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SS&C Technologies Holdings (NASDAQ:SSNC)
Q4 2018 Earnings Conference Call
Feb. 14, 2019 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good afternoon. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome to the SS&C Technologies fourth-quarter and full-year 2018 earnings call. [Operator instructions] Thank you.

Justine Stone, you may begin your conference.

Justine Stone -- Investor Relations

Hi, everyone. Welcome. Happy Valentine's Day, and thank you for joining us for our Q4 and full-year 2018 earnings call. I'm Justine Stone, head of investor relations for SS&C Technologies.

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, February 14, 2019. 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.

Bill Stone -- Chairman and Chief Executive Officer

Thanks, Justine, and thanks, everyone. Our results are 1,132.8 million in revenue -- adjusted revenue, and we earned $0.95 a share in diluted adjusted earnings per share. Both the adjusted revenue and the adjusted diluted earnings per share are very robust. Our consolidated EBITDA was 444 million, and our margin was 39.3%.

Our core businesses drove our strong performance. Q4 top line organic growth was solid at 3.3% and for the year, 4.3%. The board of directors approved 25% increase in our quarterly dividends from $0.08 per share to $0.10 per share or 40% annually. We believe our financial results warrant rewarding our shareholders while we continue to rapidly pay down debt.

We have paid down over 926 million in debt since we closed our acquisition of DST last April. And our current leverage ratio is 4.54. Last November, we voted at analyst day attended by over 100 buy-side and sell-side analysts. Each of our business units presented their opportunities and key initiatives, and we had demo booths of several of our newest products.

The analyst day also featured a demo of Singularity, our first smart accounting system, which is embedded with artificial intelligence, machine learning, robotics process automation and predictive analytics. There is significant traction in the U.S., Canada and U.K. regions with more than 25 active pursuits, the biggest being in the insurance and asset management markets. I'll now turn it over to Rahul.

Rahul Kanwar -- President and Chief Operating Officer

Thanks, Bill. We had a strong quarter in terms of winning new mandates, identifying new opportunities and remain focused on high service levels for our customers. We have made progress with integration of our recent acquisitions and have hired some very talented people. Bernie O'Connor is now chief revenue officer in our domestic financial services business at DST, and Daniel DelMastro is the new chief revenue officer in our healthcare business.

Joe Maxwell joined as head of technology for our hedge fund administration business. We've added the responsibility for our financial markets group to Jeff Shoreman; Primatics to Christy Bremner; and the DBC, TimeShareWare and Zoologic businesses to Robert Roley. Just last week, I had all of our business unit heads in New York to review the start of 2019 and to add focus to our new initiatives. We are building and rolling out several new products and services, and our combined capabilities, including acquisitions of DST, Intralink and Eze in 2018, differentiate us in the marketplace.

We continue to find synergy opportunities at all of our recent acquisitions, and we now expect DST to generate 300 million annual run rate synergies by April 2021. We also continue to see strong organic growth in several of our businesses, including Black Diamond, alternatives, particularly real estate, and our regulatory and analytics business. Now I will mention some key deals for Q4 2018. Two advisory firms, each over 1 billion in assets, selected Black Diamond for their operations, citing our partnership approach as key to the win.

A spinout from an existing client with 2.5 billion in assets chose SS&C GlobeOp fund administration and regulatory solutions. A Hong Kong-based investment firm chose SS&C GlobeOp Fund Services for their new fund launch. A large futures shop looking to launch an equity business chose Eze OMS for its advanced trading and compliance capabilities. A 20 billion-plus firm existing, who is an GlobeOp fund administration client, chose Intralinks' platform for all fundraising, investor reporting, portfolio management and M&A activity across all regions and lines of business.

Four individual clients chose DST's business products, process solutions product, AWD. I will now turn you over to Patrick to run through the financials.

Patrick Pedonti -- Chief Financial Officer

Thank you, Rahul. Results for the fourth quarter of 2008 were GAAP revenue of 1,111,000,000, GAAP net income of 58.7 million and diluted EPS of $0.23. Adjusted revenue was 1,132,000,000, excluding the adjustments for implementing the new revenue recognition standard and the acquired deferred revenue adjustment for the DST, Eze, and Intralinks acquisitions. We had a very strong quarter.

Adjusted revenue was up 157%. Adjusted operating income increased 131%, and adjusted EPS was $0.95 or 75% increase over Q4 2017. Total adjusted revenue increased 693.4 million over Q4 2017. The acquisitions of DST, Eze and Intralinks and CommonWealth and a couple other smaller acquisitions contributed 680.8 million in the quarter.

Foreign exchange had an unfavorable impact of 1.9 million or 0.4% due to weakness of foreign currencies in the quarter. Organic growth on a constant currency basis was 3.3% in the quarter, driven by the strength in the alternatives business. Adjusted operating income for the fourth quarter was 421.5 million, an increase of 239.1 million or 131% from the fourth quarter of 2017. Operating margins improved sequentially from 34.4% in the third quarter to 37.2% in the fourth quarter as margins improved in the DST business and our core businesses.

DST's operating margins were 33.3% in the fourth quarter, and annual run rate implemented cost synergies reached 245 million as of December 2018. We have increased our DST cost synergies targets of 300 million annual run rate by April 2021. And foreign exchange had an impact of 3.5 million on expenses in the quarter, positive impact. Adjusted consolidated EBITDA was 444.8 million or 39.3% of adjusted revenue, an increase of 132% from Q4 2017.

Net interest expense for the fourth quarter was 97.3 million and includes 4.2 million of noncash amortized financing costs and OID. The average interest rate in the quarter for our term facility was 4.77% compared to 4.36% in the fourth quarter of 2017. We recorded a GAAP tax provision in the quarter of 50.2 million or 46% of pre-tax income. The full-year GAAP tax provision was 17.5%.

Adjusted net income was 243 million, and adjusted diluted EPS was $0.95. The adjusted net income excludes 142.5 million of amortization of intangible assets, 4.2 million of noncash debt issuance costs, 20.8 million of stock-based compensation, 19.6 million of purchase accounting adjustments, 11.3 million of adjustments related to adoption of the new revenue recognition standard 606 and 21.4 million of nonoperating costs, including 16.3 million related to mark-to-market adjustment on investments and 4.3 million in severance costs related to staff reductions. And the effective tax rate for adjusted net income, we used 26%. Diluted shares increased 19.6% over Q4 2017, mostly due to the equity offering of 30 million shares of common stock associated with the acquisition of DST, 9.9 million shares related to the Intralinks acquisition and an increase due to the impact of the option issuance during the year.

The shares issued for the Intralinks transaction were only partially weighted in the quarter as the acquisition was completed on November 16. On our balance sheet and cash flow, we ended the year with 167 million of cash, 8,355,000,000 of gross debt for a net debt position of 8,188,000,000. Operating cash flow for the 12 months ended 2018 was 640.1 million, 168 million and a 35% increase compared to the same period of 2017. The DST acquisition and financing costs and severance costs impacted operating cash flow negatively by 244 million during the year.

Highlights for the 12 months. We borrowed net 5.6 billion for the year. We paid down 926 million of total debt since the DST acquisition. In the fourth quarter, we issued 1.875 billion of debt related to the acquisitions of Eze and Intralinks.

For the year, we paid 268 million of interest compared to 102 million in 2017, and the average interest rate in the quarter was 4.77%. For the full year, we paid 143 million of cash taxes compared to 67 million in 2017. Our accounts receivable DSO was at 52.1 days as of December compared to 55.2 days as of September 2018, a significant improvement. We used 89.1 million for capital expenditures and capitalized software mostly for facilities expansion, IT and as well as leasehold improvements and capitalized software.

And for the year, we declared -- we paid 70.9 million of common stock dividends compared to 54 million in 2017. Our LTM consolidated EBITDA, which we use for our covenant compliance, was 1,804,700,000 as of December '18 and includes 523.5 million of acquired EBITDA and cost savings related to the acquisition. Based on a net debt, our total leverage was 4.54 times as of December. On outlook for the first-quarter and the full-year 2019, our current expectation for the first quarter is adjusted revenue in the range of 1,132,000,000 to 1,162,000,000, adjusted net income of 217 million to 223 million, and diluted shares in the range of 161.8 to 263.3 million.

For the full year, we're currently expecting adjusted revenue in the range of 4,690,000,000 to 4,790,000,000, which represents organic revenue growth in the range of 1.9 to 4.1%; adjusted net income of 970 million to 1,015,000,000; and diluted shares of 264.5 million to 266.5 million. We expect the adjusted tax rate to be 26% for the full year. Cash for operating activities will be in a range of 1,095,000,000 to 1,135,000,000 and capital expenditures in the range of 2.6 to 3% of total revenues. And I'll turn it over back to Bill.

Bill Stone -- Chairman and Chief Executive Officer

Thanks, Patrick. We're proud of our accomplishments in 2018 and looking back to when we went public in 2010 when we finished with 329 million in revenue. Looking forward, we see significant opportunities throughout the world. As we ramp up our sales force and deliver on our technology initiatives, we expect to succeed.

We will be at conferences and investor meetings throughout the year and hope to see some of you at those. Now I'll turn it over to questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from Rayna Kumar with Evercore ISI. Your line is open.

Rayna Kumar -- Evercore ISI -- Analyst

Could you pull out the organic revenue growth rate for the alternatives business in the fourth quarter and then your expectations for the first quarter and 2019 as a whole, please?

Bill Stone -- Chairman and Chief Executive Officer

I think that's Patrick.

Rahul Kanwar -- President and Chief Operating Officer

Patrick, you want to take that?

Patrick Pedonti -- Chief Financial Officer

Yes, I'm not sure. The alternatives organic growth rate in the fourth quarter, is that the question? I really didn't hear it.

Rahul Kanwar -- President and Chief Operating Officer

Yes, and Q1 and the guidance.

Patrick Pedonti -- Chief Financial Officer

In the fourth quarter, the alternatives organic growth was 5.9% fourth quarter 2018 and the guidance in Q1 is also 5.9%.

Rayna Kumar -- Evercore ISI -- Analyst

And if you can also talk a little bit about DST's healthcare business, the client retention in that business, new bookings growth. And does SS&C see that as -- is SS&C looking at strategic options for the healthcare business?

Bill Stone -- Chairman and Chief Executive Officer

We are not. The business is getting stronger. We brought in some great people, Daniel DelMastro as chief revenue officer, Tory Belgoti as the senior vice president of sales. So we're optimistic, and we look forward to reporting on our successes in the following quarters.

Rayna Kumar -- Evercore ISI -- Analyst

Thank you.

Operator

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

Alex Kramm -- UBS -- Analyst

Hey, good evening everyone. Just staying on the topic of organic growth for a second here. If I heard you right, at the guidance, 1.9 to 4.1%, I think 3% is the midpoint. I think if I remember correctly at the analyst day, you were kind of pointing everyone to maybe like a three and half percent growth rate, not to be too focusing on that, but like it obviously seems a little bit lower.

So just maybe discuss a little bit what has changed in the last few months. I mean, obviously, everybody has seen what's going on in the fourth quarter in hedge fund land, etc. So has your thinking changed a little bit? Or what's the change here?

Bill Stone -- Chairman and Chief Executive Officer

Yes. I don't think there's really a whole big change here, Alex. I think it's just that, as we get deeper and deeper into these acquisitions, that a lot of that is taking a lot of time. And we also are at lumpier kinds of sized businesses or deals here.

So I think the range we're trying to have is wider just based on the size of the deals that we have. And so I just think that is how a few tenths of a percent on organic growth sell out.

Alex Kramm -- UBS -- Analyst

OK, fair enough. And then maybe just on kind of all of these deals that you're integrating right now. I heard -- in some of the prepared remarks, you talked about, I think, even like existing customer buyings or switching to Intralinks or using Intralinks now. I mean, are these real cross-selling wins already? Or are these just stuff that everybody was individually working on before? And then just on that same topic, given that you are restructuring your DST sales team, anything that you've seen already in terms of early fruits of labor that they're doing a better job over there, maybe hopeful that the organic growth at DST can improve from what's been a little bit lackluster in the past? Any sort of color what's happening not just on the cost but more on the revenue opportunity side?

Bill Stone -- Chairman and Chief Executive Officer

Yes. You know what, as I said, right, we -- and Rahul commented, Bernie O'Connor came in as chief revenue officer of domestic financial services business. He's already reorganized that and has people on the ground. I think since January 1, I think he's increased our pipeline by 50 million.

I think Daniel DelMastro has been all over the country in the healthcare business. We see opportunities everywhere. As we've spoken on the last two to three calls, we really see an opportunity in the mid-market. Otherwise, the mid-market has to go to one of their big behemoth competitors.

So we think that's a tremendous opportunity for us, and we plan on exploiting it. So we're pretty optimistic about where we sit, and we hope to report similar progress in 90 days or so.

Alex Kramm -- UBS -- Analyst

Thanks very much.

Operator

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

Dan Perlin -- RBC Capital Markets -- Analyst

Thanks, guys, and good evening. I'm obviously happy to see the synergies for DST getting raised here. I'm -- my question, I guess, is twofold. One is kind of what did you get -- what led you to be able to kind of crank them up so fast from your original guide.

Like, it was -- it's clearly been significant. And secondly, to kind of put that bogey out there all the way out to 2021, I'm wondering why -- what it's going to take to get the incremental 55 million or so.

Bill Stone -- Chairman and Chief Executive Officer

Again, Dan, it's a pretty big place, right, 14,400 employees, 1,600 contractors when we took them over, 2.2 billion or so in revenue. We were -- we're trying to be somewhat sober and conservative about what we were doing and want to make sure that we weren't stepping on trapdoors, right? So the more we got our sea legs, the more Mike Sleightholme have made a nice contribution. The people at DST, whether it's Terry Metzger in domestic financial services or Willie Slattery internationally or John Geli in retirement or Jonathan Boehm in healthcare, they're smart, capable, hard-working people. And I think we kind of released them to go after the opportunities that we have, and I think that they've done a really good job.

Nick Wright, who's Willie's right-hand guy, and a number of other ones have really participated in ways that have really helped us. Anthony Caiafa, our chief technology officer, is getting his arms around the big data centers. And they had a big spend, and they still have a big spend. It's just not quite as big.

Dan Perlin -- RBC Capital Markets -- Analyst

Understood. Can I just get you to update just so we're clear? You're at four and a half times leverage right now. Your target, I thought, was to get down to kind of four by the end of '19. Has that changed in any way? I mean, the pace of deleveraging has been pretty significant.

Patrick Pedonti -- Chief Financial Officer

Based on our current plan, certainly, we use all free cash flow to pay down debt in '19. We'll be around 3.9 times, so we'll be below four times.

Dan Perlin -- RBC Capital Markets -- Analyst

OK. And then just on that same vein, can you just remind us your appetite? I know you got a lot going on and you've already done a lot of acquisitions. But it is part of your DNA to do more deals. And so as you get down toward that, should we be expecting kind of that to be the leverage that you got to get to before you'd step back in and look at other additional opportunities in the market? Or is there appetite to do so? And how does that pipeline look?

Bill Stone -- Chairman and Chief Executive Officer

Yes. So I wouldn't say that we're glued on the sidelines. We would certainly buy anything that's been in our strategic radar. We may not use as much debt as we did in the past, and while that's unfortunate, that's what happens when you get leverage to the point of four and a half times.

But we're going to do what's best for our shareholders, and that's increase our earnings and hopefully increase our cash flow. And we're going to pay down debt quickly, as we've said, 926 million since April 16, 2018. That's a pretty good number. And I think that tuck-in acquisitions, we're looking at all the time.

We probably -- we have four, five of them that we're in some semblance of possibly purchasing. Now larger ones, there's a few that are out there that are 100 million in revenue, 30 million in EBITDA. You -- we're not spending a billion and a half for one of those. So we'll have to see what kind of properties are out there and whether or not we can get what we believe is a disciplined price.

Dan Perlin -- RBC Capital Markets -- Analyst

Thank you, guys.

Operator

Your next question comes from Brad Zelnick with Credit Suisse. Your line is open.

Kevin Ma -- Credit Suisse -- Analyst

Hi. It's Kevin Ma on for Brad. Can you give us any update on progress of Intralink and Eze so far in terms of synergy targets? And I know it's still early into those acquisitions. But what sort of cross-sell opportunities are you seeing that maybe become more apparent now that weren't so obvious early?

Rahul Kanwar -- President and Chief Operating Officer

Yes, so this is Rahul. We're really positive about both Intralinks and Eze, and Leif O'Leary at Intralinks and Jeff Shoreman and their teams have done a nice job of starting the integration process. We have already implemented some synergies. We're certainly on target or on plan for the time lines that we had at the start of the process.

And as you pointed out, the thing that we're most focused on is the joint revenue creation opportunities. So in conjunction with Eze, we've already sold some deals, where as is the order management system, and we're doing middle and back-office services. We expect that to continue. We're also looking at our development plans for Eze and their new product, Eclipse, and trying to that closer to things that we're building.

And then Intralinks has some of the biggest private equity firms and real asset firms in the world in their customer base, and those are many of the same firms that we're providing fund administration services or seek to provide fund administration services to. So there's a natural cross-sell and overlap, and that process is getting started. So good progress so far.

Kevin Ma -- Credit Suisse -- Analyst

And I might have missed it. But would you mind breaking down what the cost synergies that were achieved in the quarter for each of the acquisitions?

Patrick Pedonti -- Chief Financial Officer

So we're -- these implemented, right, annual run rate synergies.

Kevin Ma -- Credit Suisse -- Analyst

That's right.

Patrick Pedonti -- Chief Financial Officer

So DST was at 245 million, and Intralinks and Eze combined are at about 14 million.

Kevin Ma -- Credit Suisse -- Analyst

Thank you.

Operator

Your next question comes from Hugh Miller with Buckingham. Your line is open.

Hugh Miller -- Buckingham -- Analsyt

Hi, there. You guys had mentioned about the DST opportunity in the middle market. I was wondering if you could flesh that out a bit more and maybe provide a little color on the current revenue for DST in that segment and kind of how you're viewing the addressable market opportunity for that business.

Bill Stone -- Chairman and Chief Executive Officer

Well, the current revenue is approximately 450 million in revenue, 450 million to 470 million, I think. And again, it's obviously a national business. We have any number of large opportunities in our pipeline. We have closed some additional businesses in our pharmacy business, and we're optimistic about that.

And we just think that there's lots of health plans around the country. And right now most of the health insurance and health administration, pharmacy benefit management businesses are dominated by UnitedHealthcare with Optum or CVS with Aetna or Cigna and Express Scripts. So we think we have a great shot if we execute to be No. 4 in a short -- relatively short period of time over the next two to three years.

And currently, we're about No. 10.

Hugh Miller -- Buckingham -- Analsyt

And then one other follow-up. Just the diluted share count guidance for 2019 was just a bit below where we were looking for. Is there any assumption for share repurchase in that number?

Patrick Pedonti -- Chief Financial Officer

There's no share repurchase in that number.

Hugh Miller -- Buckingham -- Analsyt

Thank you.

Operator

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

Peter Heckmann -- D.A. Davidson -- Analyst

Thanks for taking my call. Just for clarification, and I apologize if you've gone through this. Patrick, I think you had said that organic growth implied in first-quarter guidance is 5.9%. Did you mean that 5.9% is for admin? And so what would be the overall organic growth?

Patrick Pedonti -- Chief Financial Officer

Yes, the 5.9% in Q1 of '19 was for the alternatives business. For Q1 '19, the midpoint is 3.3% organic growth, and the range is 5 to 1.7% on the low end.

Peter Heckmann -- D.A. Davidson -- Analyst

Great, that's helpful. And then, if I remember correctly, DST had some attrition in the U.K. and that was going to hit this year. How are you thinking about that? And how are you treating it from an organic growth calculation basis?

Rahul Kanwar -- President and Chief Operating Officer

So I think -- sorry, Patrick, go ahead. Go ahead.

Patrick Pedonti -- Chief Financial Officer

I mean, DST becomes organic, right, in mid-April, right, so not in the first quarter, still acquisition revenue. And at this point in the calculations that we gave you, we're not making any adjustment for business that they might have lost before we acquired them. So this is just a straight calculation right now.

Peter Heckmann -- D.A. Davidson -- Analyst

Got it. Got it. OK. And then, Rahul, you did make a comment that Black Diamond was seeing strong growth.

Can you talk about that advisor space? Seems like an area that's benefiting from several secular trends. Haven't really seen as much acquisition activity from SS&C in that space in terms of expanding the breadth of solutions. How are you thinking about that space right now? Are valuations prohibited?

Rahul Kanwar -- President and Chief Operating Officer

I think that we're really focused on our own growth opportunities. We've looked at some things and I think we'll continue to look at some things, and we will look at deals particularly as they're complementary to our solution set. But I think, in general, we've got a really good business with the combination of core growth in our customer base, so the things we do now as well as new products that we're building out such as Rebalancer, Black Diamond Link and a couple other ones. And we have done some small acquisitions.

We bought Salentica, and we bought Modestspark. And that's primarily a way to extend the capability, and we'll keep doing that.

Peter Heckmann -- D.A. Davidson -- Analyst

That's helpful. Thank you.

Operator

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

Andrew Nicholas -- William Blair -- Analyst

Hi, guys. This is actually Andrew Nicholas on for Chris. A lot of my questions have been asked, but I did have one about the alts business. I think you said around 6% or 5.9% organic growth that you expect in the first quarter, which is particularly strong, at least from my perspective, given negative fourth-quarter market.

So just wondering if you could expand a little bit on where you're seeing strength in that business and where you expect that growth to come from, whether it be from net new assets, new fund launches, pricing or something else.

Rahul Kanwar -- President and Chief Operating Officer

Yes. So I think 5.9% is what we did in Q4, right? And that's, I think, in the middle of those choppy markets as well. So we really do have very good momentum from a sales standpoint, right? That's the primary source for new revenue, where we're competing every day for new mandates and a lot of them are competitive takeaways. And as people look at our technology and services capability relative to those of our competitors, we've got some pretty good opportunities.

So I would say that's the predominant source for kind of growth, and that's true in our hedge business. It's also very true in our private equity and real assets business. Real assets, in particular, has been growing very strong. And I think -- we think we're going to keep continuing that throughout 2019.

So that's the basis for the guidance.

Andrew Nicholas -- William Blair -- Analyst

And then maybe one for Patrick. Looking at the P&L, it looks like license and maintenance revenue grew about 10 million, 11 million in each of the last two quarters looking at it quarter-over-quarter. But the cost of licensing and maintenance revenue actually went down a touch over that same period. Can you help me understand why that might be the case?

Patrick Pedonti -- Chief Financial Officer

There were several onetime license deals in the DST business that helped that growth over the last couple of quarters. And I think their cost structure is down as we've implemented the synergies. So I think that's the biggest impact there.

Andrew Nicholas -- William Blair -- Analyst

OK, so primarily relates to DST. OK thank you very much.

Operator

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

Mayank Tandon -- Needham and Company -- Analyst

Thank you. Good evening.Bill, can you talk about any of the regulatory changes globally that might be a tailwind or headwind for you over time? I think in the past, it's been more of a tailwind but would be curious to see if there's anything out there in the horizon that investors might not be focused on that could be a driver for your business over time.

Bill Stone -- Chairman and Chief Executive Officer

Well, I think, Mayank, that we have a really good regulatory and analytics business. Mike Megaw runs that for us. And there's a number of things that we're rolling out such as GDPR and some other ones along those lines. Whether or not the DOL rules on RIAs, how that finally gets flushed out is a little hard to tell.

Same with what's going on with the changes in Dodd-Frank. But we think on either side, right? Whether or not there's going to be more regulatory, which means we're going to sell into that or there's going to be an easier regulatory environment, which means there's going to be more start-ups, and we'll get our fair share of that, too.

Mayank Tandon -- Needham and Company -- Analyst

Got it. And then a couple of housekeeping items. What was the AUA levels at year-end? I think I may have missed that if you've already mentioned it. And also for Patrick, what is the FX headwind you're expecting on revenue for '19? And also, is there any expense item that is impacted by FX and how we should account for that?

Rahul Kanwar -- President and Chief Operating Officer

So AUA at the end of Q4 was 1.69 trillion.

Patrick Pedonti -- Chief Financial Officer

And on FX, there's about -- we're currently -- our forecast is currently using average January 2019 FX rate. And if you compare those to the 2018 rates, so it's about 11 million of negative FX in the year, of which majority is in the first six months of the year. So it's about 2 million in Q1. And when DST comes on as organic in Q2, there's about 7 to 8 million of FX since they have a lot of business in British pounds.

So right now the current estimate is about 2 million, 7 million to 8 million in the second, 2 million in the third and kind of flat in the fourth. That's based on current FX rates.

Mayank Tandon -- Needham and Company -- Analyst

Is that offset on the expense side from hedges? Or should we expect some expense items to be also affected by FX in the same vein?

Patrick Pedonti -- Chief Financial Officer

We -- DST has some legacy hedges on the Indian rupee that are going to terminate in March, but other than that, we don't have any expense hedges. So we had, I think, a 3.5 million benefit in Q4 for expenses. And based on where rates are today, it'd probably be pretty similar in Q1 and then would taper down.

Mayank Tandon -- Needham and Company -- Analyst

Great. Thank you.

Operator

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

Chris Donat -- Sandler O'Neill -- Analyst

Patrick, want to ask one question about the 2019 guidance and putting the first quarter in there with it because, with simple math, it implies you'd pick up about $0.05 a quarter in EPS over the course of the year. I'm just wondering if you expect faster EPS growth in the front half of the year, back half of the year. Is there anything notable in terms of expense synergies we should be thinking about just as we make our quarterly estimates for the course of '19?

Patrick Pedonti -- Chief Financial Officer

I mean, we do expect growth to be a little stronger in the second half of the year, especially in Q4 when Eze becomes organic and Intralinks becomes organic for a partial quarter. So we think we'll see a little bit of a jump in Q2 in revenue and then see stronger growth in Q3 and Q4.

Chris Donat -- Sandler O'Neill -- Analyst

OK. And on the expense side, anything notable in terms of, I don't know, facility, like duplicative facility costs eliminate or anything like that we should just be aware of? Or nothing big?

Patrick Pedonti -- Chief Financial Officer

I don't think anything big. I mean, we're going to do -- we're going to transition some of DST's India operations to contractors to in-house. I mean, we'll have some double costs for a while, but it probably won't be significant. It might be 2 million, 4 million or something like that, as we transition from contractors to in-house operations and we've got kind of duplication of facilities.

So there'll be a little bit of that. The first quarter is seasonally a higher cost because benefit costs are higher in the first quarter when you've got payroll-related taxes that are much higher until employees hit the cap. So you've got -- we typically have higher expenses in the first quarter, and then we might have 2 million or 4 million of duplicate costs in facilities in India as we transition to in-house operations.

Chris Donat -- Sandler O'Neill -- Analyst

OK. And then, Bill, wanted to ask one question about the dividend and how the board looked at it. I'm sure most equity holders are happy to have a higher dividend, but I'm wondering if they had a look at the trade-off between the paydown of debt. Was the board looking at the year-end 2019 leverage ratio and saying, OK, we're below our threshold, so we can afford another $0.01 on the quarterly dividend? Or did that factor into your thought process?

Bill Stone -- Chairman and Chief Executive Officer

I think, Chris, the whole Q2, Q3 and Q4, I think the outperformance created tremendous amount of confidence in our ability to generate cash flow. I think we've thought we were going to end Q4 at 4.7 and we ended 4.54. On a 0.2 of a turn, that's a couple of hundred million dollars, and I think the increase in our dividend's about 20 million. Yes, we're trying to be good custodians of the shareholders' money and try to allocate that money in ways that the vast majority of our shareholders would applaud.

Chris Donat -- Sandler O'Neill -- Analyst

OK. Thanks very much.

Operator

Your next question comes from Andrew Schmidt with Citi.

Andrew Schmidt -- Citi -- Analyst

Just a clarification. When you talk about lumpy deal pipeline, is that mostly a comment on DST? And then, correspondingly, if we think about the organic revenue outlook for FY '19, what does the low and high end of the outlook assume for DST performance?

Bill Stone -- Chairman and Chief Executive Officer

Well, first, on the lumpy side, I would say it's both our fund administration businesses and the DST businesses. The size of the deals are getting larger. The -- as we expand our capabilities, both from a breadth standpoint and a depth standpoint, we become an increasingly capable competitor. So the size of the deals that we get asked to bid on have become larger, and then the size of the deals that we win have become larger.

So I think that's going to create some lumpiness as we swallow these bigger deals. And I would say that's really what I'm talking about on the lumpy deals. And then maybe, Patrick, you can take the second half of that question.

Patrick Pedonti -- Chief Financial Officer

Yes. Let me try to answer that question. So I think for the year, we've got about 100 million in a range of revenue, OK? And in that guidance, the range for the acquisitions, which is mostly DST, a large portion of it, acquisition revenue is probably about 25 million. So out of the 100 million, 25 million is acquisitions.

Does that answer your question?

Andrew Schmidt -- Citi -- Analyst

It was more around, in terms of just the variation between the low end and the high end, what's the assumption for DST growth.

Patrick Pedonti -- Chief Financial Officer

Well, I think at the midpoint of the range, DST is up 0.5% or so for the year, right? And there's probably -- it's probably something like another 1% shift between the ranges.

Andrew Schmidt -- Citi -- Analyst

OK, that's really helpful. Appreciate the color. And then just if you could discuss hedge fund performance in the fourth quarter and then, I guess, at a high level, how revenue retention performed, that would be helpful. And then just a follow-up to that, just expectations for hedge fund performance into '19.

Rahul Kanwar -- President and Chief Operating Officer

Yes. So I'll talk about hedge fund performance. Look, in general, right, we're not as focused on hedge fund performance as we are on sales execution and how many of our products and services we can cross sell into clients we already have because, ultimately, that's far more correlated to our revenue. So I think we had a mix of different kinds of performance.

We certainly had choppy markets and funds that didn't fare as well, and then we had winners, right? And we don't really have a assumption for what future performance is going to be when we guide toward 2019 because, once again, we don't really view that as being extremely material to how we're going to do. Patrick, maybe you can talk about client retention.

Patrick Pedonti -- Chief Financial Officer

Yes, so we -- on client retention, we ended the full year. So if you look at client retention in the last 12 months, at 95% for the full year.

Andrew Schmidt -- Citi -- Analyst

OK that's good to hear. All right. Thanks, guys, appreciate it.

Operator

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

Brian Essex -- Morgan Stanley -- Analyst

Hi. good afternoon. Thank you for taking the question Bill, just a quick one maybe for you. I think you mentioned some -- you're ramping up sales force.

And I guess, I'd just like to know kind of what have the changes been post DST, Eze, Intralinks? What kind of -- how is that ramping? And I guess, what is your outlook for productivity into 2019?

Bill Stone -- Chairman and Chief Executive Officer

Well, as we've pointed out in our remarks earlier, we've brought in Bernie O'Connor in the domestic financial services business of DST, and we brought in Daniel DelMastro in the healthcare business and Tory Belgoti. We have some great people in our sales organization already. And so we're adding to that group and we are building pipelines. And we're pretty excited about what our opportunities are, and I will hopefully report to you as we begin to close those opportunities.

Brian Essex -- Morgan Stanley -- Analyst

Any meaningful changes, say, in the OMS business versus maybe what you had in terms of better productivity on one side of the house versus the other?

Bill Stone -- Chairman and Chief Executive Officer

Well, I mean, obviously, Eze is a big OMS provider, and we think that they have a brand-new product coming out called Eclipse that's gotten some pretty good traction. As with all of our acquisitions, we're in a hurry. And I think Jeff Shoreman, and Mike Hutner are quite aware of that, and they're doing a good job as is the -- our head of Europe, Mr. Quinlan.

So we're -- that's just the way we operate. Let's see if we can go faster and at the same time, pay attention to our customers in a way that maybe improves our opportunities because it improves our references.

Brian Essex -- Morgan Stanley -- Analyst

Got it. That's helpful. And then maybe one quick follow-up for Patrick. I think alternatives organic growth was mentioned in the quarter but overall organic growth, maybe just if we could tick that off?

Patrick Pedonti -- Chief Financial Officer

In the fourth quarter?

Brian Essex -- Morgan Stanley -- Analyst

Right.

Patrick Pedonti -- Chief Financial Officer

The 3.3% was overall organic growth in the fourth quarter and 4.3% for the full year of 2018.

Brian Essex -- Morgan Stanley -- Analyst

Super helpful. Thank you very much.

Operator

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

Jackson Ader -- J.P. Morgan -- Analyst

Thanks for taking my question, guys. Bill, first for you. I know that it's only been about a year that you've had DST and we're already to 33% margins. But is there anything structurally, as you look at that business, that may -- that would keep it from getting to that kind of 40% target you've always talked about for SS&C?

Bill Stone -- Chairman and Chief Executive Officer

Well, I don't think -- I think that the key to our ability to generate our margins is to make sure that the first job is customer satisfaction, right? So we're -- the 40% margin really means that we hire talented people. We train them very well. And generally, we can use one person versus a lot of places use two or three people. So we also run our foreign operations with foreigners, right? So in general, we don't use hardly any ex-pats.

Not that we don't think that they're talented but they're expensive. So we just as well not do that. We also don't tend to break leases. We stay in those places until the leases expire, and then we move the people.

And other people, they jam them all together because it's easier to do Kumbaya. We do remote Kumbaya and try to get the people to realize that breaking that lease is going to hit that bonus pool, and people are generally pretty agreeable to that.

Jackson Ader -- J.P. Morgan -- Analyst

OK. And then a follow-up question for either Rahul or Patrick. Any particular geographical pockets of strength to call out within the alternatives business kind of around that 5.9% growth?

Rahul Kanwar -- President and Chief Operating Officer

I think Asia Pac has been growing pretty fast for us, right, still a smaller part of the business, so that obviously gets mitigated a little. But we expect that to continue to be very strong in '19.

Jackson Ader -- J.P. Morgan -- Analyst

OK. Thank you.

Operator

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

Alex Kramm -- UBS -- Analyst

Oh, hey. Hello again. My follow-up was actually asked already. But just while I'm here, real quick, any bigger picture comments on kind of like DST's end markets and what you're expecting there? I think when we talk to, I guess, executives there, it sounds like there's still an expectation for a lot of spending.

Are you hearing the same thing? And then I think in that market, we've also seen a little bit more M&A. So maybe just talk about how that may impact you? I mean, Invesco, Oppenheimer, for example, is an example that, I think, may actually benefit you. I don't know how specifically you can talk about that. But any bigger picture thought on that end market and what's happening there?

Bill Stone -- Chairman and Chief Executive Officer

Well, as you know, that -- those end markets are -- they're great end markets, right? The world's getting wealthier. There's a lot of money to manage. And of course, there's some headwinds of passive to active. But it is not that doom's day scenario that some people paint.

We have a lot of new products and services that come out to those groups of clients of ours, and we're getting very close to them about really delivering technology more rapidly. Our advanced workstation -- our advanced work distributor, which is a workflow product, is highly, highly functional. And we're really building out a whole new generation and in a hurry. Our WalletShare product, which was going to be rolled out in the first quarter of 2020, we rolled out in Europe.

We rolled out in the fourth quarter of '18. So as you start to accelerate the technological advances for your clients, it's going to help them accelerate their businesses, and it's both going to accelerate their businesses on a revenue standpoint but also in their ability to manage their costs.

Alex Kramm -- UBS -- Analyst

All right thanks again.

Operator

Your next question comes from Ken Hill with Rosenblatt Securities. Your line is open.

Ken Hill -- Rosenblatt Securities -- Analyst

Good evening. I think you might have just touched on this a couple of questions back, but -- with DST, but kind of on overall margins, you've seen nice progress here over the past couple of quarters, hit 37%. How are you thinking about the trajectory throughout the rest of this year as you get 40%? And kind of what things would you note maybe on the revenue side or expense side that could push that higher or a little bit lower for you guys?

Bill Stone -- Chairman and Chief Executive Officer

Well, I mean, I think we have teams of people looking at all kinds of things. Obviously, we have data processing centers that are used by DST, the data processing centers are used by Intralinks. We have data processing centers that are used by Eze, and obviously, we have historic data processing centers. So I think Anthony Caiafa, who's our new chief technology officer, who's probably been with us 10 months, very talented, very capable, came out of Bloomberg, and he's doing a great job for us.

That's a lot of expense, and so understanding how to really make that redundant and highly performing and very cost effective are 3 objectives he has. And so far, he's done a great job, and he has a number of very talented people working with him.

Ken Hill -- Rosenblatt Securities -- Analyst

OK, that's helpful. And I guess, just one modeling, one from an interest expense question just given all the debt issued and the aggressive paydown you guys have. Any guidance you can provide for the next couple of quarters as far as interest expense coming up?

Patrick Pedonti -- Chief Financial Officer

Well, we're -- we'll use all free cash flow to pay down debt. Typically, our first quarter is a little slower because that's when we pay our employee annual bonuses, but then it'll pick back up in the second, third and fourth quarter. We're currently, in our plan, expecting interest rates to stay fairly stable from where they are today at about 4.75, 4.8%. Those -- we're at LIBOR plus 2.25%.

So we're currently assuming that interest rates stay pretty stable for the year. And then other than the first quarter -- first quarter will be the slowest debt paydown quarter, and then it will pick up in the next three quarters.

Operator

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

Bill Stone -- Chairman and Chief Executive Officer

OK. Thanks, everybody, for listening to our call, and we look forward to talking to you, some of you in person and then the rest of you on the call next quarter. Thanks.

Operator

[Operator signoff]

Duration: 58 minutes

Call Participants:

Justine Stone -- Investor Relations

Bill Stone -- Chairman and Chief Executive Officer

Rahul Kanwar -- President and Chief Operating Officer

Patrick Pedonti -- Chief Financial Officer

Rayna Kumar -- Evercore ISI -- Analyst

Alex Kramm -- UBS -- Analyst

Dan Perlin -- RBC Capital Markets -- Analyst

Kevin Ma -- Credit Suisse -- Analyst

Hugh Miller -- Buckingham -- Analsyt

Peter Heckmann -- D.A. Davidson -- Analyst

Andrew Nicholas -- William Blair -- Analyst

Mayank Tandon -- Needham and Company -- Analyst

Chris Donat -- Sandler O'Neill -- Analyst

Andrew Schmidt -- Citi -- Analyst

Brian Essex -- Morgan Stanley -- Analyst

Jackson Ader -- J.P. Morgan -- Analyst

Ken Hill -- Rosenblatt Securities -- Analyst

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