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SS&C Technologies Holdings Inc (SSNC 0.92%)
Q1Â 2019 Earnings Call
April 30, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS&C Q1 2019 Earnings Conference Call. (Operator Instructions) Thank you.
Justine Stone, you may begin your conference.
Justine Stone -- Investor Relations Coordinator
Welcome, and thank you for joining us on our Q1 2019 Earnings Call. I am 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, let me 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 provision 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, April 30, 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.
William C. Stone -- Chairman of the Board and Chief Executive Officer
Thanks, Justine, and thanks, everybody, for being on the call. Our results for the quarter are $1.150 billion in adjusted revenue. We earned $0.91 in adjusted diluted earnings per share, and our adjusted consolidated EBITDA was $443.4 million, bringing our adjusted consolidated EBITDA margin to 38.5%. The top line organic growth was 1.3%, and we believe this was a good quarter indeed.
April 16 marked the 1-year anniversary of our DST acquisition. Thus far, we have achieved $265 million of the $300 million in cost synergy goal we set for 2021. We also have achieved synergies of $19 million for the Eze Software and Intralinks acquisitions. We are also implementing and investing in the growth of these businesses. DST has expanded their sales force across the organization and has had some notable success with the workflow product, the AWD, and in the healthcare business with an expanding sales pipeline. The adoption of Eze's new cloud platform as, Eze Eclipse, continues to accelerate and now -- and there are now over 60 clients signed.
On March 14, we announced the issuance of $2 billion in unsecured notes with a 5.5% fixed income rate -- interest rate, I'm sorry. These notes will protect us against any rising interest rate environment and are due in 2027. We'll use the proceeds from these senior notes to pay down our variable rate term loan debt, and we did that in Q1. We expect our leverage ratio to be below 4.0 by the end of the year and our secured debt leverage ratio to be below 3.0.
I will now turn the call over to Rahul.
Rahul Kanwar -- President and Chief Operating Officer
Thanks, Bill. We had a strong Q1 with good execution across the business in product and pipeline development, customer satisfaction and innovation. We're having success at our recent acquisitions on several fronts. We have added sales talent at DST, both in financial services and healthcare, and instituted a sales governance process focused on disciplined execution. We've increased sales focus in many areas, including event center processing, BPO outsourcing, global transfer agency, advance care groups with our exclusive relationships with Johns Hopkins and a greater emphasis overall on professional services. Product integrations between AWD, a DST workflow application, with several of our products, including precision LM and BRIX, have had positive feedback, and we're working on similar integration efforts in several other client-facing solutions. The pipelines are building, and we are optimistic.
At Intralinks, we're working on offering private equity in real estate firms, a combination of the Intralinks' investor reporting platform and the software and services capability of our private equity fund administration business. Modules for capital raising, dealmaking, portfolio company monitoring and accounting and reporting are now available to our customers and prospects. More information can be found on our newly launched Intralinks webpage. We've integrated Eze into our hedge fund and asset management offering. And the comprehensive front, middle and back-office suite is getting a positive market reception.
Now I will mention some key deals for Q1 2019. A Baltimore, Maryland-based private equity firm chose SS&C by combining our private equity fund administration services with Intralinks' private equity investor communications portal, displacing a competitor. SS&C won a fund administration deal for a $30 billion plus of global alternatives manager, displacing a competitor. A large U.S.-based asset manager extended their relationship with SS&C by purchasing our performance measurement and data management system, Anova. A turnkey asset manager chose SS&C's Black Diamond as a reporting system for the 160-plus RIAs on their program. One of the 20 largest insurance companies and also one of the 40 largest mutual fund companies chose the DST event center to provide call center processing and return mails to port services for their books and records mailings. A U.S. division of a top 10 global insurer entered into a 2-year engagement with SS&C to upgrade and expand their use of AWD. One of the 5 largest U.S. managers entered into an agreement to migrate their in-house AWD implementation onto SS&C's private cloud. An $800-billion-plus investment manager extended their use of Intralinks' on-space portal across their real estate business.
I will now turn it over to Patrick to run through the financials.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Thanks, Rahul. Results for the first quarter were GAAP revenues of $1.137.2 billion, GAAP -- and GAAP net income of $80.8 million and diluted EPS of $0.31. Adjusted revenue was $1.150 billion, excluding the adjustments for implementing the new revenue recognition standard and for acquired deferred revenue adjustment for the DST and Intralinks acquisition. We had a strong quarter. Adjusted revenue was up 164.7%. Adjusted operating income increased 144.9%. And EPS was $0.91, a 71.7% increase from 2018. Adjusted revenue increased $715.5 million or 164.7%.
The acquisitions at -- of DST, CACEIS, Eze and Intralinks contributed $712.4 million in the quarter. Foreign exchange had an unfavorable impact of $2.7 million or 0.6%. Organic growth on a constant currency basis was 1.3%, driven by the strength in the alternative business. Term licenses were lower by $5.2 million due to timing of contract renewals in the quarter. Adjusted operating income for the first quarter was $420.9 million, an increase of $249 million or 144.9% from the first quarter of 2018. Foreign exchange had a positive impact of $4.8 million on expenses in the quarter.
Operating margins declined from 37.2%, 36.6% in the first quarter. DST operating margins were 35.2% in the first quarter, and annual run rate implemented cost synergies reached $265 million at the end of the quarter. Implemented annual cost rate synergies for Eze and Intralinks combined were $19 million at the end of the quarter. Adjusted consolidated EBITDA was $443.4 million or 38.6% of adjusted revenue, an increase of 148% in Q1 '18. Net interest expense for the quarter was $101.6 million and includes $4.3 million of noncash amortized financing costs and OID. The average interest rate for the quarter was 4.77% compared to 4.59% in the first quarter of 2018. We recorded a GAAP tax provision for the quarter of $16 million or 16.5% of pre-tax income. We currently expect the GAAP tax provision to be approximately 25% for the full year.
Adjusted net income was $239.4 million, and adjusted EPS was $0.91. The adjusted net income excludes $170.8 million of amortization of intangible assets; $7.1 million loss on extinguishment of debt related to the notes offering completed in the first quarter; $20.4 million of stock-based compensation; $4.3 million of noncash debt issuance costs; $17.5 million of purchase accounting adjustment, mostly deferred revenue adjustments and depreciation related to revaluation of asset in acquisitions; $4.2 million of revenue adjustments related to the adoption of 606; and $2.5 million of other nonoperating costs, including $7.5 million gain on mark-to-market adjustments on investments and $3.9 million of severance costs related to staff reduction. And the effective tax rate for adjusted net income was 26%.
Diluted shares increased 21.1% over Q1 '18, mostly due to the share issuance in connection with the acquisition of DST and Intralinks as well as the increase in the average share price in Q1 2019. On the balance sheet and cash flow. As of March, we had approximately $155 million of cash and cash equivalents and approximately $8.2 million of gross debt for a net debt position of $8.1 billion. At the end of March, we closed on a $2 billion senior note offering, and we used the net proceeds of approximately $1.99 billion to pay down the term debt facility. Operating cash flow for the 3 months of March was $137.4 million, a $67.5 million or 96.6% increase compared to the same period in 2018.
Some highlights for the quarter. We paid down $138.4 million of net debt. Since the DST acquisition in April of 2018, we paid down $1.084 billion of debt. We paid $96.4 million of cash interest in the quarter compared to $31.8 million in Q1 '18. In Q1, we paid $60.3 million of cash taxes compared to $1.7 million in Q1 of 2018. Our accounts receivable DSO at the end of the quarter was 53.7 days, and that compares to 54.9 days as of March 2018. We used $32.6 million of cash for capital expenditures and capitalized software, mostly for IT as well as leasehold improvements.
In the quarter, we declared a dividend of $25.2 million in common stock dividend as compared to $14.5 million in Q1 2018. Our LTM consolidated EBITDA, which we use for our covenant compliance, was $1.833 billion as of March '19 and includes $287.2 million of acquired EBITDA and cost savings related to acquisitions. Based on a net debt of $8.1 billion, our total leverage ratio was 4.4x, and our secured ratio as of March was 3.3x and will be below 3x by the end of 2019.
On outlook for Q2 and the full year 2019, we've made one assumption on the organic growth calculation. For the organic growth calculation, we've eliminated the impact of lower out-of-pocket reimbursement revenue at DST as we're progressively getting out of that 0 margin business. Our current expectation for the second quarter of 2019 is adjusted revenue in the range of $1.138 billion to $1.168 billion, adjusted net income of $234.8 million to $251.5 million and diluted shares in the range of $268 million to $269.2 million.
For the full year, our current expectation adjusted revenue is in the range of $4.675 billion to $4.765 billion and represents organic growth rate in the range of 1.5% to 3.4%, adjusted net income in the range of $992 million to $1.042 billion and diluted shares of 266.8 million to 268.8 million. We expect the adjusted tax rate for the full year to be 26%. Cash from operating activities will be in the range of $1.095 billion to $1.135 billion and capital expenditures in the range of 2.6% to 3% of adjusted revenues.
And I'll turn it back over to Bill for final comments.
William C. Stone -- Chairman of the Board and Chief Executive Officer
Thanks, Patrick. Yesterday, we also announced that we were awarded $44 million in damages in a trade secret lawsuit going back 3 years. SS&C's information and intellectual property is invaluable to our business, and we will vigorously protect it.
As we move into Q2, we get increasingly optimistic in our business and what we've done. Obviously, we've always said that when you do acquisitions, you make sure that you get the cash as quickly as you can and the expense reductions and synergies. At the same time as we're doing that, we're building out our sales forces, and we're getting focused on our sales so that we have individual names, individual targets, individual sales prices and individual close dates. We're getting increasingly strong as a company.
And with that, we'll take questions.
Questions and Answers:
Operator
(Operator Instructions) Your first question comes from the line of Brad Zelnick with Credit Suisse. Your line is open.
Brad Zelnick -- Credit Suisse -- Analyst
Excellent. Thank you so much. Bill, Patrick, great disclosure. Really appreciate it. I specifically wanted to ask about the out-of-pocket reimbursements associated with DST winding down and in the context of the organic growth guide that you've given us for the full year of 1.5% to 3.4%. If you were to remove that business entirely this year as you're forecasting it as well as last year, with that, what would that organic growth profile then look like?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Yes, Brad, it'd be a little bit higher, but it's a no -- we have no earnings, right? It's a pass-through. So our view of it is, in Q1, it went from $37 million last year to $26 million this year. So it's just something that we shouldn't ever have done. Of course, we weren't there, and we weren't there to make the decisions to do that, so that's a little gratuitous on my part. But we just don't do things where we don't have margin, and I think that's something that we're trying to explain.
Brad Zelnick -- Credit Suisse -- Analyst
Makes perfect sense, and I guess -- I'm sorry.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Sorry, I just want to make sure I understand your question, like, so DST was not organic until the second quarter of this year. So really, it did impact organic revenue last year, but it will start impacting the organic revenue calculation in the second quarter.
Brad Zelnick -- Credit Suisse -- Analyst
Okay. That's helpful, Patrick.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Yes, and that's why we're adjusting for -- starting in the second quarter.
Brad Zelnick -- Credit Suisse -- Analyst
And just so I understand, if I look at the revenue guide down, it's solely given your view on where those out-of-pocket reimbursements are relative to the last guidance that you gave us, correct?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
No. The impact for the full year of the lower out-of-pocket revenue is -- was about $8 million. That represents 8.5 months, right?
William C. Stone -- Chairman of the Board and Chief Executive Officer
But the biggest one was -- yes, the biggest was in Q1. But Q2, I think, is $4 million. And Q3 is, I think, $2 million. And Q4 is $2 million. So that's about right, right, Patrick?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Yes. It's about $4 million, $3 million and $2 million.
William C. Stone -- Chairman of the Board and Chief Executive Officer
Yes, or maybe not. It won't impact earnings, I can assure you.
Brad Zelnick -- Credit Suisse -- Analyst
Completely get it, Bill. And maybe just moving on to an easier topic. Just wanted to see if there were any changes to how you're thinking about the consolidation opportunity outside of the alternatives fund admin market. And perhaps, might you consider larger acquisitions in newer adjacencies, for example in treasury management, given the reach you now have into corporates with Intralinks, for example?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, I think that's a really good question, and it's something that we have a lot of interest in. I think what we're doing right now is seeing -- making sure that with the assets we have that we're putting together the types of solutions that our clients want. And then as we go out and show them, whether it's our singularity product that's getting a lot of traction or the Eze Eclipse products that now has 60 signed clients, we have a lot of stuff coming into the marketplace, and Intralinks as well, and so we want to make sure that we have a strong handle on what we can offer without any more acquisitions and then go after acquisitions that we think will really enhance that profile.
Brad Zelnick -- Credit Suisse -- Analyst
Excellent. Bill, thanks so much.
Operator
Your next question comes from the line of Alex Kramm with UBS. Your line is open.
Alex Kramm -- UBS -- Analyst
Yes, hey good evening, everyone. Just coming back to organic growth for a second. I know obviously, everyone is very focused on integrating. But clearly, organic growth still matters. So wondering, 2 things. One, if I look at the old organic growth forecast here for the full year, I think it was 1.9% to 4.1%. Now you're saying 1 -- sorry, I think -- well, obviously, you lowered it, right, 1.5% to 3.4%, I believe. So can you just bridge the delta there from both maybe some of the stuff you talked about just now with the pass-through, but also what in the business maybe is running a little bit softer than you thought originally given that market's up, hedge funds are doing better, et cetera?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, I think, ultimately, Alex, it's going to be how well we execute on DST and Intralinks and Eze. And Intralinks and Eze are not going to go organic until the end of the year, so there's no pickup on them for that. And then DST has been a flat kind of business for a number of years, and we're making a lot of changes, and we're making a lot more changes. And some of the -- we have a big pipeline, and getting that pipeline to close is a challenge. But it's not because -- I don't think it's because it's soft. I think it's just -- it's a healthcare business. They don't move very quickly. Often, they only do it on renewal dates. And so we have to line those up and then go knock them down. And that's why we went in -- worked as hard as we could to do the synergies we could get so that we always had the earnings and we had enough cash in which to invest in our sales and marketing organization to really start to generate organic revenue growth. And I think that's what's going to happen. It's just is getting the closest done as quickly as we want has been more of a challenge.
Alex Kramm -- UBS -- Analyst
All right. And then maybe secondarily, I think just staying on DST for a second, 2-part question. Like one, you mentioned a lot of the sale, I guess, investments just now. Maybe you can be a little bit more specific and also be more specific in terms of the pipeline. I think last quarter, you said it was standing at a record. And then just secondly, like bigger picture. I think when you acquired Advent a few years ago, there was some opportunities for pricing because I think Advent may have taken a little bit of a different approach. Can you just talk about this in the context of DST of maybe any opportunities that you see there to get a little bit more, I guess, economic on some of the contracts and how that could impact the business going forward?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, I think that we have great clients, large, sophisticated players around the world. And I do think that prior to us acquiring DST, there was a pretty significant upcharge in Europe. And as you well know, those are not particularly popular. And so I think we think we have a pretty good revenue picture. We need a sales execution picture that improves. We need intensity in our entire sales organization, and I think we're getting there. I think it's -- we do have a lot of very large opportunities. They range from $3 million or $4 million to upwards $50 million to $80 million, right? But closing to $50 million to $80 million count is going to take multiple presentations, multiple meetings, multiple workflow analysis. And I think we're getting very good at that, and I think we're going to continue to get better at it.
Alex Kramm -- UBS -- Analyst
All right. Any specifics on the sales force in the pipeline to my earlier part of the question?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, again, I think last quarter, we talked about we have a new Head of Sales in Financial Services. For DST, we have a new Head of Sales in Healthcare. We have hired a number of salespeople to come in, senior people. And look, they're knocking on doors, and they're getting in front of people, and there's enthusiasm. But enthusiasm and increase in an organic revenue growth is an oxymoron, right? We need ink on contracts. That's the only thing that really matters, and -- but we're going to execute in a very forthright way. We are a very ethical company, and we're going to continue to be that. And we want people to work hard, but it's a job, right? It's not always an adventure. And so I think that we're in good shape. We're going to make a lot of money. I think we raised our guidance for the year up $0.05, I think, and I think we beat Q1 by $0.04. We're not going to miss any meals.
Alex Kramm -- UBS -- Analyst
Fair enough. Thank you.
Operator
(Operator Instructions) Your next question comes from the line of Surinder Thind with Jefferies. Your line is open.
Surinder Thind -- Jefferies -- Analyst
Good afternoon, gentlemen. I just wanted to follow up on the sales force ramp-up. Can you provide a little bit color in terms of the size of the increase that we're looking at and maybe the cadence as the year progresses and if there is going to be any meaningful impact that we can think about from an expense perspective?
Rahul Kanwar -- President and Chief Operating Officer
Yes. So I think there's 2 things. One, we've probably added about 15 to 20 salespeople so far. I'd say we're recruiting for at least that number, if not more. But much more than how many, right? It's how good, and I think the how good comes in a number of different ways. But the thing that Bill talked about is a lot of focus around what are those opportunities, what exactly are we with those opportunities, what does it take to win and then can we schedule a signature date, right? And so that's the kind of attention that the sales force is getting on each and every opportunity that they have. We're already starting to see it pay off, and we're optimistic they will continue.
Surinder Thind -- Jefferies -- Analyst
Understood. And as a follow-up, wanted to touch base on Eze and Intralinks. Any color you can provide there on those businesses as stand-alone from like an organic growth perspective, meaning what kinds of gains are you seeing there year-over-year at this point given they're not in the organic numbers?
Rahul Kanwar -- President and Chief Operating Officer
Yes. So Patrick probably has the figures, but from a -- just from my view, Intralinks continues to have a lot of momentum. I think bookings are strong. Their opportunity creation process is strong. And then Bill mentioned on Eze in particular, we're pretty optimistic about this Eclipse product. We already have 60 customers on it. We have gone out and demoed it to some of our biggest customers and seeing fair amount of interest there as well. So I think we feel good about both those businesses.
Surinder Thind -- Jefferies -- Analyst
Got it. I'll save myself for the follow-up. Thank you.
Operator
Your next question comes from the line of Rayna Kumar with Evercore ISI. Your line is open.
Rayna Kumar -- Evercore ISI -- Analyst
Good evening. The 1Q organic revenue growth of 1.3%, help us better understand how much of that was related to the lower pass-through revenue versus other underlying factors. And then specifically, what was the organic revenue growth for the alternatives business in the quarter?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Yes. the out-of-pockets, as Patrick said, is DST, and so that had no impact. Like that only had an impact on the total revenue number we supplied, the $1.150 billion. And then I believe the alternatives business grew at 4.1%?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
That's right, Bill.
Rayna Kumar -- Evercore ISI -- Analyst
Okay. And specifically, what are you looking for, for second quarter organic revenue growth?
William C. Stone -- Chairman of the Board and Chief Executive Officer
I think Patrick -- go ahead, Patrick.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Under or 0.5% in the second quarter.
Rayna Kumar -- Evercore ISI -- Analyst
And if you can just explain why that's lower than your full year guidance, that would...
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, the amount of revenue that we get in the second quarter is historically more of a challenge across all of our businesses, right, because Q1 specifically in the funds businesses includes an awful lot of stuff for financial statements and tax returns and all that preparation time. So there's a lot of revenues that comes in with that and a lot of regulatory revenue as well. So the second quarter is always more of a challenge.
And then we will have DST starting as of April 16. So for 2.5 months, we'll have this $550 million in revenue that is basically flat. So flat doesn't add to 1.3%. It deducts. And so I think that's the biggest challenge. But I want to say we've got opportunities. And if we execute and things fall in line for us, maybe we can surprise you positively.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
And I think if you go from Q1 to Q2 organic, our core business based on the midpoint of our guidance improves in Q2 over Q1. But DST -- the impact of DST lowers the organic growth sequentially.
Rayna Kumar -- Evercore ISI -- Analyst
That's very helpful. Thank you.
Operator
Your next question comes from the line of Chris Shutler with William Blair. Your line is open.
Andrew Nicholas -- William Blair -- Analyst
Hi guys, good afternoon. This is actually Andrew Nicholas filling in for Chris. Just the first question I had just to talk a little bit more about organic growth and your plans for accelerating it in the back half of the year. Obviously, DST is a big component of that. I'm just curious if you could provide any more color on what gives you confidence in that acceleration in the back half of the year and if any of that confidence is based on sales that are already closed but not yet converted or it's more to some of the points you already made about executing on current sales processes.
William C. Stone -- Chairman of the Board and Chief Executive Officer
Yes, I mean I would say that it's on both. We're probably executing on unsold probably being 3 quarters and maybe the -- getting it implemented being 1 quarter. But our alternatives business remains strong, and I think we think it will accelerate through the year, and Rahul can comment on that. And we have a lot of initiatives that we're pretty optimistic about.
And again, we thought when we bought DST that we were going to have somewhere around $125 million to $150 million worth of synergies. And we're already at $265 million, and I think we will get to the $300 million that we're targeting by the end of '21. And so we try to put our management time where we can make the most impact on our financial statements. And obviously, getting into the sales cycle on these long sales cycles and trying to change attitudes and approaches is a difficult, difficult process. But we've been working at it, and we're going to keep working at it. And we've got some really good people working on it, and we have a lot of confidence in their capabilities.
Andrew Nicholas -- William Blair -- Analyst
Great. And then just one quick follow-up for Patrick. Would it be possible like to break out of revenue from DST, Intralinks and Eze? I know you gave it as a group, but it might be helpful to us if we can get those 3 broken out since they're obviously larger than usual.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
That's true. So the total acquisition revenue was $712.4 million. DST was $557.1 million. Eze was $68.6 million, Intralinks was $84.3 million, and then there was a couple of million dollars from CACEIS, which we closed in the second quarter of last year.
Andrew Nicholas -- William Blair -- Analyst
Perfect. Thank you very much.
Operator
Your next question comes from the line of Hugh Miller with Buckingham. Your line is open.
Hugh Miller -- Buckingham -- Analyst
Thank you very much. So as we think about DST and the split between the healthcare side of the business and the financial side of the business, can you talk about what you're seeing there between those 2 just in terms of kind of the pipeline and the extension of kind of contracts coming to close? And just giving a little bit more color between those 2 businesses, like were you seeing any differences among them?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, again, obviously, they're not the same businesses, but you're selling large, chunky recurring revenue business into big, sophisticated organizations. And often, you have renewal dates that tend to be the ones where you have opportunity. We have just recruited another top executive, Forest Denham in Kansas City; Rob Coolitz, who is going to run our -- part of our healthcare business, and we have a lot of excitement about him. But we also have, as I said, new Heads of Sales in Healthcare and in Financial Services. And as Rahul said, we have 15 or 20 new salespeople. So we're doing the things necessary. Somebody has got to catch a pass, and somebody has got to make a tackle, and we got to get in the end zone, and we're more than aware that's what we have to do. But we did make $0.91 this quarter. Last year, we made $0.53. We're sanguine about where we are, and that does not mean that we are asleep. We are not.
Hugh Miller -- Buckingham -- Analyst
Okay. I appreciate the color there. And then shifting a little bit toward Black Diamond. If you could just talk about kind of the growth that you're seeing there. A peer of yours have kind of enhanced their wealth planning offering through acquisitions. Wanted to get a sense of what you're seeing in terms of the Black Diamond, how it's competitively positioned and if you're seeing a need to kind of make further investments in that offering and your thoughts there for the growth opportunities.
William C. Stone -- Chairman of the Board and Chief Executive Officer
We think that's a great product. We think Steve Leivent, who works for Rob Roley, and they run that business. And Bob Conchiglia, he runs the sales side of it. But they're very talented people, and they're investing in that business all the time and have the full support of our organization. And we're looking at acquisitions to bolt into Black Diamond all the time, and we think it's a very competitive product.
Hugh Miller -- Buckingham -- Analyst
Thank you.
Operator
Your next question comes from the line of Peter Heckmann with Davidson. Your line is open.
Peter Heckmann -- Davidson -- Analyst
Good afternoon. Thanks for answering all these questions. Just thinking about your guidance for the second quarter and how DST goes into the calculation. I would have thought that with the positive market action, your assets under administration, assets under management would have been at a high volume at the end of the quarter, and that would have added some benefit. I mean does that suggest that DST's revenue on an organic basis might be down 3% or so in the second quarter?
William C. Stone -- Chairman of the Board and Chief Executive Officer
I don't know about 3%. I think that relative to Q2 for DST last year when -- obviously, we owned it for 2.5 months. It will be -- it will probably be down $10 million or $12 million is my guess, which is probably between 2%, 2.5% maybe. But again, they have opportunities, and it really is changing the cadence of the sales process, and it's happening. We wish it would happen faster, but it's a very large organization. And we have good people in there, and they're working hard. But again, we have to accelerate the close.
Peter Heckmann -- Davidson -- Analyst
Right. And so you're -- do you still feel confident, though, that the cost reduction at DST are not impeding your ability to reaccelerate the top line?
William C. Stone -- Chairman of the Board and Chief Executive Officer
It's improving it.
Peter Heckmann -- Davidson -- Analyst
Good. I look forward to that. Thanks.
Operator
Your next question comes from the line of Mayank Tandon with Needham & Company. Your line is open.
Mayank Tandon -- Needham & Company -- Analyst
Thank you. Good evening. Rahul, you mentioned several competitive wins. I would love to get some more details around what are the determining factors behind those wins. Is it price, the technology, a combination of both or other factors that might have played a part in you winning and displacing some of these competitors?
Rahul Kanwar -- President and Chief Operating Officer
Mayank, obviously, every one is somewhat unique, but I think the things that go across them is as we've collected a lot of these capabilities and built a lot of capabilities, when we go into some of these opportunities, the number of things that we can do for them and the number of pain points we can address is differentiating, right? So if you look at any one of the larger opportunities, we might be selling 5, 6, 7 products in services in there whereas our competitors might be in for a point solution or 2 or 3 at the most. It makes us a lot more strategic and improves the likelihood of us winning.
Mayank Tandon -- Needham & Company -- Analyst
Great, great. And then as a quick follow-up for Patrick maybe. I think you may have mentioned, or Bill did, the $19 million in synergies from Eze and Intralinks. Could you remind us of what the plan is and where you are cracking versus that plan? And then if we isolate the impact of the synergies from the acquisitions, are core margins still improving about 50 basis points, give or take, on an annualized basis?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
I think that -- it's Patrick. The combined Eze and Intralinks synergies target, it was $45 million at the end of 3 years. That's our target in the 3-year term. We're right at $19 million right now, $18 million, $19 million implemented. Not all realized at this point but implemented.
Mayank Tandon -- Needham & Company -- Analyst
Right. And Patrick, if you isolate the impact of the synergies on a core basis, are you still improving margins about 50 basis points annually? Is that still the target model for the company?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
That's definitely the target model for the company. I think, obviously, we've become a much bigger company in the last 12 months, and we've got higher corporate function costs like marketing and finance and HR. We're not necessarily allocating those to new acquisition. But if you strip out the increase in some of the corporate functions that are supporting the whole business, our goal is to continue to improve core margins, and we're seeing that.
Mayank Tandon -- Needham & Company -- Analyst
Got it. Thank you.
Operator
Your next question comes from the line of Andrew Schmidt with Citi. Your line is open.
Andrew Schmidt -- Citi -- Analyst
Hey, guys. Thank you for taking my questions. First question regarding, I guess, the pipeline. Last quarter, you guys mentioned the lumpy -- lumpiness in the pipeline, some large deals. And I assume some of the back half pickup is predicated on that. But do you have any -- what's your visibility relative to the last quarter in terms of just realizing those deals?
Rahul Kanwar -- President and Chief Operating Officer
I think probably the things that I would point to are -- in addition to the lumpy ones, what we've been able to do in places like DST is create some opportunities for some medium-sized ones and some smaller ones, so it's a little more balanced than it was before. And as we get closer to the sales force and as we get a little more disciplined, we're also getting a lot more visibility into exactly where we are on those opportunities and when we expect to close. We've closed several, and there are lots more that are -- that we're working on.
Andrew Schmidt -- Citi -- Analyst
Got it. That's helpful. And if I can remember correctly, I think DST client roll-offs that occurred last year have an impact on DST growth this year. To what extent, I guess, is that impacting growth this year? If you could try to parse that out, that'd be helpful to try to get a better sense of the underlying growth there.
Rahul Kanwar -- President and Chief Operating Officer
Yes, I don't know that I've got the figures. But there are certainly -- if you look at DST last year, there are some onetime things related to customers that by definition don't repeat. So that does have an impact.
Andrew Schmidt -- Citi -- Analyst
Okay. And then some or maybe 2 -- obviously, there's been some -- there's been M&A in the space, large asset managers, nothing out of the ordinary. But when you go to clients for deals, does anything change in terms of just the conversations or how you go to market? Or has the value proposition changed at all?
William C. Stone -- Chairman of the Board and Chief Executive Officer
I wouldn't say the value proposition has changed, but the view on how technology is used in all of these different segments and subsegments is changing a little more rapidly, particularly the use of AI and robotics and machine learning and all of that that's coming together. The systems continually get more powerful, and you will see where different organizations are. I think Mitsubishi just says they're going to cut half of their corporate staff because they can automate them, and I think that that's going to be a pretty strong wave going forward. And I think SS&C has been smart and gotten out in front of that, and I think we're going to be able to catch that wave. And hopefully, we start catching it in the second quarter and third and fourth quarter. But we're very optimistic about it.
Andrew Schmidt -- Citi -- Analyst
Got it. Thanks Guys. Appreciate the thoughts.
Operator
Your next question comes from the line of Ashish Sabadra with Deutsche Bank. Your line is open.
Ashish Sabadra -- Deutsche Bank -- Analyst
Thanks, Patrick, you mentioned the term license are lower due to timing of the contract renewals. Can you just -- what those revenues pushed out from first quarter to second quarter and the impact to organic growth in the first quarter?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
So OK, just some background. When 606 was implemented last year, a change revenue recognition from ratably to recognizing the license portion of the contract upfront, so at Advent, a lot of contracts were multiyear. Very few were annual contracts. So if a contract came up for renewal in Q1 of '18 and we renewed it for 3 years, we'd have 3 years of license revenue in Q1 '18, and then it wouldn't come up for renewal in Q1 of '19, and we have 0 revenue for that contract other than we have the same maintenance. So that's kind of what's impacting us a little bit in this second year of the 606 revenue standard, is any contracts that we signed multiyear arrangements for last year, we're not getting any revenue on in this year.
Ashish Sabadra -- Deutsche Bank -- Analyst
Okay. That's helpful. And is that being on the organic growth in the quarter? Because -- and I know this question was asked multiple times different ways because DST was not organic in the quarter, so I wasn't clear what really make -- cause that...
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
The term license -- I think as we mentioned, alternatives business was about 4.1%, and the term license business was down -- I think it was down like $5 million.
William C. Stone -- Chairman of the Board and Chief Executive Officer
$5 million, maybe.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Yes, $5 million, which is...
Ashish Sabadra -- Deutsche Bank -- Analyst
And maybe just a quick model question. Just the AUA at the end of the quarter and how much was the retention rate.
Rahul Kanwar -- President and Chief Operating Officer
Yes. So the AUA is $1.67 trillion.
Ashish Sabadra -- Deutsche Bank -- Analyst
Okay. And the retention rate?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Did you ask for client retention?
Ashish Sabadra -- Deutsche Bank -- Analyst
Yes.
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Yes. Client retention for the last -- we measure for the last 12 months. So the last 12 months as of the end of March, total client retention was 94.9%.
Ashish Sabadra -- Deutsche Bank -- Analyst
Okay. That's helpful thanks.
Operator
Your next question comes from the line of Jackson Ader with JPMorgan. Your line is open.
Jackson Ader -- JPMorgan -- Analyst
Great, thanks. Good evening guys. The first question from my side, of the -- on the 60-or-so customers that are now using the Eclipse platform, the cloud offering from Eze, can you give us any kind of a sense of what those customers look like as far as size, maybe what types of fund they are -- just the flavor of those 60?
Rahul Kanwar -- President and Chief Operating Officer
So look, Eze's client base in general is geared toward hedge funds, right? And within hedge funds, it's geared more toward equity and equity-linked derivatives than it is toward fixed income and workflow. So that -- the Eze Eclipse client base reflects that. We do have some diversity in a sense that there are some asset managers with broader portfolios in there as well. And as we look at our pipeline, it's pretty well-rounded.
Jackson Ader -- JPMorgan -- Analyst
Okay. That's helpful. And then a follow-up for you, Patrick. Gross margins, up again nicely sequentially. So when or where should we start thinking about these topping out? Is the 60% kind of non-GAAP gross margin range that we saw a couple of years ago before this kind of flurry of acquisitions, is that the right range we should be thinking about?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
So I think if you look at the synergies, and we've got another $35 million at DST and another $20 million or $25 million at Eze and Intralinks, a good part of those will be at gross margin, so those will continue -- the acquisition will continue to improve at gross margin. And then our target of improving operating margins by 50 bps a year, a good portion of that is also at gross margin as we continue to invest in research and development and sales. We will expect it'll expand.
Jackson Ader -- JPMorgan -- Analyst
Okay. Thanks.
Operator
Your next question comes from the line of Chris Donat with Sandler O'Neill. Your line is open.
Chris Donat -- Sandler O'Neill -- Analyst
Hi. Just one last one, Patrick, on the full year guidance for revenue and earnings. Just because when we look at what the first quarter results were and the full year guidance, we see that adjusted net income should be up about 2.5% from what your prior guidance was, revenue is down around 40 basis points. Can you just talk us through what the major moving pieces of that are from 3 months ago?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Well, I think the major moving pieces are we were up about $3 million in Q1 from the midpoint of our guidance. Our current guidance in Q2 is down about $20 million, I think. And then the rest of the year is pretty steady from where we thought it was -- it would be. We're seeing -- and then we've got good operating margin improvement in Q1, which we're building into the annual forecast. That's helping us out. And then this is -- then all that is being offset a little bit by share count increase, which is mostly due to the stock price being up, and that impacts the diluted share count. So it's kind of a mix of those 3. And in the end, I think we're up about $0.05 or so on the range.
Chris Donat -- Sandler O'Neill -- Analyst
Okay. And then within the second quarter being down $20 million from prior, just any color there?
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
It's -- I mean the alternatives business continues to perform well, and it continues our expectation for the rest of the year. I think we're seeing more impact on this term license than we expected, and the DST contribution is a little bit less.
Chris Donat -- Sandler O'Neill -- Analyst
Okay. Thanks very much, Patrick.
Operator
Your next question comes from the line of Brian Essex with Morgan Stanley. Your line is open.
Brian Essex -- Morgan Stanley -- Analyst
Hi, good afternoon and thank you for taking the question. I guess, Bill or Rahul, maybe if you could talk a little bit more in terms of what you're seeing in the market in terms of pressure that your customers are under, particularly in the asset management space. We have asset manager P multiples at 20-year lows. Those have declined dramatically over the past couple of years. Passive is now 25% of global AUM. What kind of strategies are you seeing your customers deploy to, I guess, remain competitive in the market? Is it penetration of emerging markets, private markets, packaging solutions? I mean you mentioned AI. Is there -- are there any kind of prevailing themes that you're seeing and maybe how you're lined up or how you're strategically thinking about getting ahead of those other ones kind of again outside of AI/ML?
William C. Stone -- Chairman of the Board and Chief Executive Officer
Yes, Brian, I think what the big asset managers are trying to do is to become more strategic with their customers, and that requires them to have a broad array of product types and a broad array of experts, whether those experts are in estate planning, tax, wealth preservation, those types of things.
I think whether it's a Morgan Stanley or it's a St. James's Place or it's Old Mutual, right, they all have different wrappers around their products, and there's a tremendous amount of regulation around the world. And so how those wrappers work with the regulation and with the taxing authorities, it becomes increasingly important to the individual investor, and then by default, into the pension funds and endowments and others that are really collective pools of money for those people.
So we think that having the intellectual capability that we have and the prowess that we have with building software is something that's going to be a winner, so that when these big organizations want to protect their businesses that they're almost all pretty well aware that doing it in-house is an extremely expensive process, where the people that built their systems for them want to move on to another system and then they have people maintaining their systems that aren't as bright as the people that built their systems.
So I think the value proposition that we bring is pretty tangible, and I think that that's going to play out, and I think it's going to really work to our favor versus some of our larger competitors.
Brian Essex -- Morgan Stanley -- Analyst
Right. Okay. That's helpful. And any movement yet on the private equity side or real assets in terms of acceleration of decisions to outsource because of what they're seeing in the market? Or is still that -- that's still kind of a slow grind?
Rahul Kanwar -- President and Chief Operating Officer
Those are good businesses for us, right, and we have really strong pipelines and good conversions, and they go -- and they're growing faster. So I wouldn't really say that there is a huge catalyst to outsourcing, but there seems to be some steady pickup every year. And for us, that has been pretty positive.
William C. Stone -- Chairman of the Board and Chief Executive Officer
And I also think that on that point that the very large ones which haven't outsourced are trying not to in-source anymore, right? So as they have new funds or as they get into a new asset class or as they go into a new geography, now they're looking to try, say, us as a complement to what they do. And then over time, if we do a really good job, they may move some of their stuff to us, and that's what we've seen.
Brian Essex -- Morgan Stanley -- Analyst
Right. We just need you to knock down another top 5 asset manager key firm, but very helpful.
Thank you very much.
Operator
Your next question comes from the line of Alex Kramm with UBS. Your line is open.
Alex Kramm -- UBS -- Analyst
Yeah, hey, thanks again. Just a couple of quick ones. One, Rahul, you just gave the AUA number earlier when somebody asked, and I know that it was down quarter-over-quarter. I know redemption activity was obviously elevated given the end of last year. But hedge funds did really, really well in the first quarter. And so maybe you could just flesh out the puts and takes and why that number wasn't better, which is what I expected.
Rahul Kanwar -- President and Chief Operating Officer
Yes. So look, it's -- I think the comparison is it's down $17 billion Q1 to Q2, right? Included in that is one customer for $32 billion of assets and very little revenue, right? So not much impact or change to our revenue profile. But when you look at it in terms of the AUA, that's the primary difference.
Alex Kramm -- UBS -- Analyst
Okay. Great. And maybe just real quick, just to finish on the synergy side and the cost side. I think DST, you're almost done now. I think $35 million less. Can you just give us a couple of the big buckets that are in that $35 million? Because you're clearly saying 2021, so just wondering what kind of big projects are still left. And then any stones you haven't turned over yet? Any areas where we haven't really looked at much detail yet that we should be thinking about?
Rahul Kanwar -- President and Chief Operating Officer
The 2 -- the big areas for us, right, IT and IT spending. And in general, spending on third parties is continuous to be in -- we're not -- we're really trying to do it when the contracts come up for renewal, right, which happens in a regular way throughout the course of the year and next year. And then we're very focused on productivity and productivity pickups, which is automation and building software, and that also is something that's a continuous process.
William C. Stone -- Chairman of the Board and Chief Executive Officer
And also, Alex, we think that we can -- we have 2 enormous data centers, one in outside of Kansas City and one outside of St. Louis, and we also have one obviously in Yorktown Heights here in New York. And I think our ability to begin to lever that data processing capability to sell it, I think, is pretty valuable, and people are interested.
Alex Kramm -- UBS -- Analyst
All right. Thanks again. Good night.
William C. Stone -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
That concludes our questions for today, and I'll turn the call over to Bill Stone for closing remarks.
William C. Stone -- Chairman of the Board and Chief Executive Officer
Well, we appreciate, as we said before, and we look forward to seeing you next quarter. Bye.
Operator
This concludes today's conference call. You may now disconnect.
Duration: 61 minutes
Call participants:
Justine Stone -- Investor Relations Coordinator
William C. Stone -- Chairman of the Board and Chief Executive Officer
Rahul Kanwar -- President and Chief Operating Officer
Patrick J. Pedonti -- Senior Vice President and Chief Financial Officer
Brad Zelnick -- Credit Suisse -- Analyst
Alex Kramm -- UBS -- Analyst
Surinder Thind -- Jefferies -- Analyst
Rayna Kumar -- Evercore ISI -- Analyst
Andrew Nicholas -- William Blair -- Analyst
Hugh Miller -- Buckingham -- Analyst
Peter Heckmann -- Davidson -- Analyst
Mayank Tandon -- Needham & Company -- Analyst
Andrew Schmidt -- Citi -- Analyst
Ashish Sabadra -- Deutsche Bank -- Analyst
Jackson Ader -- JPMorgan -- Analyst
Chris Donat -- Sandler O'Neill -- Analyst
Brian Essex -- Morgan Stanley -- Analyst
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