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SS&C Technologies Holdings Inc  (NASDAQ:SSNC)
Q3 2018 Earnings Conference Call
Oct. 31, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the SS&C Technologies Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Justine Stone, you may begin your conference.

Justine Stone -- Head of Investor Relations

Hi, everyone. Welcome, and thank you for joining us for our Q3 2018 earnings call. I'm Justine Stone, Investor Relations for SS&C.

With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Patrick Pedonti, our 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 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, October 31, 2018. 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.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Thanks, Justine, and thanks everyone for being on the call. As many of you saw, last week, we've pre-released earnings with updated guidance. The substantial beat of our previous guidance drove -- previous guidance drove this decision. We felt we should get the information out quickly. And as many of you know, we've had quite volatile markets lately.

Our results were about $1,003 million in adjusted revenue, and we earned $0.79 in adjusted diluted earnings per share. Our earnings beat is primarily driven by a lower cost base and strong performance on the DST synergies. DST's integration and margin improvement is going well. Additional unplanned cost savings were achieved in Q3, primarily through the result of natural attrition.

With this in mind, we have raised our synergy guidance for DST to $220 million to $240 million, over the three years beginning April 16 of 2018. The additional $45 million to $65 million in cost savings will come from transitioning contractors to employees, lower facilities costs and improved provisioning of data and other operating expenses.

We are also excited about the opportunities ahead with Eze software and Intralinks. As software closed earlier this month, and we are already working to get our sales forces integrated and beginning to execute on the $30 million in cost synergies we've outlined. We announced our acquisition of Intralinks in early September, and we have communicated with many of you the asset's high quality financial growth rates and management team. Intralinks shares a lot of mutual target clients of banks and alternative asset firms as SS&C does, and allows us to engage with the Treasury department of their Fortune 1,000 Corporate Clients. We believe there's plenty of cross sell opportunity here. Intralinks' strong technology is also leverageable across our organization, and can be used to improve client interfaces at many DST customers.

SS&C has been very well served by senior executives of our acquired companies. People like Rahul Kanwar, Mike Megaw, Renee Mooney, Darren Berkowicz, all came from Eisnerfast. Chris Madpak, Christine Egbert, and Aparna Parmeswaran, from North Port. Eric Rocks and Walid Nassereddine from Financial Models. Ken Fullerton, Greg Hughes, Benny LoCascio, Raj Dhyani, Ian Holden, Eamonn Greaves and Larry Simon from GlobeOp. Rob Roley, Karen Geiger, Steve Leivent, Marc Flamini from Advent. Mike Sleightholme, (inaudible) Joe Patellaro, Virginia Volpe, Al Blanco from Citi Fund Services, Chris Kundro and Mike Carpenter from Wells Fargo Fund Services; Tom McMackin from OIS; Richard Shalowitz from DBC, (inaudible); Justin Nottage from DST Global; Lauren Smith, John Lankenau from Primatics and we're excited about Jeff Shoreman from Eze; and Leif O'Leary from Intralinks joining our team. As you know, we also got many great players from DST that we've talked about on previous call.

SS&C's core business remained strong and opportunities robust. We grew 4.6% organically in Q3 compared to Q3 2017, which was also a good organic growth quarter. We had good performance from our fund administration business, particularly our real estate, our Real Assets business as well as our Institutional and Investment Management business. There's a lot going on at SS&C right now, and we thrive in this fast-paced multi-dimensional environment. We are conscious of our leverage and the interest rate uncertainty, and are dedicated to paying down our debt quickly. We paid back over $640 million in debt, since the April 2016 closing of DST. We have also grown our last 12 months consolidated EBITDA to almost $1.5 billion. This brings our leverage ratio to 4.02.

I'll now turn it over to Rahul.

Rahul Kanwar -- President & Chief Operating Officer

Thanks, Bill. We had a strong quarter in terms of winning new mandates providing upgrades for current customers and identifying new opportunities. DST's integration is progressing well, the management team led by Mike Sleightholme is focused on high levels of customer service and continues to meet with our clients and present the solutions that the combined organization can offer. We're starting to win opportunities with the combination of SS&C and DST product and services, and are optimistic about future prospects. We remain focused on getting the maximum value and leverage for our expenditures in various areas and with the support of the talented executives that DST continue to perform very well relative to synergy expectations.

We're also excited to have closed the Eze Software acquisition on October 1. Eze is a natural complement to our hedge fund and asset manager, middle-office and administration services, and we're looking forward to the Eze team led by Jeff Shoreman, working with our sales force to jointly drive greater opportunity in pipeline.

Now, I will mention some key deals for Q3. An $8 billion multi-strategy hedge fund chose SS&C because of our comprehensive service model for hybrid fund. A large French asset manager with over $100 billion in assets chose SS&C's fund services, regulatory services and tax services for their managed account platform. An existing DST client extended their relationship for call center and correspondence BPO services. A UK-based hedge fund with over $17 billion in assets chose a suite of SS&C Advent product because of our complete solution and integration with many of their partners. A $22 billion advisor selected our integrated performance and reporting solution.

I'll now turn it over to Patrick to run through the financials.

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

Thanks, Rahul. Results for the third quarter of 2018 were GAAP revenues of $992.4 million, GAAP net income of $57 million and diluted EPS of $0.23. Adjusted revenue was $1,002.9 million excluding the adjustments for implementing the new revenue recognition standard and the acquired deferred revenue for the Advent and DST acquisitions. We had a strong quarter, adjusted revenue was up 139%, adjusted operating income increased 102.6% and adjusted EPS was $0.79, a 58% increase over 2017.

Adjusted revenue in total increased $583.4 million over Q3 2017. The acquisitions of DST and a couple of three smaller acquisitions contributed $566.2 million in the quarter. Foreign exchange had an unfavorable impact of $2.1 million or 0.5% in the quarter, mostly due to the weakness of the Canadian dollars and the Australian dollars. Organic growth on a constant currency basis for the quarter was 4.6%.

Adjusted operating income in the quarter was $344.7 million, an increase of $174.6 million approximately 102% over Q3 2017. Adjusted operating margins increased -- decreased to 34.4% from 40.5% in Q3 of 2017. Foreign exchange had a positive impact of about $2.5 million in expenses in the quarter. The margin decline was mostly driven by DST acquisitions, where operating margins were 31.7% in the quarter. DST's operating margins increased sequentially from 22.1% in Q2, 2018. And DST's annual run rate synergies, as of September 2018, are at approximately $200 million. Adjusted EBITDA was $365.9 million or 36.5% of adjusted revenue and increased approximately 105% over Q3 '17.

Net interest expense for the quarter was $78.1 million, and includes $3.5 million of non-cash amortized financing costs and OID. The average interest rate in the quarter for the term facility was 4.5% compared to 4.1% in the third quarter of 2017. We recorded a GAAP tax provision for the quarter of approximately $60.9 million or 51.7% of pre-tax income.

Adjusted net income was $199.8 million and adjusted EPS was $0.79. The adjusted net income excludes $114.5 million of amortization of intangible assets, $18.4 million of stock-based compensation, $13.7 million of purchase accounting adjustments, $7.2 million of revenue adjustments related to the adoption of 606, $5.5 million of acquisition deal costs, $4.56 million of severance-related to reductions, $3.4 million of non-cash debt issuance costs, a gain of $11.4 million of mark-to-market adjustments on investments and another $3.7 million of other gains.

Diluted shares increased 18.9% over Q3 2017, mostly due to the equity offering of 30 million shares of common stock associated with the acquisition of DST as well as the increase in the average stock price. The effective tax rate used for adjusted net income was 26%.

Some highlights on our balance sheet and cash flow. We ended the quarter with $732.2 million of cash and cash equivalents, and $6,759 million of gross debt for a net debt position of $6.027 billion. Operating cash flow for the nine months ended September 2018 was $322.4 million, a $13.9 million or 4.5% increase compared to the same period of 2017.

DST acquisition and financing costs and severance costs impacted cash flow this year for about $210 million. For couple of the highlights, we've paid down $641.2 million of debt since we acquired DST on April 16, 2018. This year we paid $171.7 million of interest, compared to $82.2 million through the third quarter of 2017.

On cash taxes, so far in the nine months, we paid $95.1 million in cash taxes compared to $48.4 million the same period last year. Our accounts receivable DSO was 55.2 days at the end of September compared to 53.7 days on June 2018. And we've used approximately $58 million of cash for capital expenditures and capitalized software mostly for facilities expansions, IT and leasehold improvements.

Then we've declared dividend for $50.7 million of common stock dividends as compared to $39.9 through the third quarter of 2017. And we increased our annual dividend by 14.3% to $0.32 per share or $0.08 per quarter in August of 2018.

Our LTM consolidated EBITDA that we use for our covenant was $1,499 million as of September. It includes approximately $471 million of acquired EBITDA and cost savings related to the acquisition. Based on that decision, our total leverage was 4.02 times as of September.

An outlook for the fourth quarter, and right now we're assuming as is included in the outlook as we closed that acquisition on October 1, but our outlook currently does not include Intralinks acquisition. Our current expectation for the fourth quarter's adjusted revenue in the range of $1,075 million to $1,085 million, adjusted net income in the range of $210 million to $220 million, and diluted shares in the range of $256.2 million to #255.2 million. Our current expectation for the full year is cash from operating activities to be in the range of $550 million to $570 million and capital expenditures to be in a range of 2.3% to 2.7% of revenue. And we expect the tax rate in the fourth quarter for 26%, an adjusted tax rate of 26%.

And I'll turn it over to Bill for final comments.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Thanks, Patrick. We're really pleased with our results, and that's the first time in the last 60 quarters, that I haven't been on this call with Normand Boulanger, who has now become our Vice Chairman. But I just thought that it is a great job for us on 15 years, he was on these calls, and I thought I'd just call him out. We are also hosting an Analyst Day in New York City on November 15, which hopefully, many of you are going to attend in person. But for those who can't, we will have a webcast, or you can reach out Justine for the particulars.

And now we would open it up. Questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Andrew Schmidt from Citi. Your line is open.

Andrew Schmidt -- Citigroup -- Analyst

Hey, guys. Thank you for taking my question. Good to see the tick-up in the organic growth here and the progress on the DST integration. On organic growth in the third quarter, I guess could you talk a little bit about what drove that step-up? I know you mentioned some renewals in the release. Just curious by end market, if you could talk about that?

And then the corollary of that is on the fourth quarter, what is the expectation for organic growth? And if you could remind us what your sensitivity to market volatility is that would be great since -- I think it's changed a little bit since you acquired DST and in terms of just exposure to AUA and such? Thanks.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Well, I'll pick part of this, and then I guess Patrick and Rahul can take. As far as the sensitivity to the markets, DST is basically paid based on number of accounts and number of transactions. So it's not really particularly tied to AUM. And on our business prior to DST, if you want to use the S&P 500 as the proxy, then about -- I think about 14% of our revenue would be tied to the S&P 500. Then our organic revenue growth of 4.6%, we had a strong quarter in our institutional and investment management business, which was up 6%, 7%. I think the funds business was up about 3.5%, and I think the Advent business was up maybe 2%, 2.5%. But I'd like to turn that little bit over to Rahul on the funds business, and then, Patrick if you have anything else to say.

Rahul Kanwar -- President & Chief Operating Officer

Yeah, I think we had a good quarter on the funds business. It's impacted a little bit by seasonality. We've got some seasonal work that we do for tax and financial statements, and this year we did little bit more of it in Q1 and Q2 than we did in the Q3. Also from a comparison standpoint Q3 last year was particularly strong for us compared to just from a comp standpoint. And then maybe Patrick, you want to comment on what's in our guidance for Q4.

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

Yeah. So, right now, what we're expecting for the full year of organic growth on the high end of the guidance is 4.1% for the full year. And in the fourth quarter, right now is at about 2.9% organic growth in the fourth quarter.

Andrew Schmidt -- Citigroup -- Analyst

Okay, great. And then I think just -- in terms of just the organic growth assumptions for the fourth quarter. Is that a function of the market volatility we've seen or I guess trying to break out the volatility versus the underlying contract sort of signings? And I know you've made some good progress with DST across our conversations such, but could you disaggregate the two that would be helpful.

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

I think what we're seeing right now for the fourth quarter is probably a step up on the alternatives business from 3.5% to the mid-5s. And then our software businesses compared to -- include Advent and all the other institutional and asset management software businesses, it can combine about 5% in Q3. And we expect right now that business to be flat organically in Q4.

Andrew Schmidt -- Citigroup -- Analyst

Got it. That helps. If I could just sneak one more in. On the upwardly revised cost synergy outlook, good progress here in terms of the timeline, clearly it's like supporting deleverage too. What is the sensitivity to sort of outperformance in the new target, you know, pretty quickly, you guys had some unplanned -- good unplanned cost synergy execution here. So, just if we take the new target, we think about areas, where you could exceed that. I know it's little bit early, since you guys just raised it, but what those areas be? Is it continued unplanned attrition, are there other areas just anything there would great? Thanks a lot.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Yeah. I wouldn't say that we have anything other than what we put in my quote about. We think that we will have some savings when we convert some of the contractors that we're using into employees, in India, which we have done on a number of times with other acquisition. We also think facilities obviously when you have fewer people you're going to have fewer facilities costs, and all the attendant expenses of those facilities costs. And then we think we're going to be able to coordinate the buying of data and other things in IT and stuff like that, that's going to allow us to accomplish the new targets and now perhaps succeed.

Andrew Schmidt -- Citigroup -- Analyst

Got it. Thanks a lot guys. Appreciate it.

Operator

Your next question comes from the line of Peter Heckmann from Davidson. Your line is open.

Peter Heckmann -- DA Davidson & Co. -- Analyst

Good afternoon, everyone. Thanks for taking my call. Hey, Patrick, just so I can triangulate a little bit better on your guidance. What would be the total level of acquired revenue included in your fourth quarter guidance? I think, yes, we had a little bit of seasonality that I want to make sure that we kept correctly.

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

I think in the fourth quarter, we're going to have some of the smaller acquisitions drop off. So, we'll have DST, which will be fairly similar in number to what it was in -- similar to what it was in Q3 above $360 million to $362 million, a couple other million from one of the smaller acquisitions. And then we're expecting plus or minus somewhere around $70 million from Eze.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Patrick, I think you mean $562 million, right, now $362 million?

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

$562 million. Thanks, Bill.

Peter Heckmann -- DA Davidson & Co. -- Analyst

Right, right, I capture that. I thought on a year-over-year basis, in fact DST had a little bit more seasonality in the fourth quarter, and I was looking for something closer to $590 million. It -- was there a change in the accounting method perhaps or maybe just being a little conservative?

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

I don't -- go ahead, Bill.

William C. Stone -- Chairman of the Board & Chief Executive Officer

So, I think a couple of things if you want to think through is that one thing as just said, they are pretty big business in the UK and the British pound has been particularly weak. So, the FX has been a bit of a headwind. And then secondly, they recorded revenue on out-of-pocket expenses, but they incur and rebuild to clients, and we're trying to move away from that practice. And I think in Q3 and Q4 that maybe about a $10 million number. So -- and again, we're just now kind of ramping up the sales force at DST. We're hiring people; we're restructuring. We're getting ready to start advancing that process and we're pretty excited about it.

Peter Heckmann -- DA Davidson & Co. -- Analyst

Great. No, that's helpful. And then if I could just follow up then on your last comment, I know this DST did bring a concentration to the UK pound, but on the current set of assets including closed deals, about how much is billed in US dollars and how much is international at this point?

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

There is approximately a little more than $100 million per quarter in British pounds, and that's is a little bit and there might be $5 million, $6 million, $5 million to $7 million in the Australian dollar, but that's about it.

William C. Stone -- Chairman of the Board & Chief Executive Officer

It's anything with the Canadian dollar, right, we probably build out --

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

Little bit on the Canadian dollar, but yes, the vast majority is the British pound, which has an impacted, where I think the year started out at 1.4 exchange rate, and I think, today we're at 1.27. So, clearly DST's revenue in the third and fourth quarter has been impacted by the drop in the British pound.

Peter Heckmann -- DA Davidson & Co. -- Analyst

That makes sense. I appreciate it. I'll get back in the queue.

Operator

And your next question comes from the line of Brad Zelnick from Credit Suisse. Your line is open.

Brad Zelnick -- Credit Suisse -- Analyst

Excellent. Thank you so much, and nice job on these results, guys. I guess I have one on Intralinks. Now as you get closer to closing the deal, can you share more detail on the synergies you see here and outside of the typical back office functions? Where do you see overlap and how do you plan to approach what seems to be a different clientele?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Brad, I think, actually, it's a very similar clientele, right. It's the big investment banks and the private equity firms, there are two big chunks of their primary businesses. And then another big chunk is the Fortune 1000 Treasury Department. They do a lot of acquisitions. And we have a number of solutions besides Interlinks that we think we can cross sell into there, and we're building out treasury solutions all the time. So, we're pretty excited about that. I think we processed something about -- somewhere around 9%, 9.5% of all the commercial paper transactions by issuing companies.

So we think there's an opportunity there. And so we're pretty excited about that, and then we're pretty excited about some of the things that Intralinks brings that we'll be able to sell across our client base like their secured document facility and their watermarking process, and a whole number of things that they do. And they have a strong team and good markets and they're both ambitious and they have good plans. So we're pretty excited about it.

I appreciate that, Bill. It's helpful color. And if I could just follow up on getting the leverage ratio down to 4.02 times. Nice work there. Where should we expect that goes once you close Intralinks and what's your appetite to do more deals at that point, Bill?

Well, again, right, if we -- when we close that Intralinks, I think we floated another $875 million in debt, right. And we're getting about $135 million in EBITDA. So that's what about 6.25 times, 6.5 times leverage, but it's about 1 -- maybe about 11% of our whole debt stack will be Intralinks. And as you've seen, right, I mean since April 16 through September 30, we paid off $640 million in debt, and really ran up our EBITDA. So our EBITDA will go from about $1.5 billion to $1.635 billion, and hopefully, now we're going to grow our earnings in Q4 and pay down some more debt. So my guess is that, that the leverage ratio is not going to change a whole lot, maybe a quarter. So we go from 4.02 to 4.30 maybe, or 4.27 but I think you will see us as we always have been very focused, and also we are low hanging fruit pickers, right? So we've had a lot of low hanging fruit that we went to pick.

So, we are also pretty good performers when we're out of low hanging fruit. We got to climb up a few trees and go pick some more. So, I think that we're in a very strong position to continue to execute. It's obvious that I think our earnings expectations for Q4 on an adjusted diluted basis, I think is something like $0.82 to $0.86, is that about right, Patrick?

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

That's right, Bill.

William C. Stone -- Chairman of the Board & Chief Executive Officer

I mean, we just had a midpoint of $0.84. I think most of all of you guided this at about $0.70 for Q4, $0.71 at the beginning of the year, and we at $0.84. For Q3, we were at a midpoint of $0.65, and I think we ended up at $0.79, and in Q2 we were in a midpoint of $0.55 and we ended up with $0.62. So, we are now on a run rate basis, if you take Q4 estimated at being $3.36. So that's pretty good improvement. That's what you pay us far and that's what we trying to deliver.

Brad Zelnick -- Credit Suisse -- Analyst

Excellent stuff. Look forward to seeing you in a couple of weeks at the Analyst Day. Thanks so much.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Okay.

Operator

Your next question comes from the line of Alex Kramm from UBS. Your line is open.

Alex Kramm -- UBS -- Analyst

Hey, good evening, everyone. Just coming back to the synergies for a minute. Hopefully, I understood all this correctly. But for DST, I guess you're saying you're running at $200 million at the end of the year. So that gives you what something like $20 million to $40 million less than I think you said same three-year period, but should we assume that, I don't know, $30 million at the midpoint, really comes over the next two years or is this really a 2019 event? And then maybe an update on the asynergies as well. Where do you think you're going to be at the end of the year, and that 30 million, how much of -- how quickly do you think you're going to realize that?

William C. Stone -- Chairman of the Board & Chief Executive Officer

You sounded little picky there, Alex. But you know, I think that we've raised the estimate from $175 million to $222 million to $240 million. So that, you know, obviously we're at 200 already. So, now the $20 million to $40 million. It's not -- we've -- once again we've done most of the low hanging fruit. Although we haven't gone through all of our budgeting processes and everything that we have for 2019, on IT purchases, on data purchases, on different provisioning of other expenses that we have in the business.

We have Anthony Caiafa working just closely with the DST IT team and they're finding all kinds of great stuff that we can do and improve our customer experience, at the same time, strengthened our infrastructure and lowering our cost. And so those are really good things. And I would guess that you're probably looking at $25 million more in 2019, and then the last 20 million in 2020. Could that change? Well, of course, but right now that's what we would be projecting.

Alex Kramm -- UBS -- Analyst

Okay. No, that's helpful. And then just on the Intralinks side, I think it was Eze, but can you just -- I think a big business is the M&A, I guess data room business. Have you stressed that -- can you just go back a little bit, and have you stress that business in terms of the M&A cycles, how that will react? I think it's a very diverse business with a lot of clients, but maybe just a little color given that M&A seems to be peaking here, how you feel about that business?

William C. Stone -- Chairman of the Board & Chief Executive Officer

One of the great things, Alex, is that you don't have to consummate the deal for us to get paid, right. So the idea that people are going to be kicking the tires all the time. I don't think it's very realistic. And over the last four, five years, they have grown their revenue each year, and right now it's accelerating. They brought out new products and new services and extensions, and they're pretty confident. And I think they're pretty talented. So right now, we're very pleased with where we sit right now and how we can help cross-sell and up-sell some of our things into the Interlinks' client base as well as some of their things in our client base.

Alex Kramm -- UBS -- Analyst

All right. Fair enough. Thank you.

Operator

Your next question comes from the line of Chris Donat from Sandler O'Neill. Your line is open.

Chris Donat -- Sandler O'Neill Partners -- Analyst

Good afternoon, and thanks for taking my questions. Patrick, wanted to ask something about the full-year guidance and the major puts and takes, because it looks like the revenue guidance is up $35 million to $65 million. We've got the inclusion of Eze, and then the issue you talked about before maybe DST timing, is there anything else in there other than like British pound versus US dollar currency rate just anything else we should be thinking about?

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

No, I don't think there's anything else that impacted other than that $100 million of British pound revenue. It's now converting into a lot less dollars. That's the significant item.

Chris Donat -- Sandler O'Neill Partners -- Analyst

Okay. And then --

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

And then we have Eze, right in the Q4 too.

Chris Donat -- Sandler O'Neill Partners -- Analyst

Right. And then thinking about the tax rate for 2019, I know you're guiding to 26% effectively for the fourth quarter. Is there anything out there then we should be thinking about that might change that rate or is that a reasonable assumption going forward, just with maybe business shifting a little bit geographically with Intralinks or anything else going on.

William C. Stone -- Chairman of the Board & Chief Executive Officer

No, I don't think so. I think we saw an uptick in the third quarter from 25% to 26%. Most of that was due to -- we were getting a lot more US earnings, and when you apply the federal rate and some of the high tax rates like New York, Massachusetts and some other states that have high tax rate that kind of bumped up are rated from 25% to 26%. So, I mean, we're going to work hard to try to get it down -- back down over time, but I would assume for now 26%.

Chris Donat -- Sandler O'Neill Partners -- Analyst

Okay. Thanks very much.

Operator

Your next question comes from the line of Mayank Tandon from Needham & Company. Your line is open.

Mayank Tandon -- Needham & Company -- Analyst

Thank you. Good evening. Maybe for Bill or Patrick, you know if you could give us maybe some framework for thinking about '19 revenue in terms of your expectations for organic growth? And then the growth expectations from the recent acquisitions, especially as in Intralinks and also any growth potential from DST given that it will be an additional three or four months of contribution for '19 numbers?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Well, Mayank, I think that if you look at Intralinks, we would expect something in the 8% to 10% range, we would expect Eze to be in the 4% to 6% range. And we're optimistic on DST, but we're not done (inaudible), so we got to get in there and we're pretty optimistic on our earnings picture there, but we want a growth company, we're not going to -- we are not trying to milk DST by any stretch of the imagination. And we are reinvesting in that business and we're hiring some pretty senior sales talents to come in and help in over the next few weeks.

We will be coming out with some of that information to the Street, and so we would like to see the overall organic revenue growth rate in 2019 to be in the 5% range. We are a $4.4 billion, $4.5 billion revenue company now, so that's a lot of new sales, and we're kind of adopting new ways to sell and going after bigger chunks of business, and so there's a lot of work to do, but we got a lot of capability, and a lot of smart people and we're pretty excited about what we can accomplish.

Mayank Tandon -- Needham & Company -- Analyst

That's very helpful, Bill. And then if I can also follow up very quickly with some of the deals that Rahul mentioned, any change in the competitive landscape? And in these competitive situations, what is the determining factor behind the wins? Is it price, is it the solution set, is it a combination of both or other factors that might come into play? Thank you.

William C. Stone -- Chairman of the Board & Chief Executive Officer

You think most of the time the organizations that we're talking to are really looking for the optimal way to structure their technology stack, as well as the workflows that happen in that technology stack. So they're looking for operating leverage, right. So, it's rarely about price and it's almost always about what can we deliver for a certain RFP or certain mandate that they might have. And generally when they look at us, they find that we have much more capability than a lot of the other providers that they look, that is just simply because of all the applications that we have either build or added via acquisition and that's been working out pretty well.

Rahul Kanwar -- President & Chief Operating Officer

And Mayank, I'd also say that often we're dealing with complex organisations that are trying to get service, and at the same time, they prefer 8 basis points to 9 basis points or 10 basis points to 12 basis points. And so, it's not like they don't negotiate, but the service level is way more important really than that last 1 bps or 2 bps. And what happens though is that some of our competitors -- we're probably guilty of this at times too. We look at our capabilities through rose-colored glasses, and then we have challenges as we are implementing. And I would say that in general and on balance, SS&C does a way better job about that than a number of our competitors, that are just way over their skis, and then we get great chances on the rebound, when those clients are very frustrated.

Mayank Tandon -- Needham & Company -- Analyst

That's great. Thank you very much.

Operator

Your next question comes from the line of Ashish Sabadra from Deutsche Bank. Your line is open.

Ashish Sabadra -- Deutsche Bank -- Analyst

Thanks, and congrats on the good results. My question was about the fund admin business, so that's expected to improve to 5.5% next -- in fourth quarter despite the market turmoil that we saw in October. So maybe, Rahul, I was just wondering if you could highlight some of the things which will drive that improvement in the growth profile there?

Rahul Kanwar -- President & Chief Operating Officer

Yeah. So, if you think rather than sort of characterize at market turmoil most of what we would call Q3 being a little more muted than usual is we had a really, really strong Q3 last year, where I think from Q2 to Q3 revenue in the fund admin business grew something like $8 million on a $210 million base. So that comp is harder, and then we've done more of our financial statement and tax work in Q1 and Q2 this year, last year it was more evenly spread. So, we're really expecting similar performance in Q4 and pretty confident we can get there.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's helpful. And then you did talk about the combined opportunity with DST. I was wondering if you could give us some examples just to better understand what these opportunities look like. And then as we think about, and as Bill mentioned that the hope is with new salespeople and that we could potentially see an improvement in the DST growth profile than what we've historically seen with DST as a independent company?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Yeah, I think a few examples. We recently sold a customer, our Precision LM, loan, module and system and combined that with DST's AWD product, which is a workflow engine, and that was pretty well received. There are also a number of opportunities where fund administration -- our fund administration offering has a 40 Act component to it, which DST has been servicing for a long period of time. And we're also seeing opportunities to bring some of the business insight and analytics products such as wallet share and some other ones into our client base, who are looking for data aggregation, and then some intelligence out of that data aggregation. So there is a number of different opportunities. And it goes the other way as well, where we're seeing our products coming into the DST solutions set and what they looking forward to offer their clients and strengthening their process as well and their pitch as well.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's helpful. That's helpful. And just that we understand, so none of the revenue synergy was really baked into the expectations when you close the acquisition or when you really gave the synergy guidance, is that right?

William C. Stone -- Chairman of the Board & Chief Executive Officer

That's right. Yeah, I would just say that we did use an FX rate of $1.4 when we closed DST, and now it's $1.27, so that $400 million in annual revenue, you're talking about a 10% hit to that. So there is some FX wins, obviously that could come back in the sales too, but that would be the only difference.

Ashish Sabadra -- Deutsche Bank -- Analyst

Okay. That's helpful. Thanks.

Operator

Your next question comes from the line of Chris Shutler from William Blair. Your line is open.

Chris Shutler -- William Blair -- Analyst

Hi. Good afternoon. The DST cost savings, I just want to make sure that I understand what was actually achieved in the P&L for the second, third and expected in the fourth quarter, just let us know what the cost savings in the quarters was?

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

Yeah, the cost savings in Q3 was about -- if you compare it to where they are running at at Q2, it's probably around $50 million. So that's how we get the $200 million implement of synergies. And then we don't -- at this point, we're not expecting a whole lot more in Q4. We're going to replace some of the critical positions and some of the remaining synergies like replacing contractors with employees and facilities take a little bit longer to do. We would like a little bit more synergies in Q4, but right now we're expecting them to be pretty similar to Q3.

Chris Shutler -- William Blair -- Analyst

Okay, thanks. And then in the fund admin business, Patrick, can you just remind us how much of that revenue is usually priced on like prior quarter ending assets, how much is more or less of a lag than that? Thanks.

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

How much of it? I think it's pretty much all priced on assets under management.

Rahul Kanwar -- President & Chief Operating Officer

Yeah. And it's not --

Chris Shutler -- William Blair -- Analyst

But is it on a one quarter lag?

Peter Heckmann -- DA Davidson & Co. -- Analyst

No.

Rahul Kanwar -- President & Chief Operating Officer

Sorry, go ahead, Patrick.

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

Go ahead, Rahul. You probably have more details on it than I do.

Rahul Kanwar -- President & Chief Operating Officer

Yeah. The vast majority is either quarterly or monthly in advance. So, if it's monthly in advance, it's the same month just the first day, and quarterly in advance, we might be ahead by 60 days or 90 days depending on where we are.

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

And I think the biggest customers are monthly. Right, Rahul?

Rahul Kanwar -- President & Chief Operating Officer

That's right.

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

Yeah.

Chris Shutler -- William Blair -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Brian Essex from Morgan Stanley. Your line is open.

Brian Essex -- Morgan Stanley -- Analyst

Hi. Good afternoon, guys, and thank you for taking the question. I guess, Bill, maybe if you could speak, and I want to dig into DST a little bit. Just in terms of how you think about the business and where you're spending your time, you and your team. So, I mean, I guess, the healthcare business was a little bit better margin business, well, maybe a lot better margin business. And just want to get a sense, is that business in your view kind of a little bit more self-sufficient in terms of where you need to spend your time? And I guess part B of the question is, where is most of the attrition coming from? Is it mostly on financial services as there's more overlap, or just to kind of think about -- think about, one, integrating those businesses, and then two, where you need to spend your time to run those businesses going forward?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Yeah. Well, Mike Sleightholme has done a great job, and we have good people in the healthcare business, Jonathan Boehm, Ellen Duffield and Marc Palmer are all very, very talented people. And at the same time, those are big contracts with big opportunities. And SS&C is a pretty big place and we have linkages to a lot of different healthcare institutions, and a lot of what we think are prospects. And we're excited about making sure that we get all of the cross-sell and up-sell opportunities that we can. And in general, the clients at DST Health Solutions are multi-millions to tens of million of dollars. So it gets our focus, and we're excited about our opportunities. And we continue to look for new talent to come help us and so we're doing that as well.

And so my time has spent kind of wherever our biggest opportunities are across the spectrum of clients that we have and prospects that we have. And we have huge clients in the UK, we've got huge clients in Australia and we have huge clients here in the US. And we just need to make sure that they know that we're paying attention. And I think they see us accelerating the decision making and the necessary items that you have to do to improve customer satisfaction.

So, we're excited about that. We have a hot product in data analytics for the long-only business. And it's very popular here in the US and DST was planning on rolling it out in the first quarter of 2020. We think it's better to roll it out the fourth quarter of 2018 to Europe. So we've accelerated that and we've done a lot of things like that.

Brian Essex -- Morgan Stanley -- Analyst

Okay. I guess maybe a follow-up on the cost side. Is most of the improvement to that kind of 31% level, has that come from financial services getting that up to par? And is that where most of the attrition has come from or has it been more evenly balanced between financial services and healthcare at DST?

Rahul Kanwar -- President & Chief Operating Officer

Most of the cost savings has come from us paying a lot of attention to where they're spending money primarily on infrastructure, right. So whether that's IT infrastructure, data centers, different vendors that we might be paying and most of those go across the business.

Brian Essex -- Morgan Stanley -- Analyst

Okay. And I guess maybe just on the attrition side, is that been weighted one toward the other?

Rahul Kanwar -- President & Chief Operating Officer

I don't think so. I think it's been once again pretty evenly spread.

Brian Essex -- Morgan Stanley -- Analyst

Got it.

Peter Heckmann -- DA Davidson & Co. -- Analyst

Financial services is a much bigger business than the healthcare, right?

Brian Essex -- Morgan Stanley -- Analyst

Sure, yeah.

Peter Heckmann -- DA Davidson & Co. -- Analyst

So, more of the attrition is probably coming from there, but probably equally. And then the other thing too, there's been a lot of -- in combining the functions at both companies, there's been a lot of corporate type of cost reductions also.

Brian Essex -- Morgan Stanley -- Analyst

Okay. That's helpful. Thank you.

Operator

Your next question comes from the line of Jackson Ader from JP Morgan. Your line is open.

Jackson Ader -- JP Morgan -- Analyst

Great. Thanks for taking my questions, guys. First one, Bill, when you guys are rolling these acquisitions into the fold and working on integrations, do you ever see a pause in buying behavior from potential customers because maybe they're waiting to see what kind of bundled offer SS&C is going to roll out?

William C. Stone -- Chairman of the Board & Chief Executive Officer

I don't think that that's a major delay in revenue. I think that they are interested in seeing us and hearing what our plans are. But I think, in general, we're reasonably buttoned up on that and given them confidence rather than give them pause. So, I don't think that's a big issue for us, although certainly, in an isolated incident here or there, some people don't like companies that buy other companies. And I'm a believer that in our business kind of like the names I rattled off, right, we got an awful lot of talent that came in through acquisitions.

Jackson Ader -- JP Morgan -- Analyst

Okay. And then a quick follow-up on the real estate business. There was an announcement the other day about a SKYLINE, the property management win. Can we just drill down into -- just generally speaking, where do you see the most success in property management? Is it on the commercial side, residential side, and then what kind of sizes of properties?

Rahul Kanwar -- President & Chief Operating Officer

So, we've got several thousand property managers. I'd say, most of ours are commercial. But what we've been working hard on is integrating that with our funds offering where we're doing a number of real estate partnerships and things like that, and look into expand that capability. So we've done -- we did a release on that. We expect to have a lot more development and innovation in the road map there. And as those businesses keep coming close together, I think that the -- both the solution set and the pipeline will get a little more diversified.

Jackson Ader -- JP Morgan -- Analyst

Okay. Thank you.

Operator

Your next question comes from line of Surinder Thind from Jefferies. Your line is open.

Surinder Thind -- Jefferies -- Analyst

Hi, Bill. I just wanted to revisit the topic of the cost synergies and guidance. You've clearly mastered the art of kind of beating expectations here, but the beat this past quarter was unusually large. And so, what I wanted to understand here was, what actually changed between reporting the 2Q results when you gave the 3Q guide, and then just two months later, significantly beating these expectations? Was this just a one-off related to DST or were there things that you guys just hadn't even looked at or thought about?

And then maybe as a follow-up, I mean, are you perhaps setting yourself up for some unrealistic expectations in that your future guidance is going to be viewed increasingly conservatively?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Well, if we have to surprise you guys, we try to surprise you guys on the upside, right. I mean, it's not really a function of being able to -- we don't push off revenue. We don't -- we do not sign contracts, and try to get them in in the next quarter because we are superstitious, right. We think that if we push off revenue, it's going to go away. It's not going to come to us and so we're very economic, very commercial about that.

And then secondly, right, it's 2018, right. You don't keep the books open past the 31 -- on December 31 at midnight, and that's it. Game shot. That's over, right. And that's just the way it works, right. So, there's no smoothing or anything that you can do anymore. And hey, we have all these cost savings and that's what happened. I don't think we've thought we would have quite as much opportunity as proven that we have that. And I think that going forward, we will continue to execute. And we're going to give what we think is fair guidance, and not give either particularly conservative, nor particularly ambitious, but...

And if you looked at our earnings picture for Q4, I think it's $0.82 to $0.86, and that's up from $0.79. $0.79 was up from $0.65 or $0.72, I guess when we report it, but $0.65 was the guidance. So we went -- we're going to have gone $0.72 versus $0.65, $0.79 versus $0.65, and then right now guidance is $0.84, up from $0.71. So we're not accelerating, we're not decelerating, we're giving our best estimates.

Surinder Thind -- Jefferies -- Analyst

Understood. Yeah.

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

This is Patrick. I think one of the things -- there are couple of things that happened in the quarter that were very -- you couldn't predict. One is, I think, as Bill said in his opening comments, there was much more employee attrition than we expected. Now we're going to replace some of those critical positions, where we have to now. But I think we have more attrition faster than we expected at DST.

The other thing too is when you're doing these synergy plans, you're really focusing on the big stuff, where can you really make an impact. And I think what we saw in the third quarter is a lot of the little spending come to a screeching halt, a lot of the discretionary stuff. They really don't need to spend to operate the business and that -- each one of those is not $1 million items, it might each be $5,000 or $10,000 or $50,000 each, but there are a lot of them and that discretionary area really contributed to the out performance in Q3 which also wasn't something that could be easily predicted when we ended Q2.

Surinder Thind -- Jefferies -- Analyst

That's helpful. So, just as a follow-on to that and I assume that the run rate though for 4Q is the fair or the 3Q is the fair run rate going forward at this point? Is that the right way in the sense that you talked about a lot of discretionary stuff being cut, maybe there's more attritions you kind of need to hire back at this point?

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

Right.

Surinder Thind -- Jefferies -- Analyst

Is that kind of what the pause in 4Q is at this point?

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

Yeah. I think we have to replace some of the employees, some of the staff. And then we took an approach that the discretionary spending is going to be pretty similar to Q3 in Q4. Because it came down significantly really fast. So those are kind of the assumptions we're making at this point on Q4.

William C. Stone -- Chairman of the Board & Chief Executive Officer

And then we're also raising guidance from -- yeah, I mean, we're -- obviously we're taking our earnings up from $0.79 in Q3 to $0.82 to $0.86 or so, midpoint of $0.84 in Q4. I mean, now we have 260 million shares outstanding and we're raising our earnings up a $0.05 in a quarter. I mean, that's still a lot of money.

Surinder Thind -- Jefferies -- Analyst

Absolutely. And then, in one big picture question here, just kind of revisiting the healthcare business. When the DST acquisition closed or when you guys made the announcement, you said that was one of the segments that you were most excited about. How are you guys thinking about that going forward in the sense that at what point do you turn maybe more of your attention to the healthcare business or maybe we start hearing more announcements about what's going on there? How much love and attention is it getting right now relative to everything else?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Well, I think we're paying attention. Rahul and I and Mike Sleightholme went out and saw some of our clients, and we have big sophisticated players that are looking for technology solutions from us, and I think SS&C brings a really fresh approach to this with a lot of top technologists. And I think so far, it's been pretty well received. But you've got to execute, you got to get wins. We have gotten a number of wins where when we first acquired there were rumblings about them leaving. But that hasn't happened, and we've gotten some multi-year resigns. And so, there's a lot of good stuff we're doing, and I think that we would -- you'll be trying to give a bullish view of our business from here including healthcare.

Surinder Thind -- Jefferies -- Analyst

That's helpful. That's it for me. Thank you, Bill.

Operator

Your next question comes from Alex Kramm with UBS. Your line is open.

Alex Kramm -- UBS -- Analyst

Yeah. Hey, again, I guess, just a couple of quick follow-ups. Didn't want you to get away without giving us some of the numbers that you have to give. Can you give us AUA Rahul at the end of the quarter, I don't think you've given that, and maybe also client retention I think it's something that you sometimes disclose?

Rahul Kanwar -- President & Chief Operating Officer

AUA at the end of Q3 was $1.68 trillion.

Alex Kramm -- UBS -- Analyst

And do you have the client retention at all handy?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Yeah, client retention, we calculated in the last 12 months was a little over 95%.

Analyst -- -- Analyst

Okay. Great, thanks. And then just coming back to I guess DST and what you talked about earlier in terms of restructuring some of the contracts, and I guess some pass through revenues going away. Can you just flesh it out a little bit more in terms of magnitude. And one of the reasons why I'm asking is, Bill made this comment earlier, a little bit coming attraction in terms of 5% organic growth, but I assumed some of that kind of restructuring could actually weigh on the growth rates a little bit if those revenues are just going to go away and obviously we're in 2018 number. So maybe just give us a little bit more detail there, what's happening, how big that stuff is, so we can think about this correctly?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Yeah, I mean, obviously if we're going to take it out of 2019, we're going to go see our auditors about taking it out of 2018 too, right. So hopefully that's not a drag on organic revenue growth and stuff like that. It might mean that our revenue which will be $30 million or so a quarter, or sometimes $40 million a quarter, and these rebuild expenses will come out of the revenue, but there's no margin on it anyway. So, it shouldn't be in there anyway. But you've got to make sure you do the accounting right, and I can assure you in this area it is very (inaudible).

Alex Kramm -- UBS -- Analyst

Okay. Now that makes sense. Just want to clarify. And then just lastly real quick, on Eze I think you said $70 million for the quarter. I don't think anybody asked about that, but I was at $75 million given some of the disclosures we had seen. Is there anything going on there? Is the business slowing a little bit or any contract that have been falling away between you talking about the business and closing it or is that -- or did I get the run rate incorrectly or is it seasonality or something?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Yeah. I think we announced that the Eze annual run rate is about $280 million, which is $70 million a quarter.

Alex Kramm -- UBS -- Analyst

All right. That's it for me. Thanks again.

Operator

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

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good afternoon. Follow-up on the healthcare business. Bill, at a September conference you mentioned that you'd receive six or seven inquiries for that business. Any update on where things stand in terms of understanding the value of healthcare business? And if you were to sell it would the intention be to recycle the proceeds into additional financial services acquisitions or would you think about paying down debt?

William C. Stone -- Chairman of the Board & Chief Executive Officer

Hi. Hey, that's a great question, Patrick. At the present, we are not contemplating a sale of the healthcare business, so that the secondary thing -- what will we do with the proceeds is really mute at this point. And under any circumstances when SS&C has capacity whether it's with cash on the balance sheet or our debt facilities or the ability to raise capital, and we find businesses that we want, we're willing to deploy capital to go win that business, right, win that acquisition.

But we have a lot to do right now, and we have what seems to be a pretty reasonable path for earnings growth over the next number of quarters. And so we're not -- we want to get DST completely bedded down. We want to start really cross-sell in with Jeff and the people at Eze. And then we want to get Leif and the Intralinks team in here and start to accelerate that business. And so now we have plenty to do without chasing every potential opportunity. But that doesn't mean we're not kicking any tires.

Patrick O'Shaughnessy -- Raymond James -- Analyst

All right. Great, thank you.

Operator

There are no further questions at this time. I will now turn the call back over to Bill Stone.

William C. Stone -- Chairman of the Board & Chief Executive Officer

Again, we really appreciate you guys and gals support. We work hard for our shareholders and we work hard actually for our debt holders. And that's what we'll continue to do, and I look forward to talking to you in another 90 days. Thanks.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 66 minutes

Call participants:

Justine Stone -- Head of Investor Relations

William C. Stone -- Chairman of the Board & Chief Executive Officer

Rahul Kanwar -- President & Chief Operating Officer

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

Andrew Schmidt -- Citigroup -- Analyst

Peter Heckmann -- DA Davidson & Co. -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Alex Kramm -- UBS -- Analyst

Chris Donat -- Sandler O'Neill Partners -- Analyst

Mayank Tandon -- Needham & Company -- Analyst

Ashish Sabadra -- Deutsche Bank -- Analyst

Chris Shutler -- William Blair -- Analyst

Brian Essex -- Morgan Stanley -- Analyst

Jackson Ader -- JP Morgan -- Analyst

Surinder Thind -- Jefferies -- Analyst

Analyst -- -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

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