Good afternoon. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS and Seq Technologies Q2 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Justine Stone, you may begin your conference.
Hi, everyone. Welcome and thank you for joining us for our Q2 2019 earnings call. I'm Justine Stone, Investor Relations for SS and C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer Ruhul Kanwar, President and Chief Operating Officer and Patrick Pedanti, 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 ks, which is on file with the SEC and can be accessed on our website. These forward looking statements represent our expectations only as of today, July 29, 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 atwww.ssctech.com. I will now turn the call over to Bill.
Thanks, Justine, and thanks, everyone. Our results for the quarter are $1,155,800,000 in adjusted revenue and we are 0 point 9 $1 in adjusted diluted earnings per share. Our adjusted consolidated EBITDA was $448,000,000 bringing our adjusted consolidated EBITDA margin to 38.8%. Q2 organic revenue growth was 3.6%. Adjustments made to organic revenue growth include FX, DSP out of pocket revenue which we spoke about before at 0 margin and lost clients from DSP prior to the acquisition close.
Patrick will walk you through the exact numerical amounts in his talk. We have also included a slide deck with our earnings release which can be found on our Investor Relations Web site under quarterly results. We will update and distribute this slide deck quarterly. Top line performance was driven by several businesses. Our alternatives business grew over 5% and 4.8% organically and our real assets business is thriving.
Geneva, our best in class portfolio accounting system had a strong license quarter and our RIA solution Black Diamond continues to post double digit growth. Black Diamond now has over $1,000,000,000,000 in assets across 1400 customers. We're also seeing the DST sales organization moving more to a more aggressive and proactive culture. The cross sell and up sell opportunity at existing clients is massive and we are starting to see these opportunities come to fruition. Waddell Reed marks the latest example of firms moving to an in house from an in house technology solution to outsourcing with us.
In the past 2 years, 20 of our largest clients have outsourced some or all of their operational functions to us. We expect this trend to continue as asset managers focus on their core competencies and move towards a cost effective variable expense operating model. Inorganically, the M and A market is very active. We were able to incorporate financial record keeping from a wider range of end markets, including international opportunities with our leverage ratio at 4.21 consolidated EBITDA, we have ample capacity for high quality acquisition. I'll now turn it over to Rahul.
Thanks, Bill. We had a strong quarter with innovation sales performance across the business, good future pipeline development and continued integration. Innovation remains at the forefront. We are investing in a number of new products and services across our business. These include Singularity, our smart cloud based investment and operation system, Core, our central data gathering and enrichment system and Sightline which allows for advanced visualization on large and complex data sets.
We delivered enhancements to our business process management solution known as AWD which is particularly relevant to the financial services, insurance, banking and healthcare industries, which have data intensive and complex processes. Our services and outsourcing business remains strong. Highlights include our private equity and real assets business which continue to win new mandates and gain market share. As investment firms search for operating leverage, our suite of products and services designed to simplify scale and transform their operations is gaining momentum. We continued during the quarter to integrate the newest additions to SS and C Intralinks and Eze.
Eze is now selling more into larger and traditional asset managers, which was one of our objectives for this acquisition. Their new product the as Eclipse platform is a cloud based solution that further differentiates us in the marketplace. As Geneva and Globop give us a unique front, middle and back office offering. At Intralinks, we're seeing progress in their alternatives business combined with our fund administration business. 7 out of the top 10 M and A deals in North America used Intralinks in 2019 and we continue to invest in next generation capabilities including artificial intelligence to derive insights from deal room data.
Now I will mention some key deals for Q2 twenty nineteen. A Chinese fund administrator chose Geneva as the portfolio management system for their $100,000,000,000 plus assets under administration. A $12,000,000,000 asset manager and Advent client for over 25 years upgraded their on premise software to our hosted outsourced services model. A $4,000,000,000 asset manager and long time access client upgraded their system to Black Diamond. 1 of the world's largest private equity firms chose Intralinks' investor reporting tool fund space.
A Hong Kong based hedge fund chose a combination as is front to back solution and SS and C Global Fund Administration Services. An existing fund administration client took on more services from SS and C GlobeOp including investor services, regulatory reporting and tax services. An existing SS and C health client chose our business process management platform AWD to streamline their operations. An existing client in DST Asset Management chose DST Digital Solutions for their statement composition and design. I will now turn it over to Patrick to run through the financials.
Thank you. Results for the 2nd quarter were GAAP revenues of $1,148,000,000 GAAP net income of $121,100,000 dollars and diluted earnings per share of $0.45 Adjusted revenue was $1,155,800,000 and excluding the adjustments for implementing the new revenue recognition standard and for acquired deferred revenue adjustment for the DST and Intralinks adjusted operating income increased 56.8% adjusted operating income increased 56.8 percent and diluted EPS was $0.91 an increase of 46.8 percent over 2018. Adjusted revenue increased $247,300,000 The acquisitions of DSC, DECIS, EZ and Intralinks contributed 244,300,000 Foreign exchange had an unfavorable impact of $9,200,000 or 1% in the quarter. DST pre acquisition terminated clients and a reduction of out of pocket revenue impacted the quarter for $20,000,000 Organic revenue growth on a constant currency basis and adjusted adjusting for the reduction of the DST revenue was 3.6% and driven by strength in the alternatives and advent businesses. Adjusted operating income for the 2nd quarter was $426,200,000 an increase of 154 point impact of $8,200,000 on expenses in the quarter.
Operating margins improved sequentially from 36.6% in the first quarter to 36.9% in the 2nd quarter. DST operating margins were 33.8% in the 2nd quarter and the annual run rate implemented cost synergies reached $288,000,000 as of June 30, 2019. Adjusted consolidated EBITDA was $448,200,000 or 38.8 percent of adjusted revenue, an increase of 53.6 percent over Q2 2018. Net interest expense for the 2nd quarter was $104,300,000 and includes $4,500,000 of non cash amortized financing costs and OID. The average interest rate in the quarter for our credit facility and our senior notes combined was 4.96% compared to 4.39% in the Q2 of 2018.
We recorded a GAAP tax provision in the quarter of $34,200,000 or 22 percent of pre tax income. We currently expect the GAAP tax rate to be approximately 23% for the full year. Adjusted net income was $241,600,000 and adjusted EPS was $0.91 The adjusted net income excludes $158,800,000 of amortization of intangible assets, $18,200,000 of stock based compensation, dollars 4,400,000 of amortization of non cash debt issuance costs, $12,100,000 of purchase accounting adjustments, mostly deferred revenue adjustments and depreciation related to revaluation of assets. $3,900,000 of revenue adjustments related to adoption of revenue stand 606 and $26,300,000 of non operating net gains including a $29,500,000 gain for mark to market adjustments Diluted shares increased 7.3 percent over Q2. Diluted shares increased 7.3% over Q2 'eighteen mostly due to shares issued for the Intralinks acquisition in the 4th quarter of 2018 and employee stock option exercises.
On our balance sheet and cash flow, as of June, we had approximately $131,000,000 of cash and cash equivalents $7,900,000 of gross debt or net debt of approximately $7,800,000,000 Operating cash flow for the 6 months ended June was $416,600,000 a $296,900,000 or 248 percent increase compared to the same period in 2018. A couple highlights for the 6 month period ended June, we've paid down $414,900,000 of net debt year to date and that brings the total paid since the DST acquisition in April 2008 to $1,339,000,000 We paid $73,500,000 of cash interest compared to $100,000,000 the same period last year. The unsecured note interest is due semi annually in September March, so we did not make a payment on the unsecured notes in the Q2. We paid $125,800,000 cash tax as compared to $67,900,000 in the same period last year. Our accounts receivable DSO improved in the quarter to 51.8 days compared to 53.7 on March 2019.
And we used $59,500,000 of cash for capital expenditures and capitalized software, mostly for IT and leasehold improvements. Our LTM consolidated EBITDA used for covenant compliance was 1.8 $53,000,000 as of June 2019. Based on net debt of the $7,800,000 our total leverage ratio was 4.21 as of June and our secured leverage ratio was 3.13 as of June 30. On outlook for the Q3 of 2019, our current expectation for the Q3 is adjusted revenue in the range of $1,123,000,000 to 1,153,000,000 dollars adjusted net income of $227,500,000 to $243,500,000 and diluted shares in the range of $266,400,000 to $267,600,000 dollars The current expectation for the full year is adjusted revenue in the range of 4,000,000,000 partially 571,000,000 dollars to $4,631,000,000 Adjusted net income of $947,500,000 to 988 $5,000,000,000 and diluted shares in the range of $265,700,000 to $266,700,000 And we continue to expect that the adjusted tax rate will be 26% for the full year. Cash from operating activities will be in the range of $1,050,000,000 to $1,080,100,000 and capital expenditures in the range of 2.6% to 2.8% of adjusted revenues.
And I'll turn it back over to Bill for final comments.
Thanks, Patrick. We continue to work hard for our shareholders and even though our growth has slowed, we believe that we are putting the things in place to start to accelerate it again. Our 3 2018 acquisitions have encountered some headwinds. Trading volumes are down across Wall Street and this will impact as is network fees by about $10,000,000 for the rest of the year. We have also seen M and A slow and with that slowing, Intralinks revenue growth will slow by about $23,000,000 Finally, DST has attrition and revenue for the year is expected to be down $53,000,000 dollars from our guidance at the end of Q1.
Obviously, our core businesses are also in Financial Services, which have slowed and trading has slowed. And so we're going to have some trade wins, some headwinds in there and we're expected the overall core business to be down about $32,000,000 Now with all that at the midpoint, we're going to be at $4,600,000,000 in revenue, which is up about 34% from last year. And our earnings again will be considerably stronger than that. And as we announced last week, we believe the new management team at SS and C Health has a tremendous opportunity to grow. John Hogan, our new President of SS and C Health will be responsible for both our Health and Pharmacy Solutions Group and is charged with growing in these businesses.
Rob Kulis, President of SS and C Health Solutions is focused on extending SS and C's position in claims and medical management, plan growth and advisory enablement. And Mark Palmer, President of Pharmacy Solutions, who has been with our team since 2014 is responsible for providing technology enabled solutions that improve clinical and financial outcomes for clients. We're excited about this team and expanding our market position and maximizing our exclusive relationship with Johns Hopkins going forward. I will now open it up
The first question comes from Brad Zelnick of Credit Suisse. Please go ahead. Your line is open.
Great. Thanks so much for taking the question. Bill, I appreciate your commentary and some of the numbers that you gave us in your final remarks bridging from the prior guidance to your current outlook for the full year. But I specifically wanted to drill down into the DST revision downward $53,000,000 from where you were guiding out of Q1. Can you just talk us through what's changed more specifically the relationships that you expected to endure that maybe now are leaving?
Where are they heading to? Because I thought this was a stickier kind of business with very high switching costs for the customer.
Well, I mean, that's a good question, Brad. I think realize that you're talking about a $2,200,000,000 business, right? So when you talk about $53,000,000 that sounds like an enormous amount of money, but it's just really tied up in a few customers. And some of the attrition in DST prior to us acquiring them, they were able to get off quicker than we had expected. And I think that you're going to have some attrition.
I think the business is way stronger. We're earning way more money. And the changes to the business and the operating model and the sales culture and the cross sell and up sell and getting releases on their technology out on time. We've made 3 releases on the advanced workflow distribution system, AWD, and that's made a huge impact in our client. So I think there's a lot of things that we're doing right.
And there's a a kind of a slowing on Wall Street right now that is not exactly putting wind in our sails. And we have things like large fixed network fees and we have our own data business. And so none of those things are really adding to any growth whatsoever. And I think that's what's really happened. And we're still optimistic on DSD.
We have lots of things. Sean is a really talented guy. And with Rob and Mark Palmer, we think we have a great group there and we've made changes across financial services, whether it's people like Bernie O'Connor or putting in Mike Slideholme or bringing in a whole new group of managers, probably 10 of the senior people from DST have left in the 1st 7, 8 months of 2019. And we're rebuilding and rearming, and we think that we'll end up with a really great business that's growing in mid single digits and it's just going to take us a couple more quarters than we expected.
Thanks for the perspective, Bill. And maybe just a follow-up. I mean, look, there's clearly a lot of bright spots and good things happening within the portfolio. But in light of what you characterize is just a broader slowdown in financial services, if we think about the expense structure and maybe a question for Patrick, How do you think about the investments you're making, the hiring plans going into the remainder of the year in light of these various pressures, whether it's in the context of synergies that you're able to deliver on the deals that you've done or even in the core business? Any updated thinking there would be helpful.
Thanks.
Well, as you know, we manage our expenses pretty tightly. And as people understand when they don't hit their revenue targets, they're not going to hit their expense targets either. So we've implemented plans and again, we're still going to generate close to $1,000,000,000 in free cash flow and we're paying off debt quickly. I think we've paid off $1,339,000,000 since the DST acquisition. And so we're going to continue to do those things and we're still going to invest in products that we think are going to give us competitive edge.
We're still winning large deals and I think that will continue.
Okay. Thanks a lot. I'll get back in the queue.
If you look at the guidance we provided for the quarter, I think you'll see that obviously we talked about the revenue reduction, but we've also got cost controls that we're putting in place and the plan is showing reducing cost from our previous guidance.
Thanks, Patrick.
Your next question comes from the line of Dan Perlin of RBC Capital Markets. Please go ahead. Your line is open.
Thanks. So Patrick, I'm just trying to make sure I understand. What's the what are you embedding based on this definition that you use for organic growth in Q3 and then for the full year? So let me just start there first.
Yes, sure. So right now what we're seeing and what's embedded in the guidance for Q3 and Q4 is approximately $10,000,000 of FX in the 6 months and about $38,000,000 of DST lost clients that we were notified prior to the acquisition.
Okay. So is the okay. So are you suggesting it's going to be running below the 3 percent -plus range in the back half of the year? Is that what your calculation is you're telling us?
I think at the midpoint, it will probably I mean, it will run-in the range of 1% to 1.5%. Yes. That's a good point.
Okay. So Bill, when we talk about any like golly things you're talking about getting back to the mid single digit growth rates as a company and it's taken a couple of quarters. I mean, this seemed to unravel pretty quick, and you've always prided yourself on being able to kind of hit EPS numbers even if organic growth kind of be damned. And this quarter kind of a lot of those things actually fell apart in the kind of calculus. And so I'm just trying to understand why you think you can get this thing back up to mid single digits when I think a lot of these acquisitions maybe ended up surprising certainly surprised us, but maybe they surprised you guys as well.
Well, again, I wouldn't say that they performed exactly like we had thought they would or had expected they would. But they're still good businesses and we don't have to I think second quarter was actually really good, frankly. It's record earnings, record revenues. And so it's not Q2 that was a problem, Dan. I think it's maybe the 3rd or 4th quarter that are more of a problem.
And it's not like we don't have chances, we've got chances. But in these kinds of somewhat headwinds, you have to execute at a very, very high level. And getting the team to work together and recognize that some of the things we have will work with 2 systems, right? You don't need to build 2 of them, but it's a big organization now with lots of people and lots of things that you have to change. And I think that's something that the intensity level in different parts of the business we'll probably be ratcheted up over the next several quarters.
Okay. Thank you. Your
next question comes from Alex Kramm of UBS. Please go ahead. Your line is open.
Yes. Hey, thank you. Just to clarify again, I think Patrick you just said at the midpoint 1% to 1.5% organic growth. Was that 3Q comment over the full year? Maybe just give those two periods separately, please.
Yes. No, that was the range for the second half. But right now at the midpoint, the full year is about 1.7% and the 3rd quarter is about 1.4%. Okay,
great. And then all right, thank you. And then just maybe just the quarter again, I mean, I'm just looking about what you changed here in terms of the organic growth presentation. If I think about this correctly, I think you said last quarter that you thought organic growth was going to be less than 0.5%. If I take that adjustment out, I still get to, I think, 1.3% or so.
I just want to make sure I'm comparing the numbers correctly. Did organic growth actually come in a little bit better than you thought for the Q2? And if so, why? Or am I just not comparing these numbers correctly with the new presentation?
No. So the as we said, if we include the lost DST clients pre acquisition, we're at 3.6%. That loss revenue was $16,100,000 in the quarter. So that takes that helps the organic growth by about 1.8%. So we were at about under the old calculation, we were at 1.8% organic growth, which is definitely an improvement over the guidance.
Any particular reasons why? Sorry. Or anything that was better than you had expected?
Yes, we had a sorry, Patrick. We had a pretty good quarter in alternatives, but we had a particularly strong quarter in our Advent license business. And so those are some of the reasons.
Okay. Thank you.
Your next question comes from Rayna Kumar of Evercore ISI. The $53,000,000 reduction in the DSP revenue, is that related to the Financial Services business or the Healthcare business? And if it's both, how much comes from each business?
It is, white it is across the business. I don't have the exact across each group, but I would suspect probably 2 thirds of it is out of the financial services business and the rest out of healthcare.
And I think the majority of the Financial Services is from Europe.
Understood. If you could also help us give us an idea of the alternatives organic revenue growth that you're expecting specifically
We're expecting about 4.2% in the 3rd quarter and about 4.2% for the full year at the midpoint of the guidance.
Thank you. Your next question comes from Andrew Schmidt of Citi. Please go ahead. Your line is open.
Hey, guys. Thank you for taking my question. Quick question on the core business. You mentioned a $32,000,000 reduction. I was wondering if you could talk about to what extent the reduction is market related factors versus attrition and other factors.
Just to drill down a little bit there, that'd be great.
So I think there's a few different things going on. One being, as Bill said, that in general, the environment with reduced trading volumes and some slowdown in the pace activity has an impact on the demand environment across our business. So that's probably a part of it. I think we are seeing a little bit of an overhang in our hedge fund business is kind of one example. And then I think in our software businesses, particularly in Advent, we still have a little bit of a comp issue with 606 and the way revenue is recognized on renewals and that's a part of the issue.
Got it. That's helpful. And then switching back to DST. So wondering if you could talk about to what extent the attrition you're experiencing continues in FY 2020? And then at what point do you think the initiatives you set in place can offset some of the incremental attrition you've recently experienced?
Yes. I think that I think Sean started 3 weeks ago, so we're not going to load him up with too much just quite yet. But we think he'll start having an impact towards the end of this quarter and then the Q4. But these are large contracts and the revenue doesn't start flowing until sometimes 60, 90 days after you sign them, in some cases, 6 months after you sign them. So we still have a bunch of revenue that we're still getting ready to start recording, but it takes time to get them installed and get them processing.
So, but I would think that by the Q2 of next year, we should have all kinds of new singularity sales of new integrations with AWD and Precision LM opportunities throughout the transfer agency business with some of the stuff that we've done in AI and machine learning and robotic process automation. But the stuff takes time to get people to adopt it. And we have all kinds of enthusiasm, but it doesn't count for much revenue. We need to get the revenue, we need to get the ink on the contract and get the people installed and we need to have an intensity kick up.
I think it's important to note that the major part of what's impacting the DSG revenue are clients that terminated pre acquisition that are now coming off the platform. But if you look at DST revenue retention since we've acquired them, where you look at revenue retention over the last 90 last 12 months, it's averaging at about 96%. So we've had pretty good retention at DST since we acquired them. But we're getting impacted by some of the terminations pre acquisition.
Okay. That's helpful. Just to be clear, the incremental $53,000,000 is attrition post the acquisition, correct, was completed?
The attrition post acquisition for the year of 2019 is somewhere around I think it's somewhere around $20,000,000 for 2018. A lot of the slowdown is the pre acquisition terminations and some of the professional services work that's not being replaced.
Yes. I
think the other kind of point is we're comparing guidance to guidance, right? So included in our guidance at the end of the last call for DST had a sales projection in it. So it's not all attrition and lost clients. It is also as we're going out in the marketplace and we're competing for these big deals, like Bill said, getting ink on paper and then getting that revenue started is a process and we're finding that that's taking more time than we had anticipated.
And I think the total amount of revenue that had been terminated prior to our acquisition was $119,000,000 of which 80 has already been absorbed. So there's still $39,000,000 to go. So of the $53,000,000 that $39,000,000 is probably not completely in that 53 because that 39 might run off some in 2020. But it all depends on how quickly very large organizations can get off a platform that is someone said very sticky.
Understood guys. Thanks for the offer. Appreciate it.
Your next question comes from Surinder Thind of Jefferies. Please go ahead. Your line is open.
Good afternoon. A couple of quick questions here. Just revisiting the organic growth, is there a way that you can perhaps simplify it or give a pro form a number? There's lots of different growth numbers out there. But if we just think of it in terms of all of the acquisitions having closed maybe at the beginning of 2018, what does that organic growth number in 2019 look like excluding obviously the adjustments for DST?
Are you able to provide that number? And then maybe what the breakdown might be at the individual level in terms of like as an Intralinks and DST and core?
You mean pro form a in 2018 for the acquisitions?
Correct. Yes. What 2019 looks like versus 2018 on a pro form a basis. I apologize. I didn't hear that.
We haven't prepared those numbers pro form
a year. Okay, understood. Maybe a different big picture question here. Following up on an earlier question about the cost structure, at what point do you guys think about or how much how lean are you currently running is maybe the better way to ask this question in terms of the flexibility that you might have if we were to kind of remain around the current growth rates of flattish to maybe slightly positive?
We ran the 2nd quarter 38.8 percent EBITDA Margins. We have opportunities wherever we want to have opportunities. The growth rate impacts us a little bit, but it doesn't really impact us that much on how much cash we generate or even how much earnings. Our adjusted earnings last year were $2.92 and I think at the midpoint, our adjusted earnings are going to be $3.63 I mean, I don't know. And you guys got these great companies in your portfolios, I know, but I think that's 20%.
I'd rather it was $4 instead of $3.63 But as far as a company that is very profitable, we think in general pretty well run. Perhaps we could forecast better and I wish we had, but we didn't. So it doesn't mean we just started eating dung pill. We'll figure this out. We figured it out all the time before.
We'll figure it out this time and we'll start growing again. We always have before and we will now.
Hard to argue with your track record of execution.
Your next question comes from Ken Hill of Rosenblatt Securities. Please go ahead. Your line is open.
Yes, thanks. So I had one question on one of the deals you mentioned in your prepared remarks, the Waddell and Reed deal out sourcing some functionality, there was some core transfer agency services. Can you outline the size of that type of deal? And maybe if shying away from specific numbers there, just think through the market and the opportunity set for what else is still out there given I think you have 20 of your largest clients outsourcing to you guys right now. So just kind of trying to get a grasp on what's still left there?
Yes, I think one of the things to think about is that they're not outsourcing everything to us. So a lot of these places still have huge internal workforces that increasingly become expensive and getting the attention of the senior executives at the large fund companies and other financial institution. So we still think there's an enormous opportunity. While they'll read as a great company, we've got a nice deal with them. I think it will be double digit millions in revenue, but it's not going to be as much as some people are forecasting.
It's not $30,000,000 $40,000,000 a year. It's less than that, but it's still a very good deal and it'll be profitable for us. And it's also a great name that we can really showcase a number of our products. So we're excited about that. But there's probably if you just take the top 50, there's probably several $100,000,000 worth of outsourcing opportunity in the top 50.
Okay. I appreciate the color on that one. One question then on a smaller piece. I know you kind of shied away from giving organic growth for some of the newer acquisitions, which I don't believe are included in your organic growth rate right now. But just on Eze specifically, I think you noted some headwinds there, but also noted some good client sign ups over the since the last quarter.
Just wondering if you could talk about maybe the revenue growth trajectory for that business?
Yes. The Eds business has been basically flat really. And but they've done a great job on managing their expenses. Their EBITDA margin is up. They have a big fixed business that they get paid and when trading volumes drop off, so do the payments that they get.
So, but generally things come back and we like the team we have and we're optimistic and as Eclipse as we noted just signed their 70th client and so we're cautiously optimistic.
Okay. Thanks for taking the questions.
Your next question comes from Peter Heckmann of Davidson. Please go ahead. Your line is open.
Good afternoon. Thanks for taking my question. On the EZ side, when you think about lower trading volumes and how that moves around and then you look out a little bit further, is there an opportunity with I believe Bloomberg is going to sunset their order management system. Is there an opportunity to really break out to be more of the leader there when you combine it with Jeeva and GlobeOp and really take some share? And is that business a business that you think can grow double digits organically over the next 3 years?
Yes. Pete, we would have the kind of the opposite. We don't think that Bloomberg is going to retire their system. In fact, we compete against them often. But I think to say double digit growth on a $300,000,000 business over the next 3 years, I think we'd be optimistic.
But I do think we can get to mid single digits. But we have a pretty good sales force and Jeff Schormann is a pretty good leader. So I think we have a great opportunity to maximize what we can get out of the Exact position.
Also just to add to that, what they are doing successfully is going up market. So we have been able to get more traditional asset managers buy in larger chunks than in the past and we think that will continue.
Got it. Got it. And then, Patrick, did I hear you say there was a $25,000,000 one time gain in the quarter from an asset sale?
No, it's a non cash mark to market gain.
Mark to market, okay.
We adjusted it out of adjusted earnings.
Thank you very much.
Your next question comes from Chris Shutler of William Blair. Please go ahead. Your line is open.
Hey, guys. Good afternoon. You called out the 1.8% organic in Q2 if you include the DST clients lost prior to the acquisition. Could you you just give us the comparable number for Q3, Q4 and the full year under that definition?
I think under that so at the midpoint, we're saying organic growth is about 1.7%. Excluding those with the impact of those terminated clients. And those terminated clients are adjusting organic growth compared to the previous WACCOW here by about 1.6%. So other than the old method or if you excluded that, it'd be about flat.
Okay, got it. And then Patrick, could you break out the revenue contribution in the quarter from each of the acquisitions DST, Intralinks, etcetera?
Yes. DST remember is only half a month, right? It's only the half a month also. DST is $91,800,000 as an Intralance combined are 152.9 150.8 sorry, 150.8 and then CACISA is 1,700,000 dollars 91.8000000 dollars 150.8000000 dollars and 1.7000000 dollars
Okay, perfect. Thanks for that. And then sorry, just a bunch of different items that were mentioned pretty quickly. Could you run through the you talked about the different headwinds. Could you run through what you said for each of the businesses again?
So you said Eze was trading volumes in $10,000,000 And just could you be clear on the timeframe? So was it were all of the items you mentioned relative to the prior guidance?
Yes. They're all relative to the prior guidance and its impact on full year guidance.
Okay. And the 4.2% that you mentioned earlier was the Alts business in the quarter?
The Alts business in the quarter was I think over 5%, 5.3% and it was 4.8% organic.
The 4.2 percent was the Q3 organic that's in the guidance for alternatives.
For the back half?
Just Q3.
Q3, 4.2. Okay. Full year 4.2.
Okay. Thank you, guys.
Your next question comes from Chris Donahue of Sandler O'Neill. Please go ahead. Your line is open.
Hi. Thanks for taking my questions. Just wanted to follow-up on the last question and Bill that tail end of your prepared remarks on Eze and Intralinks. Can we expect that sort of volatility or variability in earnings out of them tied to trading volumes and M and A activity going forward? I mean, and I know that what's taken away can sometimes be added back in a better environment.
I'm just trying to get a sense on how much you have like incremental margins of like 80% or 90% or 70% or something on these businesses when times are good, but then sometimes times aren't as good?
Well, I don't think that they have both put in some reasonable expense controls given that they've had a little softness in revenue. But we don't look at it as particularly volatile. It is something where we're getting similar kind of statistics that we track that would say that we should be generating more revenue than we are. But I think that has to do with how many documents they put in the data room or how often they access it or how many people access it. And that has been a little bit soft.
And so I think it's something where you need to stay at it and win more deal and make sure that the innovations that we bring to the market are well accepted.
Okay. And then just thinking about the Eclipse products from Eze, is that something that like how should we think about the future revenue contribution from that? Is that something that is potentially going to cannibalize existing as revenue? Or is that really additive to a new product that will be in addition to existing as revenue?
Well, I mean, obviously you're going to have some transfers from the EZOMS to the Eclipse cloud platform products into there. And as Rahul said earlier, when you get into an edge client and they might want Geneva. And then once they went to Geneva, they might decide really we ought to outsource these various functions to Global. So you can take an as the cliff sale for 100,000 and turn it into $5,000,000 of revenue. So the challenge is making sure that we're knitting those things in lots of different places so that our people know what we need to do in order to be able to drive more revenue.
Okay, got it. Thanks very much.
Your next question comes from Ashish Sabadra of Deutsche Bank. Please go ahead. Your line is open.
Thanks for taking my question. So maybe just a quick follow-up. Rahul, you mentioned that the sales pipeline may be taking slightly longer than what you originally anticipated. Just wanted to better understand, are these deals just pushed out or they lost or did the client decide not to go ahead with it? Any color on that front?
And was this 1 or 2 deals or there were a lot of them? And any particular reasons for the delay? Any colors that you can give us just to get comfort around maybe these are just pushed out?
Sure. So I think the comment in specific is for DST, right? And we had some expectations and some assumptions on what would happen as we brought in these new sales leaders and they went out and started to generate pipeline. And I think as we look at it now, we're still very optimistic about the amount of pipeline that they've generated. So it's not as if those deals went away or were lost.
They just haven't closed as fast as we would like. And they haven't I think what we're discovering is that we're working our way through their That's very
helpful. And maybe
That's very helpful. And maybe, I don't know, have you taken a more conservative view now just based on the experience that you've taken a more conservative view and there could potentially be upside depending on the timing of the closing of these deals?
We sure hope so.
Okay. That's helpful. And maybe Bill a question for you. You talked about how you've always done a great job of managing expense control and how should we think about I think one of the questions that we get from investors is how should we think about earnings power in 2020 beyond? And is there any way to think that that could slow down going forward?
Or could we continue to see this kind of a sustained earnings momentum going forward?
I mean, I don't think that we're changing our business model and I think that we will execute. And as we execute, then you'll see the revenue growth and you also see that we'll manage expenses better and we'll have tremendous earnings and tremendous cash flow. So what I mean, I don't think this is not positive, I got it. And I can assure you, I like it less than you do. But nevertheless, we still have a good business.
We have a lot of great people. We've got a lot of great products and services. We've got great customers. We're a global organization. It's just large and things that you could turn one dial and change the company pretty quickly.
Now there's multiple dials that need to be changed. And so we're going through that process and I think we're making progress all over the place. But we hit a soft patch and we just got to plow through that and get back to the growth path.
That's helpful. Thanks, Bill.
Your next question comes from Mayank Tandon of Needham and Company. Please go ahead. Your line is open.
Thank you. Good evening. Bill, just given the challenges that you've identified today with some of these acquisitions, does this in some ways maybe slow down the pace of future M and A as you digest these operations and try to address some of the challenges that you mentioned?
Well, I think Mayank, we've done this for almost 20 years as a public company and 33, 34 years in total. I don't think we will change. I mean, I think that both the EZ acquisition and the DST acquisition and the Intralinks acquisitions will all end up being very good acquisitions for us over the long haul. And our earnings, like I said, right, have gone from $0.62 last year's last quarter, Q2 of 2018 to $0.91 in the Q2 of 2019. And I know it's only $0.29 but it is close to 50%, 46%, I think.
So I think it's Wall Street is a pretty tough place if you don't hit your forecast and we've been pretty good forecasters. And now the place a little bit bigger and maybe we need to forecast a little better.
Right. Makes sense. Well, in that vein, would you consider maybe in the short term focusing on a stock buyback if your stock were to come under pressure, which it probably will given the downward revision to guidance, just maybe broader thoughts on capital allocation going forward?
Well, I think that's that will certainly be a discussion at our next board meeting. And again, you know how it goes, right? That pendulum swings and it always swings too far one way and it always swings too far the other way. And you try to do buybacks when you think your stock is really undervalued. Otherwise, we think that there's better uses for our cash flow.
Got it. Thank you.
Your next question comes from Jackson Ader of JPMorgan. Please go ahead. Your line is open.
Thanks. Good evening, guys. Thanks for taking the question. Bill, if we put the market driven headwinds aside as we look at Eze and Intralinks, just in terms of maybe new logo wins or new logo deals. Is there any kind of competitive pressures that you're feeling?
Or do you feel like win rates in those businesses for new deals are still strong?
I think they're still strong. I mean, obviously, we know it's close at 70 and we have a good focus on there. And I think Mike Huttner does a good job. He runs that sales organization for Jeff and Bob Petracci runs the sales organization for Lee Foleary over at Intralinks and I think Bob does a good job. I think it's an execution game and you got to execute all the time and it's every day and it's a focus and it's also a close.
And so I think we have a good team and we got smart people and I think there's still good markets. And I think that this is just a patch that has come. I mean, obviously, we did okay in Q2, right? We hit our earnings number. We beat our revenue number.
It's just we are looking out and we're going to tell you guys the truth. We're not going to sit there and sugarcoat it and we'll take our medicine and execute.
Yes. Okay. Understood. Follow-up question would be on the Black Diamond strength, double digit growth. I believe you said that was double digit organic growth at the beginning of your prepared remarks.
Where is that coming from?
Well, the IRA market, right, RIA market is RIA market registered investment advisor market is really what's driving most of the financial services, right? It's not de novo banks and it's not new mutual fund complexes or new insurance companies, right. It's registered investment advisors. And in some ways hedge funds still and private equity firms, real asset is another bright spot. But RIAs are the big banks, the big broker dealers, they consolidate power and then they splinter.
And so I think it's been one of those splinters phases right now. Although you're starting to see some companies like BB and T and SunTrust merge and who knows if that's a new trend as well. We win a lot of the spin outs of the various warehouses.
Yes. Okay. All right. Thank you.
Your next question comes from Patrick O'Shaughnessy of Raymond James. Please go ahead. Your line is open.
Okay. Thank you. So what would your outlook be like for the general health of your financial services customer base going forward? Would you expect things to get worse before they get better at this point?
Patrick, I think you might know better than we know, but how we look at it is that like the last question was from JPMorgan, they've got a $10,000,000,000 IT budget and they're a big customer of ours, but we're not anywhere close to 10% of that. So there's opportunity. It's a question of making sure that you're building products and service that people want to buy. The same thing with Raymond James or same thing with Credit Suisse or same thing with Deutsche Bank or any of the rest of them. And so I think that in general, you guys are well capitalized.
I think earnings are pretty good in the financial space. But let's see what happens. Are they going to cut interest rates a quarter or a half? And are they going to resolve China and China trade issues and then you get more confidence and more bullishness and I think that tends to help us.
Got it. Thank you. And then question on the M and A competitive environment. Looks like the bidding for GBST was very competitive. What are you broadly seeing out there in terms of interest in the assets that you are taking a look at yourselves?
Yes. I think in general, there's way more money chasing way few quality assets. We like GBST, we like their management team. But that bidding started out at AUD250 and I think ended up at 3.85 and we got to 360, but we felt like we were stretching at 360. So as much as we would have liked to have bought it at 360, we're not really crying on our soup that we lost it at 385.
So we tend to be disciplined about what we do and we were disciplined about Edge and we were disciplined about Intralinks. But that doesn't mean it always pans out exactly like we haven't forecasted. So we have a little more work to do and we'll do it.
Okay. Thank you.
There are no further questions at this time. I would like to turn the call over to Bill Stone for closing remarks.
Well, I appreciate everybody coming on the call and hopefully you heard the straight talk that we're pretty well known for. And we hit this quarter, but I know we disappointed as far as our guidance is concerned and we're going to get back on the train and work hard for our shareholders and we appreciate your interest and hopefully we will talk to all of you at the end of next quarter. Thanks.
This concludes today's conference call. You may now disconnect.