Justine Stone, Investor Relations coordinator for SS&C. Ms. Stone, you may begin your conference.

Welcome, and thank you for joining us for our quarter 3 2013 earnings call. I'm Justine Stone, Investor Relations coordinator for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Norm Boulanger, President and Chief Operating Officer; Rahul Kenwar, 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 future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for 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, October 31, 2013. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

Thanks, Justine. I'll start with a brief review and then turn it over to Norm to cover operational highlights, and I would like to welcome Rahul for the first time on this call and he'll go through the SS&C fund administration update, and then I'll have Patrick take us through the financials, and then I'll close and take some questions. We've had another great quarter as our results exceeded cash flow and EPS. We also saw traction across our industry verticals with major new customer wins. We continue to refine our business model as we add large, sophisticated clients. The implementations are as comprehensive as the organizations. This means we have and are continuing to spread revenue over the life of these contracts. We are very confident in the strength of our business and the growth opportunities. I'll now turn it over to Norm.

Thanks, Bill. We executed on another solid quarter and continue to build on the momentum we saw in the first half of this year. In particular, license sales were strong this quarter, up 39.1% from the same period last year. Most of the strength in license was related to our SS&C PORTIA and institutional businesses. We continue to see large opportunities in outsourcing across the business and are optimistic we can capitalize on the opportunities. The challenge is with more and more large deals, is managing the time of the agreements and the long ramp-up required to provide production services, both of which have elongated our sales cycle and timing of the revenue. Our team is focused on driving growth by delivering world-class products and cloud-based services through technology innovation. We believe technology is our key competitive advantage in delivering services and our leading industry margins. I just want to take you through a few key highlights of the deals for the quarter, $300 billion asset manager will expand the use of our client reporting solution. A Montréal-based asset manager on a full service retail and commercial bank purchased our wealth management platform. A financial market business signed over 20 contracts for its fixed connectivity network services. A large insurance company upgraded to our SQL version of our investment accounting platform. A Canadian asset manager expanded their relationship and purchased our loan origination servicing platform. And one in base investment and pensions provider selected SS&C for outsourced performance and attribution service. Two international banks signed to use our margin trading solutions. And an investment bank and a EUR 61 billion investment manager signed for our middle office services. We also pulled a number of SS&C PORTIA deals, a large Netherlands insurance company expanded relationship with SS&C; a $17 billion asset manager in Connecticut; a privately held financial service firm; and last, a Latin American central bank purchased PORTIA. I'd like to now turn it over to Rahul to go through the buildup services.

Thanks, Norm. 2013 has been a very strong year for SS&C's alternatives business. The 9 months ended September 30, 2013, revenue increased 70% over the same 9-month period in 2012. We continue to expand geographically in order to capitalize on our global opportunity. In Q3, we opened offices in Los Angeles, California and in Luxembourg, and added Luxembourg to the list of offshore domiciles in which we support fund managers. We have large anchor clients for both those offices, and sales and service teams on the ground are beginning to generate additional pipeline and opportunities for us. In Q3, we also released version 4.2 of our client-facing Web portal, as well as an update to our mobility applications. In addition to other features, we incorporated voice recognition technology into our mobile applications, which allows users to query reports and data with spoken commands. We believe we were first to market in the fund administration industry with these applications and have, over the past few years, continue to widen the gap between our offerings in mobility and those of our competitors. Our regulatory solutions business continues to grow and gives us an opportunity to add more value to existing relationships, as well as develop new ones. We recently announced that we had over 100 customers subscribing to our Form PF FATCA and CPO-PQR services. This quarter, we added 13 F filing services to that mix. We continue to develop these services and look forward to announcing new products in future quarters. At the beginning of the fourth quarter, we acquired Prime Management, a fund administrator and leading service provider to investment structures, sponsors and managers in the insurance-linked securities market. Investors are looking to diversify and are attracted to ILS, and we're pleased to add this capability to our world-class offering. The acquisition of Prime also gives us a physical presence in Bermuda, another important offshore jurisdiction for our customers. We continue to invest in the talent of our management team and build out our internal infrastructure. This quarter, we added David Goldstein to manage the legal and compliance teams for our Alternatives business. Formerly General Counsel at Butterfield Fulcrum, and Head of Product Development at Atlantic Fund Services, David brings 25 years of experience to SS&C. Sales performance was robust in Q3. Some highlights include an $11 billion complex fixed income manager based in Los Angeles selected SS&C to perform fund administration services after conducting an intensive due diligence process. A $4 billion credit manager based New York selected SS&C to perform services for a new group of funds. And finally, in Europe, we signed 18 new contracts for fund administration and regulatory services for this quarter. I will now turn it over to Patrick.

Thanks, Rahul. Results for the third quarter were GAAP revenue of $179.5 million, and reported GAAP net income of $45.5 million and diluted EPS of $0.51. Adjusted revenue was $179.5 million, an increase of 13.5% or 8% over Q3 2012. Strong license revenue from our CAMRA and PORTIA products and year-over-year 10% growth, in our software-enabled services drove growth in the quarter. Adjusted operating income was $71.1 million, an increase of $9.4 million or 15% from the third quarter of 2012. Operating margins increased to 39.6% of revenue from 27.2% in Q2 2012. We've made significant progress on implementing GlobeOp and PORTIA acquisition cost synergies and expect to generate $17 million of cost savings for the full year of 2013. In addition, operating margins significantly improved in our overall fund administration business. Adjusted consolidated EBITDA was $74.6 million or 41.5% of revenue. This is an improvement of 14% or $9.4 million compared to Q3 2012. Net interest expense for the quarter was $9 million and includes $1.4 million of noncash amortized financing cost and OID. Interest expense decreased due to the $236 million debt pay down since the third quarter of 2012, and the June 2013 repricing of the term B credit facility that reduced the interest rate spread by 1.75%. We recorded a tax benefit for the quarter of $4.7 million. The tax benefit was due to 3 extraordinary items in the quarter that totaled $15.8 million. The tax benefit included $7.3 million related to a release of a prior year tax reserve, $2.9 million due to enacted rate change -- tax rate reductions in the U.K., and $5.6 million for a change in various tax methodologies we're using around the world. Excluding these items, the tax rate in the quarter was 29%. We expect the GAAP effective tax…

Thanks, Patrick. SS&C continues to grow and will continue to grow. We have broad and deep market and a robust pipeline. We have added significantly to sales, and you see 26% increase in sales expenses. These investments will pay off and we're excited by them. We announced $100 million stock buyback today, and we believe given historical low interest rate environment, this is a prudent thing to do. We will continue to allocate capital first to quality acquisition and then decide between stock buybacks, stock dividends and debt pay down. At 2.7x leverage, we have lots of flexibility. On the acquisition front, we are active and as always, methodically opportunistic. I will now turn it over to questions. And with that, Nicole?

[Operator Instructions] Our first question comes from the line of Bryan Keane with Deutsche Bank.

I might have missed it but did you disclose or can you give us some color on price paid for Prime management and maybe annual revenue contribution expected?

Yes, Bryan, we expect it to be less than 1% of revenue and we paid in the range of 1% of revenue.

Okay. And then, with the stock buyback, is there any valuation parameters that you guys look at for where the stock is? Is it -- are you going to be more optimistic or more opportunistic to buy the stock at lower levels, at these levels? I mean, is there any -- I'm just curious to know if you're looking at particular valuation metrics that could make the stock look attractive?

Well, I think, at -- the way we kind of view it is our alternatives between paying down debt and buying back stock. With the debt being -- running at around an average of 3% interest rate, it's a lot more accretive to buy back stock at these levels. So that's kind of the decision we'll make between what's accretive to earnings.

Okay. And then, just looking at the revenue, it came in a little bit lower or at the low end of the range. And then, it looks like revenue for the full year now is expected to be lower than the original guidance of $714 million to $722 million. What's causing the slowdown in the revenue expectations?

Bryan, I'll let Rahul and Norm take this as well and Patrick if you'd like to chime in. But I think, what we're trying to indicate to the investment -- investing world and our shareholders is that we're getting bigger and bigger deals. And as we get bigger deals, we have bigger and bigger implementations. And for anybody that's in this business and understand what GAAP accounting does to you, if you realize that everything gets deferred until you go live with those clients, and so as we go through that process, I think, we're refining our business model to make sure that our contracts and all of our implementation services are built around how we recognize revenue, when we get cash flows and making sure that, that aligns with the services we're selling.

I'll explain that a little bit, Bill. As you mentioned, we have more and more larger opportunities that we really feel good about winning. So the game really hasn't changed, right? It's you got to win the deals, you got to win them on time. And when we're talking about outsourcing business, the time is critical because the amount of time I have to get them implemented and to get that revenue run through production and hitting the books, the longer the year goes, the longer those delays goes. But these large accounts really are very -- a lot of them are on the institutional side of the business, the contract process is elongated. Once you get that done, you've got to get them implemented. And then, because the implementations are so significant relative to the relationship, that revenue will be deferred until we start going into production services. So that's one of the factors that's driving it is in terms of did we win the business we expected, did we win it on time, and can we get these guys up and running fast enough? The other factor that I think is a positive weighs on the reduction of revenue for this quarter and a little bit next quarter is basically the seasonality of the business is changing a little bit. We've talked a lot about the regulatory services that we're offered, Rahul just mentioned a few more new ones we're adding. That's the business that's really driving significant growth for us. It's always been there, it's largely a Q1, Q2 type of revenue stream, but it also -- it's a little bit in Q3 and Q4. The bigger that gets, the more seasonal it's going to feel. So the dropoff between Q3 -- or Q2 and Q3, and then Q3 and Q4, you're going to see a little of that seasonality, which is bigger than we expected. I do expect that to bounce back in Q1 because that's recurring annual services for regulatory. It just doesn't get spread out over 12 months. Those are the 2 primary factors that are putting a little pressure on that number right now.

Okay. But it does sound like that, that will pick up starting in the first quarter, the acceleration in the revenue growth will pick up starting in first quarter of the next year.

That's what we're expecting.

Our next question comes from the line of Peter Heckmann of Avondale Partners.

Could you talk a little bit about the LA office and what stage you are in ramping that up, as well the Ares Capital Management contract, when do you expect that to be in full operation?

Sure, Pete. And we appreciate you picking us up. I think that's part of Rahul's expanding empire. So Rahul, why don't you take that?

Sure. Thanks, Bill. So I think, as it relates to the LA office, we've got about 60 people in LA now. We are ready to perform full services there. Ares, which you mentioned, is obviously one of our biggest customers in LA. And that is well underway with implementation scheduled to be complete in the next 6 to 9 months. We also announced that we won another large customer in LA, a $10 billion-plus customer and we've got salespeople on the ground actively drumming up opportunities for us. And we feel pretty good about prospects in that market.

Great. And then, in terms of how we think about regulatory change, certainly, there's been quite a bit, and I expect there will continue to be some. In terms of major pieces of regulatory change we should keep an eye on over the next 2 to 3 years, can you talk about that and where the opportunities may lie? And then, I thought I did see some discussion or some increased discussion again of some countries considering shortening the settlement cycle from 3 days to potentially 2 or even 1 day, something that was a big push maybe 10 years ago, and we haven't heard much of it since. But do you see that as a realistic possibility over the next 5 or 6 years?

Well, I certainly think, Pete, that the settlement -- trade settlement processes is going to get shorter. I think, from whether or not that really impacts our revenue stream, I'm not sure how that would do that. But from the other regulatory items, every government in the world seems to be starving for revenue. So the more forms they make people fill out and checks they mix in with those forms, generally, the better for us because we fill out the forms and help them send in the checks. So we think there will be further fallout from Dodd-Frank. There's obviously a tremendous amount of concern in the banking industry about regulatory capital rules. And obviously, with the settlements you're seeing in the mortgage arena, we think there'll probably be additional regulation around mortgage-backed securities and REMICs and those types of conduits. And then, finally, I think, as you see the clearing houses open up for derivatives, people like things that are not quite as transparent as clearing house prices and things like that. So I think there will be new structures coming out and those will beg for regulation, and I think that will help us as well.

Our next question comes from the line of Sterling Auty of JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: So in terms of -- I understand the reacceleration side in the first quarter of next year, but for investors, how do we -- from the outside, how do we gain confidence in the pace of the business now that's going to spur that? So is there anything that either quantitatively or qualitatively that you could just discuss in terms of bookings and deal closures that will lead to that acceleration? It's hard for us to see it in the financial statements yet.

Well, I think, there's a couple of things, right, Sterling. One is Rahul just said that we have 60 people in Los Angeles, and that the initial additional client that's going into Los Angeles is a $10-plus billion alternatives manager. So if you went back a year ago or 1.5 years, I would tell you that the average size deal for assets in alternatives that we were signing would've been around $500 million to $750 million in assets. So now, in Los Angeles, I think, we have 2 clients, one at $66 billion and another at $11 billion. So I think that's indicative of what's happening to our business. And accelerating to 60 people in Los Angeles. In literally, 30, 60 days is something where you're seeing the pace of our business start to pick up, the value proposition that we're offering. And as these bigger players get to see what we offer, they're telling other big players. And so now our pipelines, when I talked before about having 6 or 7 deals where their asset size is in excess of $10 billion, I would tell you that, that's now 12 to 15 that are in excess of $10 billion. So you still got to close them, it's still competitive exercise. Nobody's rolling over because we're such a juggernaut. But we compete pretty hard, and I think we're bringing something new to the marketplace that they haven't seen before, and we're really getting a lot of great feedback from our client base. Sterling P. Auty - JP Morgan Chase & Co, Research Division: And one follow-up would be in terms of the timing of the implementation, is it just purely the size, the complexity or is it the outsourcing versus perhaps how you support some of those clients traditionally?

I think it's all of those things, Sterling. On the -- some of these organizations are not outsourced today, so the conversion from a license model to an outsourced takes other efforts to get done. Some of these organizations have multiple parts of their business so you have to bring them on piece by piece. So some of these -- this looks more like a licensed implementation where you could be doing a very large scale implementation for a 12 to 18-month period. The difference between that and a license is you'll have some things in production sooner and we'll start getting paid fees, but the full ramp up of that business including that account in LA, right, they may not put all $11 billion on day 1, right? They've got to work -- that's going to stagger in. So you won't feel the full weight of those accounts for somewhere between 6 months, maybe even 9 or 12.

And there's a couple of other things too is that as we get bigger deals internationally, there's EU rules, there's Swiss bank secrecy rules, there's -- can you have data reside in United States. We have to have a data center outside. Obviously, we have a great data center in Mississauga, which is right outside Toronto. But there's an awful lot of regulatory things that are happening that elongates the implementation process. There's still a number of clients that we're converting where they're coming off of some type of legacy system, you find out that the data isn't what they expected, so there's a lot of remedial work that needs to be done in that. And when you're talking about $700 million, $800 million, $900 million, a couple of billion dollars, and a few hundred positions, that's a lot different than you start talking $20 billion, $30 billion, $40 billion in 10,000 positions. So I think that's kind of an issue.

I just think, over time, this will be less of an issue because as we sell more and more of these every quarter, every year, those numbers will be in both sides of the equation, so when you do comparisons quarter-over-quarter, you'll have it on both sides. Because this is relatively new, the weight of one of these accounts are not going live when we expect them, the revenue impact, that's going to have more of a swing effect on the revenue in a given quarter today.

And Sterling, the other thing, I think, if you look at the numbers, I know we ended up on the lower end of the range, but at $179.5 million compared to Q3 last year, we grew 8%. And it's pretty comparable quarters, right, because we had GlobeOp and PORTIA in Q3 last year. So we're really in a -- as far as year-to-year growth, it's the strongest quarter we've had this year.

Our next question comes from the line of Terry Tillman of Raymond James. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: I guess, the first question is related to if we take out Ares from last quarter, I feel like the level of commentaries you provided us, 18 deals in Europe on the fund administration side, just all the different color, it sounds like there was a lot of activity. And I know we're focused on the revenue guide, but could you say anything quantitatively or qualitatively, again, keeping Ares out of the equation from last quarter, on the value of business signed this quarter versus maybe earlier in the year, just give us some comfort there?

I think, the third quarter was a strong quarter for us on signing business. I mean, obviously, you see on the license revenue that Norm talked about that, that's up 39% from the prior year. And if you look at -- actually, that's the highest license revenue we've had since we've been public this time in March of 2010. And I would also say that the 18 contracts that we signed in Europe, that doesn't mean that they've all started generating revenue for us. But that's the strongest quarter they've had on fund administration since we've been public. And so there's a lot of stuff that's coming in the door. We're literally signing contracts every day. We have more products and services that we're offering. And I think there's an awful lot of momentum, there's an awful lot of optimism around it -- around SS&C. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: Yes. Got it. And I guess, you called out, Bill, actually the 26% growth in sales and marketing expense. I mean, so clearly, there's a real focus on monetizing all the products and the capabilities you have. For investors, how do they think about the productivity from those investments or the payoff from those investments? I mean, can some of those investments yield results maybe as early as next quarter? Or should we think about this as paying a little bit more seasoning, maybe it's second half of '14?

Well, I think, we should start seeing -- we're seeing some at the end of the third quarter, and we're seeing some -- it's seedlings, right? You're putting these little seedlings out there and they start to grow. And you get some water and some sun and they grow a little faster and they get trained. People get better. We've got a lot of young, new salespeople in the 25 to 30-year-old range and they're getting seasoned, as you said, and we're optimistic about where they're going. And there's also just the energy and number of calls outgoing from SS&C. There's a pretty good camaraderie even though it's a competitive place, and SS&C is our organization, we're constantly culling salespeople as well. And so we're optimistic about where we're going. We think we've got a lot of really, really good people. Guys like Fred Jacobs and [indiscernible] that are running our sales organization in Alternatives. I think, they've done a great job for us. We've got Jack Quinn as one of our top sales guys and now he's going to run our institutional sales organization. He's a real talent and I think there's just a lot of things that we're growing. Obviously, you can just listen to Rahul and understand he has a pretty good handle on what he's doing. We're just optimistic about where we're going, who we're competing against, the stresses and strains on those large financial institutions and can they ever get out of the crosshairs of the government. And we're just underneath the radar screen paddling hard. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: Yes. And I guess, Patrick, I don't want to leave you out of this. I had a quick question for you in terms of if we look at the segments for 4Q, I mean, it was a strong 3Q license. I mean, how do we think about 4Q license just even if it's something that's more general? Is there some sort of budget flush seasonality to where we could actually kind of think this is more of the norm or should we be a little bit more conservative in license for 4Q?

Typically, the fourth quarter is our best quarter of the year. That's typical in license. And I think -- we think it will continue to be as strong in Q4 as Q3.

[Operator Instructions] Our next question comes from the line of Ross MacMillan of Jefferies.

Bill, just to circle back on the larger deals that are more complex, much bigger AUM. I just wanted to make sure I understand one thing. Is it the pace at which they're getting signed is in line with plan, but it's the time to actually take revenue because of their higher complexity that's creating the impact to revenues? Or is there also a corresponding impact in terms of the pace at which deals are actually closing? In other words, they're closing at a slightly lower rate -- lower pace than expected because, again, they're complex and they take longer to get done? It's a subtle difference but I think I just wanted to make sure I understood exactly what you're saying.

Ross, that's a great question, and it's also part of the nuance of this business. I think, if you take it in chronological order, right, we are getting way more opportunities to go show our wares at great big places. So that's the first thing is we have more of them. The second thing is, is that we're making the shortlist almost all the time. So even if we don't win, we're usually in the last 2 or the last 3. The third thing prior to signing is, is that we get selected. And one great thing about these really big players is sometimes they pay $150,000 or $200,000 just to do a small business process review prior to signing the contract, right? Whereas before, we didn't do too many of those. But now, they'll spend 30 days and we'll go through an exercise and get paid and -- but that elongates the signing of the contract and the implementation and then the ultimate revenue recognition. So each one of the steps in this process is elongated a little bit, and obviously, it's a contractual process if you're dealing with a large -- a very large money manager or a very large financial institution is, is that you have in-house legal counsel and then you get outside legal counsel, right? So you got to go through that whole process. And we continue to get better at it, we continue to refine our model, but in the meantime, we have any number of multi-day to multi-week delays.

That's really helpful. Maybe as a follow-on to that, you mentioned that in the alternative business, your AUM customers are now -- at least, you have many in the multiple tens of billions of dollars versus, let's call it sub-$1 billion or sub a couple of billion 18 months to 2 years ago. As we think about the ramp of revenue in those big deals, is it to your point that you'll get revenue on a consistent basis, it just takes longer to get to the full AUM, or does it actually take longer to get to that initial rev rec on these bigger deals once you got the contracts signed?

It's a little bit of both. And I would say we might -- the initial conversion for the $11 billion manager could be $4 billion. And then, the second phase will be we're going to move another $4 billion. It could be by asset class, right? We're going to move the mortgage-related assets first, and then we're going to move the equity-related assets second, and then we're going to use the bank loans third, and then we do derivatives fourth, right? So it can be by asset class. It can be asset class by fund, hence the size of the fund if it's a managed account platform. It could be by geography, right? So there's a lot of different ways in which we can convert these funds. But what we're finding with bigger funds is the asset flows into these bigger funds is much larger, and it seems to me that the industry itself is bar-belling, right? So that you're going to see the bigger funds keep getting bigger, and there's going to be less in the middle and there's going to be a whole bunch of them at the sub-$1 billion level.

That's helpful. And just a couple for Patrick. On the tax rate, I heard you on the reversal this quarter, but I think you also guided to a lower tax rate for Q4. Are we looking at a lower GAAP tax rate on a go forward basis now relative to that historic 30%?

Yes. I mean, for our adjusted EPS, we've been using a 30% tax rate this year. But it looks to us that without any extraordinary items, we're running a couple or 3% lower than that and I think we'll evaluate that for 2014.

Great. And one follow-up. Your DSO obviously improved a lot. I'd actually say that across most of the companies that I look at, Q3 DSOs were generally much better. Was there anything specific aside from just more focus on collections that drove the improved DSOs?

It was mainly more focus. Larger whips. I think, we got the collection department and the business unit managers working together and focused on collections and it had a big impact this quarter.

And we have some s'mores every time they collected some.

Our next question comes from the line of Tim Willi of Wells Fargo.

Two questions. First was just going back to sort of the cost savings and integration related to GlobeOp and PORTIA. I know you've talked about being a bit ahead of schedule, I think, in timing and magnitude of expenses. I just wonder if you could sort of remind us sort of where you're at and to what degree that it's a lever to help earnings momentum as you sort of move up next couple of quarters with you said the elongated sales cycles and things like that associated with the bigger contracts?

Sure. I think, what I said is that we've gotten about $17 million of cost benefits for this year. That's obviously taken our EBITDA margins from 39.3% in Q3 of '12 to 41.6% this quarter. We've built that $17 million into the guidance we provided for Q4. But on top of that -- so that's what we're going to get, that's going to affect our bottom line for 2013. But we basically have locked in about $20 million of savings, and we'll probably be at the minimum at that number for next year. And as you know, our target is to hit $25 million at the end of 3 years after the GlobeOp acquisition but we're clearly running ahead of schedule.

Okay. That's helpful. And then, going back to the topic of the bigger contracts and sales cycles, is there anything we should think about that as these happen and as you go through the build in the deferred revenue and they come live where initial margins would be different than what we're used to or when you're allowed and able to recognize the revenue against all the work that you've done to get to that point that the margin profile of the company wouldn't really be altered to any degree, even just from a temporary basis, 1 or 2 quarters?

Yes. How it works is a lot of these deals that we're doing with these big asset managers, as far as revenue recognition, they're considered bundled deals. And we can't separate any revenue. So even if we're doing some work upfront, we can't separate that revenue and recognize it upfront. We have to recognize it ratably over the contract period. But at the same time, we can defer costs. So it doesn't really affect our margins in the short term but it affects our revenue.

Okay. And there's no capitalization of anything like with other types of outsourcing businesses where if something's not hitting timelines or a contract doesn't play out the way you think, that there would be write-downs or anything like that? I just want to make sure I understand the accounting around the assets on the balance sheet or anything that might start to emerge as you do more mortgage deals.

I'm not sure. There wouldn't be anything that will be capitalized. I mean, like I said, I mean, if you're doing work upfront before the beginning of the contract, you would defer that revenue, defer that cost associated with that and then take that amount on the balance sheet and then recognize all that over the period of the contract, let's say, it was 3 years. It's really a timing issue.

We have very, very little capitalized deferred payroll expense because of large implementations on the balance sheet today.

The other thing that affect us a little better in the third quarter was that we had some negative impact on FX on revenue. So I think the impact on revenue sequentially from Q2 to Q3 on FX was about $0.5 million.

Negative.

Our last question comes from the line of Sterling Auty of JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Just one quick, quick follow-up and you kind of touched a little bit upon it in some of the answers. On these larger deals, what do the collections look like? Are they milestone-based? I don't have the release in front of me so is there any buildup deferred revenue that you get from maybe a collection for pre-implementation that you then earn off?

There is a little bit of deferred revenue but we get paid for it right away, so it's not like there's a problem with collections. We just can't recognize it.

The key milestone was getting to the point we can provide production services for the outsourcing. And once that starts, the revenue starts getting spread out. But until you're there, no revenue can be recognized. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Got you. No, I wasn't worried about the collections. I was actually just wondering if that was partly responsible for the rationale that the strong cash flow and strong cash flow outlook was maybe some of the collections around some of these larger deals.

No, I think, the bottom line on the cash flow is that we did a much better job managing working capital and our DSO came down 5 days. That was the significant difference.

And as there are no further questions at this time, I'd now like to turn the call back over to Bill for any closing remarks.

Okay. We appreciate everybody coming and spending part of their Halloween with us. We look forward to treating you to a good call in a quarter. Thanks.

Ladies and gentlemen, thank you for participating in today's conference, this does conclude today's program. You may all disconnect. Have a great day.