Good afternoon. My name is Chantal, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS and C Technologies 4th Quarter and Full Year 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Justine Stone, you may begin your conference.
Hi, everyone. Welcome. Happy Valentine's Day, and thank you for joining us for our Q4 and full year 2018 earnings call. I'm Justine Stone, Head of Investor Relations for SS and C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer Rahul 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 also be accessed on our website. These forward looking statements represent our expectations only as of today, February 14, 2019. While the company may elect to update these forward looking statements, it specifically disclaims any obligation to do so.
During today's call, we will be referring to certain non GAAP financial measures. A reconciliation of these non GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.
Thanks, Justine, and thanks, everyone. Our results are $1,132,800,000,000 in revenue, adjusted revenue and we earned 0.95 dollars a share in diluted adjusted earnings per share. Both the adjusted revenue and the adjusted diluted earnings per share are very robust. Our consolidated EBITDA was $444,000,000 and our margin was 39.3%. Our core businesses drove our strong performance.
Q4 top line organic growth was solid at 3.3 and for the year 4.3. Board of Directors approved 25% increase in our quarterly dividends from $0.08 per share to $0.10 per share or $0.40 annually. We believe our financial results warrant rewarding our shareholders, while we continue to rapidly pay down debt. We have paid down over $926,000,000 in debt since we closed our acquisition of DST last April. And our current leverage ratio is 4.54.
Last November, we hoped an Analyst Day attended by over 100 buy side and sell side analysts. Each of our business units presented their opportunities and key initiatives and we had demo boost of several of our newest products. The Analyst Day also featured a demo of Singularity, our first smart accounting system, which is embedded with artificial intelligence, machine learning, robotics process automation and predictive analytics. There is significant traction in the U. S, Canada and UK regions with more than 25 active pursuits, the biggest being in the insurance and asset management markets.
I'll now turn it over to Rahul.
Thanks, Bill. We had a strong quarter in terms of winning new mandates, identifying new opportunities and remain focused on high service levels for our customers. We have made progress with integration of our recent acquisitions and have hired some very talented people. Bernie O'Connor is now Chief Revenue Officer in our Domestic Financial Services business at DSD and Daniel Del Mastro is the new Chief Revenue Officer in our healthcare business. Joe Maxwell joined as Head of Technology for our Hedge Fund Administration business.
We've added the responsibility for our financial markets group to Jeff Shoreman, Primatics to Christy Bremner and the DVC Timeshare and Zologic businesses to Robert Rowley. Just last week, I had all of our business unit heads in New York to review the start of 2019 and to add focus to our new initiatives. We are building and rolling out several new products and services and our combined capabilities including acquisitions of DSP, Intralinks and Eze in 2018 differentiate us in the marketplace. We continue to find synergy opportunities at all of our recent acquisitions and we now expect DST to generate $300,000,000 annual run rate synergies by April 2021. We also continue to see strong organic growth in several of our businesses including Black Diamond, alternatives particularly real estate and our regulatory and analytics business.
Now I will mention some key deals for Q4, 2018. 2 advisory firms each over $1,000,000,000 in assets selected Black Diamond for their operations citing our partnership approach as key to the win. A spin out from an existing client with $2,500,000,000 in assets chose SS and C Global Fund Administration and Regulatory Solutions. A Hong Kong based investment firm chose SS and C Global Fund Services for their new fund launch. A large future shop looking to launch an equity business chose as OMS for its advanced trading and compliance capabilities.
A $20,000,000,000 plus firm who is an existing Global Fund Administration client chose Intralinks platform for all fundraising investor reporting portfolio management and M and activity across all regions and lines of business. 4 individual clients chose DST's business products, process solutions product AWD. Will now turn it over to Patrick to run through the financials.
Thank you, Rahul. Results for the Q4 of 2018 were GAAP revenue of $1,111,000,000 dollars GAAP net income of $58,700,000 and diluted EPS of $0.23 Adjusted revenue was $1,162,000,000 excluding the adjustments for implementing the new revenue recognition standard and the acquired deferred revenue adjustment for the DST Advent and Interlinx acquisitions. We had a very strong quarter. Adjusted revenue was up 157%, adjusted operating income increased 131% and adjusted EPS was $0.95 or 75% increase over Q4 2017. Total adjusted revenue increased $693,400,000 over Q4 2017.
The acquisitions of DST, Eze and Interlinx and Commonwealth and a couple of the smaller acquisitions contributed $680,800,000 in the quarter. Foreign exchange had an unfavorable impact of $1,900,000 or 0.4% due to weakness of foreign currencies in the quarter. Organic growth on a constant currency basis was 3 point 3% in the quarter, driven by the strength in the alternatives business. Adjusted operating income for the 4th quarter was $421,500,000 an increase of $239,100,000 or 131 percent from the Q4 of 2017. Operating margins improved sequentially from 34.4% into the 3rd quarter 37.2% in the 4th quarter, as margins improved in the DST business and our core businesses.
DST's operating margins were 33.3 percent in the 4th quarter and annual run rate implemented cost synergies reached $245,000,000 as of December 2018. We have increased our DST cost synergies target to $300,000,000 annual run rate by April 2021. And foreign exchange had an impact of 3 $500,000 on expenses in the quarter, a positive impact. Adjusted consolidated EBITDA was $444,800,000 or 39.3 percent of adjusted revenue, an increase of 132% from Q4 2017. Net interest expense for the Q4 was $97,300,000 and includes $4,200,000 of non cash amortized financing costs facility was 4.77% compared to 4.36% in the Q4 of 2017.
We recorded a GAAP tax provision in the quarter of $50,200,000 or 46 percent of pre tax income. The full year GAAP tax provision was 17.5 Adjusted net income was $243,000,000 and adjusted diluted EPS was $0.95 The adjusted net income excludes $142,500,000 of amortization of intangible assets, $4,200,000 of non cash debt issuance costs, dollars 20,800,000 of stock based compensation, $19,600,000 of purchase accounting adjustments, dollars 11,300,000 of adjustments related to adoption of the new revenues recognition standard 606 and $21,400,000 of non operating costs including $16,300,000 related to mark to market adjustment on investments and $4,300,000 in severance costs related to staff reductions. And the effective tax rate for adjusted net income we used 26%. Diluted shares increased 19.6 percent over Q4 2017, mostly due to the equity offering of 30,000,000 shares of common stock associated with the acquisition of DST, 9,900,000 shares related to the Intralinks acquisition and an increase due to the impact of the option issuance during the year. The shares issued for the Intralinks transaction were only partially weighted in the quarter as the acquisition was completed on November 16.
On our balance sheet and cash flow, we ended the year with $167,000,000 of cash, dollars 8,355,000,000 of gross debt or net debt position of $8,188,000,000 Operating cash flow for the 12 months ended 2018 was 6 $140,100,000 a $168,000,000 or 35% increase compared to the same period of 2017. The DST acquisition and financing costs and severance costs impacted operating cash flow negatively by $244,000,000 during the year. Highlights for the 12 months, we borrowed net $5,600,000,000 for the year. We've paid down $926,000,000 of total debt since the DST acquisition. In the Q4, we issued $1,875,000,000 dollars of debt related to the acquisitions of Eze and Intralinks.
For the year, we paid $268,000,000 of interest compared to $102,000,000 in 2017. The average interest rate in the quarter was 4.77%. For the full year, we paid $143,000,000 of cash taxes compared to $67,000,000 in 2017. Our accounts receivable DSO was at 52.1 days as of December compared to 55.2 days as of September 2018, a significant improvement. We used $89,100,000 for capital expenditures in capitalized software, mostly for facilities expansion, IT, as well as leasehold improvements and capitalized software.
And for the year, we declared we paid $70,900,000 of common stock dividends compared to $54,000,000 in 2017. Our LTM consolidated EBITDA, which we use for our covenant compliance, was $1,804,700,000 as of December 2018 and includes $523,500,000 of acquired EBITDA and cost savings related to the acquisition. Based on the net debt, our total leverage was 4.54 times as of December. On outlook for the Q1 and the full year 2019, our current expectation for the Q1 is adjusted revenue in the range of $1,132,000,000 to 1,162,000,000,000 dollars adjusted net income of $217,000,000 to $223,000,000 and diluted shares in the range of $161,800,000 to $263,300,000 For the full year, currently expecting adjusted revenue in the range of $4,690,000,000 $4,790,000,000 which represents organic revenue growth in the range of 1.9% to 4.1%. Adjusted net income of $970,000,000 to $1,015,000,000 and diluted shares of $264,500,000 to $266,500,000 We expect the adjusted tax rate to be 20 6% for the full year.
Cash for operating activities will be in the range of $1,095,000,000 dollars to $1,135,000,000 and capital expenditures in the range of 2.6% to 3% of total revenues. And I'll turn it over back to Bill.
Thanks, Patrick. We're proud of our accomplishments in 20 18 and looking back to when we went public in 2010, when we finished with $329,000,000 in revenue. Looking forward, we see significant opportunities throughout the world. As we ramp up our sales force and deliver on our technology initiatives, we expect to succeed. We will be at conferences and investor meetings throughout the year and hope to see some of you at those.
Now I'll turn it over to questions.
Your first question comes from Rayna Kumar with Evercore ISI. Your line is open.
Hey, could you call out
the organic revenue growth rate for the alternatives business in the 4th quarter and then your expectations for 2019?
I think it's Patrick. Patrick, you want to take that?
Yes. I'm not sure. I think the alternatives organic growth rate in the Q4, is that the question? I really didn't hear it.
Yes. In Q1 in the guidance.
In the Q4, the alternatives organic growth was 5.9%, Q4 of 2018 and the guidance in Q1 is also 5.9%.
Thank you. And if you can also talk a little bit about DST's Healthcare business, the client retention in that business, new bookings growth and does SS and C see that as SS and C looking at strategic options for the healthcare business?
We are not. The business is getting stronger. We brought in some great people. Danny Del Mastro is Chief Revenue Officer, Torrey Dorgati as a Senior Vice President of Sales. We're optimistic and we look forward to reporting on our successes in the following quarters.
Thank you.
Your next question comes from Alex Kramm with UBS. Your line is open.
Yes. Hey, good evening, everyone. Just staying on the topic of organic growth for a second here. If I heard you right at the guidance, 1.9% to 4.1%, I think 3% is the midpoint. I think if I remember correctly at the Analyst Day, you were kind of pointing everyone to like maybe like a 3.5% growth rate, not to be too focusy on that, but like that obviously seems a little bit lower.
So just maybe discuss a little bit what has changed in the last few months. I mean, obviously, everybody has seen what's going on in the quarter in hedge fund land, etcetera. So, has your thinking changed a little bit? Or what's the change here? Thanks.
Yes, I don't think there's really a whole big change here, Alex. I think it's just that as we get deeper and deeper into these acquisitions that a lot of that is taking a lot of time. And we also have lumpier kinds of size businesses or deals here. So I think the range we're trying to have is wider just based on the size of the deals that we have. And so I just think that is how a few tenths of a percent of an organic growth fell out.
Okay, fair enough. And then maybe just on kind of all these deals that you're integrating right now. I heard in some of the prepared remarks you talked about I think even like existing customer buying or switching to Intralinks or using Intralinks now. I mean are these real cross selling wins already or is this just stuff that everybody was individually working on before? And then just on that same topic, given that you are restructuring your DST sales team, anything that you've seen already in terms of early fruits of labor that they're doing a better job over there, maybe hopeful that the organic growth at DST can improve from what's been a little bit lackluster in the past?
Any sort of color on what's happening, not just on the cost, but more on the revenue opportunity side? Thanks.
Yes. As I said, right, we and Rahul commented, Bernie O'Connor came in as Chief Revenue Officer of Domestic Financial Services Business. He's already reorganized that and has people on the ground. I think since January 1, I think he's increased our pipeline by $50,000,000 I think Danny Del Mastro has been all over the country in the healthcare business. We see opportunities everywhere.
As we've spoken on the last 2 or 3 calls, we really see an opportunity in the mid market. Otherwise the mid market has to go to one of their big behemoth competitors. So we think that's a tremendous opportunity for us and we plan on exploiting it. So we're pretty optimistic about where we sit and we hope to report similar progress in 90 days or so.
Sounds good. Thanks very much.
Your next question comes from Dan Perlin with RBC Capital Markets. Your line is open.
Thanks guys and good evening. I'm obviously happy to see the synergies for DST getting raised here. My question I guess is twofold. One is kind of what did you get what led you to be able to kind of crank them up so fast from your original guide like it was it's clearly been significant? And then secondly, to kind of put that bogey out there all the way out to 2021, I'm wondering why what it's going to take to get the incremental $55,000,000 or so?
Well again Dan it's a pretty big place right 14,400 employees, 1600 contractors when we took them over $2,200,000,000 or so in revenue. We were trying to be somewhat sober and conservative about what we were doing and wanted to make sure that we weren't stepping on trap doors, right. So the more we got RC legs, the more Mike Slidholm has made a nice contribution. The people at VST, whether it's Terry Metzger in Domestic Financial Services or Willie Slattery internationally or John retirement or Jonathan Boehm in healthcare. They're smart, capable, hardworking people and I think we kind of released them to go after the opportunities that we have.
And I think that they've done a really good job. Nick Wright, who's Willie's right hand guy and a number of other ones have really participated in ways that have really helped us. Anthony Chiappa, our Chief Technology Officer is getting his arms around the big data centers. They had a big spend and they still have a big spend. It's just not quite as big.
Understood. And can I just get you to update just so we're clear, you're at 4.5 turns leverage right now? Your target, I thought was to get down to kind of 4 by the end of 2019. Has that changed in any way? I mean the pace of deleveraging has been pretty significant.
Based on our current plan and assuming we use all free cash flow to pay down debt in 2019, will be around 3.9 times. So we'll be below 4 times.
Okay. And then just on that same vein, can you just remind us your appetite? I know you got a lot going on and you've already done a lot of acquisitions, but it is part of your DNA to do more deals. And so as you get down towards that, should we be expecting kind of that to be the leverage zone you got to get to before you'd step back in and look at other additional opportunities in the market? Or is there appetite to do so and how does that pipeline look?
Thanks.
Yes. So I wouldn't say that we're glued on the sidelines. We would certainly buy anything that's been in our strategic radar. We may not use as much debt as we did in the past. And while that's unfortunate, that's what happens when you get leverage to the point of 4.5 times.
But we're going to do what's best for our shareholders and that's increase our earnings and hopefully increase our cash flow. We're going to pay down debt quickly, as we've said, dollars 926,000,000 since April 16, 2018. That's a pretty good number. And I think that tuck in acquisitions, we're looking at all the time. We probably have 4 or 5 of them that were in some semblance of possibly purchasing.
Now larger ones, there's a few that are out there that are $100,000,000 in revenue and $30,000,000 in EBITDA. We're not spending $1,500,000,000 for one of those. So we'll have to see what kind of properties are out there and whether or not we can get what we believe is a disciplined price.
Excellent. Thank you, guys.
Your next question comes from Brad Zelnick with Credit Suisse. Your line is open.
Hi, it's Kevin Ma on for Brad. Thanks for taking the question. Can you give us any update on progress with Intralink and so far in terms of synergy targets? And I know it's still early into those acquisitions, but what sort of cross sell opportunities are you seeing that have maybe become more apparent now that weren't so obvious early?
Yes. So this is Rahul. We're really positive about both Intralinks and Eze and Leaf O'Leary at Intralinks and Jeff Shoreman and their teams have done a nice job of starting the integration process. We have already implemented some synergies. We're certainly on target or on plan for the timelines that we had at the start of the process.
And as you pointed out, the thing that we're most focused on is the joint revenue creation opportunities. So in conjunction with Eze, we've already sold some deals whereas is the order management system when we're doing middle and back office services. We expect that to continue. We're also looking at our development plans for Eze and their new product Eclipse and trying to bring that closer to things that we're building. And then Intralinks has some of the biggest private equity firms and real asset firms in the world as in their customer base and those are many of the same firms that we're providing fund administration services or seek to provide fund administration services to.
So there's some natural cross sell and overlap and that process is getting started. So good progress so far.
Got it. That's very helpful. Thank you. And I might have missed it, but would you mind breaking down what the cost synergies that were achieved in the quarter for each of the acquisitions?
So these are implemented, right, annual run rate synergies.
That's right.
So DST was at $245,000,000 and Interlinx and as combined are at about 14
$1,000,000 Perfect. Thank you.
Your next question comes from Hugh Miller with Buckingham. Your line is open.
Hi there. You guys had mentioned about the DST opportunity in the middle market. I was wondering if you could flush that out a bit more and maybe provide a little color on the current revenue for DST in that segment and kind of how you're viewing the addressable market opportunity for that business?
Well, the current revenue is approximately $450,000,000 in revenue, dollars 450,000,000 to $470,000,000 I think. And again, it's obviously a national business. We have any number of large opportunities in our pipeline. We have closed some additional businesses in our pharmacy business and we're optimistic about that. And we just think that there's lots of health plans around the country.
And right now, most of the health insurance and health administration, pharmacy benefit management businesses are dominated by UnitedHealthcare with Optum or CVS with Aetna or Cigna and Express Scripts. So we think we have a great shot if we execute to be number 4 in a relatively short period of time over the next 2 or 3 years and currently we're about number 10.
That's great color. Thank you. And then one other follow-up, just the diluted share count guidance for 2019 was just a bit below what we were looking for. Is there any assumption for share repurchase in that number?
There's no assumption for share repurchase in that
number. Okay. Thank you.
Your next question comes from Peter Heckmann with Davidson. Your line is open.
Thank you for taking my call. Just a clarification and apologize if you were gone through this. Patrick, I think you had said the organic growth implied in Q1 guidance was 5.9%. Did you mean that 5.9% was for admin? If so, what would be the overall organic growth?
Yes. The $5,900,000 in Q1 of 'nineteen was for the alternatives business. For Q1 2019, the midpoint is 3.3% organic growth and the range is 5% to 1.7% on the low end.
Great. That's helpful. And then if I remember correctly, DST had some attrition in the UK and that was going to hit this year. How are you thinking about that? And how are you treating it from an organic growth calculation basis?
So I think sorry, Patrick, go ahead.
I mean, our DSC becomes organic right in mid April, right? So not in the Q1, still acquisition revenue. And at this point in the calculations that we gave you, we're not making any adjustment for business that they might have lost before we acquired them. So this is just a straight calculation right now.
Got it. Got it. Okay. And then Rahul, you had made a comment that Black Diamond was seeing strong growth. Can you talk about that advisor space?
It seems like an area that's benefiting from several secular trends. Haven't really seen as much acquisition activity from SS and C in that space in terms of expanding the breadth of solutions. How are you thinking about that space right now? Are valuations prohibited?
I think that we're really focused on our own growth opportunities. We've looked at some things and I think we'll continue to look at some things and we will look at deals particularly as they're complementary to our solution set. But I think in general, we've got a really good business with a combination of core growth in our customer base. So the things we do now as well as new products that we're building out such as rebalancer, Black Diamond Link a couple of other ones. And we have done some small acquisitions.
We bought Celentica and we bought Modestpark and that's primarily a way to extend the capability and we'll keep doing that.
Okay, great. That's helpful. Thank you.
Your next question comes from Chris Shutler with William Blair. Your line is open.
Hi, guys. This is actually Andrew Nicholas on for Chris. A lot of my questions have been asked, but I did have one about the Alts business. I think you said around 6% or 5.9% organic growth that you expect in the Q1, which is particularly strong, at least from my perspective, given negative 4th quarter markets. So just wondering if you could expand a little bit on where you're seeing strength in that business where you expect that growth to come from, whether it be from net new assets, new fund launches, pricing or something else?
Yes. So I think 5.9% is what we did in Q4, right? And that's I think in the middle of those choppy markets as well. So we really do have very good momentum from a sales standpoint, right. That's the primary source for new revenue where we're competing every day for new mandates and a lot of them are competitive takeaways.
And as people look at our technology and services capability relative to those of our competitors, we've got some pretty good opportunity. So I would say that's the predominant source for kind of growth and that's true in our hedge business. It's also very true in our private equity and real assets business. Real assets in particular has been going very strong. And we think we're going to keep continuing that throughout 2019.
So that's the basis for the guidance.
Great. Thank you. And then maybe one for Patrick. Looking at the P and L, it looks like license and maintenance revenue grew about $10,000,000 or $11,000,000 in each of the last two quarters, looking at it quarter over quarter. But the cost of licensing and maintenance revenue actually went down a touch over that same period.
Can you help me understand why that might be the case?
There were several one time license deals in the DST business that helped that growth over the last couple of quarters. And I think their cost structure is down as we've implemented synergies. So I think that's the biggest impact there.
Okay. So primarily related to DST. Okay. Thank you very much.
Your next question comes from Mayank Tandon with Needham and Company. Your line is open.
Thank you. Good evening. Bill, can you talk about any of the regulatory changes globally that might be a tailwind or headwind for you over time? I think in the past it's been more of a tailwind, but would be curious to see if there's anything out there in the horizon that investors might not be focused on that could be a driver for your business over time?
Well, I think, Mayank, that we have a really good regulatory and analytics business. Mike McGaugh runs that for us. And there's a number of things that we're rolling out, such as GDPR and some other ones along those lines. Whether or not the DOL rules on RIAs, how that finally gets flushed out is a little hard to tell. Same with what's going on with the changes in Dodd Frank.
But we think on either side, right? Whether or not there's going to be more regulatory, which means we are going to sell into that or there's going to be an easier regulatory environment, which means there's going to be more startups and we'll get our fair share of that too.
Got it. Then a couple of housekeeping items. What was the AUA levels at year end? I think I may have missed that if you've already mentioned it. And also for Patrick, what is the FX headwind you're expecting on revenue for 2019?
And also is there any expense item that is impacted by FX? How we should account for that? Thank you.
So AUA at the end of Q4 was 1,690,000,000,000
And on FX, there's about we're currently our forecast is currently using average January 2019 FX rate. And if you compare those to 2018 rates, it's about $11,000,000 of negative FX in the year, of which the majority is in the 1st 6 months of the year. So it's about $2,000,000 in Q1 and when DST comes on as organic in Q2, there's about $7,000,000 to $8,000,000 of FX since they have a lot of business in British pounds. So right now the current estimate is about $2,000,000 $7,000,000 to $8,000,000 in the second, dollars 2,000,000 in the third and kind of flat in the 4th. So that's based on current FX rates.
Is that offset on the expense side from hedges or should we expect some expense items to be also affected by FX in the same vein?
DSD has some legacy hedges on the Indian rupee that are going to terminate in March. But other than that, we don't have any expense hedges. So we had I think a 3.5 $1,000,000 benefit in Q4 for expenses. And based on where rates are today, it'd probably be pretty similar in Q1 and then would taper down.
Great. Thank you.
Your next question comes from Chris Donat with Sandler O'Neill. Your line is open.
Hi, good afternoon. Thanks for taking my call. Patrick, I wanted to ask one question about the 2019 guidance and putting the Q1 in there with it, because with simple math, it implies you'd pick up about $0.05 a quarter in EPS over the course of the year. I'm just wondering if you expect faster EPS growth in the front half of the back half of the year? Is there anything notable in terms of expense synergies we should be thinking about just as we make our quarterly estimates for the course of 2019?
I
mean, we do expect growth to be a little stronger in the second half of the year, Especially in Q4 when as becomes organic and Intralinks becomes organic for partial quarter.
So we think we'll see a little bit
of a jump in Q2 in revenue and then see stronger growth in Q3 and Q4.
Okay. And on the expense side, anything notable in terms of, I don't know, facility like duplicative facility costs eliminate or anything like that we should just be aware of or nothing big?
I don't think anything big. I mean, we are going to do we are going to transition some of DST's India operations to contractors to in house. I mean, we'll have some double costs for a while, but it probably won't be significant. It might be $2,000,000 $4,000,000 or something like that. As we transition from contractors to in house operations and we've got kind of duplication of facilities.
So there'll be a little bit of that. The Q1 is seasonally a higher cost because benefit costs are higher in the Q1 when you've got payroll related taxes that are much higher until employees hit the cap. We typically have higher expenses in the Q1 and then we might have $2,000,000 or $4,000,000 of duplicate costs and facilities in India as we transitioned in house operations.
Okay. And then Bill, I wanted to ask one question about the dividend and how the Board looked at it, because I'm sure most equity holders are happy to have a higher dividend, but I'm wondering if they had a look at the trade off between the pay down of debt. Was the Board looking at the year end 2019 leverage ratio and saying, okay, we're below a threshold, so we can afford another $0.01 on the quarterly dividend or did that factor into your thought process?
I think Chris, the whole Q2, Q3 and Q4, I think the outperformance created tremendous amount of confidence in our ability to generate cash flow. I think we thought we were going to end Q4 at 4.7 and we ended 4.54 on a 2 tenths of a turn, that's a couple of $100,000,000 and I think the increase in our dividends about $20,000,000 We're trying to be good custodians of the shareholders' money and try to allocate that money in ways that the vast majority of our shareholders would applaud.
Okay. Thanks very much.
Your next question comes from Andrew Schmidt with Citi. Your line is open.
Hey, guys.
Thank you for taking my question. Just a clarification, when you talk about lumpy deal pipeline, is that mostly a comment on DST? And then correspondingly, if we think about the organic revenue outlook for FY 2019, what does the low and high end of the outlook assume for DSD performance?
Well, first on the lumpy side, I would say it's both our fund administration businesses and the DST businesses. The size of the deals are getting larger. As we expand our capabilities, both from a breadth standpoint and a depth standpoint, we become an increasingly capable competitor. So the size of the deals that we get asked to bid on have become larger. And then the size of the deals that we win have become larger.
So I think that's going to create some lumpiness as we swallow these bigger deals. And I would say that that's really what I'm talking about on the lumpy deals. And then maybe Patrick, you could take the second half of that question.
Yes. Let me try to answer that question. So I think for the year, we've got about $100,000,000 in the range of revenue, okay? And in that guidance, the range for the acquisitions, which is mostly DST, large portion of the acquisition revenue is probably about $25,000,000 So out of the $100,000,000 $25,000,000 is acquisitions. Does that answer your question?
It was more around in terms of just the variation between the low end and the high end, what's the assumption for DST growth?
Well, I think at the midpoint of the range DST is up 0.5% or so for the year, right. Okay. And it's probably something like another percent shift between the ranges.
Okay. That's really helpful. Appreciate the color. And then just if you could discuss hedge fund performance in the Q4. And then I guess at a high level how revenue retention performed?
That will be helpful. And then just a follow-up to that, just expectation for hedge fund performance into 'nineteen.
Yes. So I'll talk about hedge fund performance. Looking in general, right, we're not as focused on hedge fund performance as we are on sales execution and how many of our products and services we can cross sell into clients we already have because ultimately that's far more correlated to our revenue. So I think we had a mix of different kinds of performance. We certainly had choppy markets and funds that didn't assumption for what future performance is going to be when we guide towards 2019 because once again we don't really view that as being extremely material to how we're going to do.
Patrick, maybe you can talk about client retention.
Yes. So we on client retention, we ended the full year. So if you look at client retention for the last 12 months at 95% for the full year.
Okay. That's good to hear. All right. Thanks, guys. Appreciate it.
Your next question comes from Brian Essex with Morgan Stanley. Your line is open.
Hi, good afternoon and thank you for taking the question. Bill, just a quick one maybe for you. I think you mentioned some ramping up sales force. And I guess I'd just like to know kind of what are the changes been post DST as Intralinks? What kind of how is that ramping?
And I guess what is your outlook for productivity into 2019?
Well, as we pointed out in our remarks earlier, we've brought in Bernie O'Connor in the Domestic Financial Services business of DST and we brought in Danny DelMastro in the healthcare business and Tory Dargati. We have some great people in our sales organization already. And so we're adding to that group and we are building pipeline. And we're pretty excited about what our opportunities are. And I will hopefully report to you as we begin to close those opportunities.
Any meaningful changes say in the OMS business versus maybe what you've had in terms of better productivity on one side of the house versus the other?
Well, I mean, obviously, as is a big OMS provider and we think that they have a brand new product coming out called Eclipse that's gotten some pretty good traction. As with all of our acquisitions, we're in a hurry. And I think Jeff Shoreman and Mike Huttner are quite aware of that and they're doing a good job. And as is our Head of Europe, Mr. Quinlan.
So that's just the way we operate. Let's see if we can go faster and at the same time pay attention to our customers in a way that maybe improves our opportunities because it improves our reference.
Got it. That's helpful. And then maybe one quick follow-up for Patrick. I think alternatives organic growth was mentioned in the quarter, but overall organic growth, can you just if we could take that off?
In the 4th quarter?
Right.
The 3.3% was overall organic growth in the 4th quarter and 4.3% for the full year of 2018.
Super helpful. Thank you very much.
Your next question comes from Jackson Ader with JPMorgan. Your line is open.
Great. Thanks for taking my question guys. Bill, first for you. I know that it's only been about a year that you've had DST and we're already to 33% margins. But is there anything structurally as you look at that business that may that would keep it from getting to that kind of 40% target you've always talked about for SS and C?
Well, I don't think I think that the key to our ability to generate our margins is to make sure that the first job is customer satisfaction, right. So we're the 40% margin really means that we hire talented people, we train them very well. And generally, we can use 1 person versus a lot of places use 2 or 3 people. So we also run our foreign operations with foreigners, right. So in general, we don't use hardly any expats, not that we don't think that they're talented, but they're expensive.
So we just as well, well not do that. We also don't tend to break leases. We stay in those places until the leases expire and then we move the people. And other people, they jam them all together because it's easier to do Kumbaya. We do remote Kumbaya and try to people to realize that breaking that lease is going to hit that bonus pool and people are generally pretty agreeable to that.
Okay.
And then a follow-up question for either Rahul or Patrick. Any particular geographical pockets of strength to call out within the alternatives business kind of around that 5 0.9% growth? I think Asia Pac has been growing pretty fast for us, right? Still a smaller part of the business. That obviously gets mitigated a little, but we expect that to continue to be very strong in 2019.
Okay. All right. Thank you.
Your next question comes from Alex Kramm with UBS. Your line is open.
Hey, hello again. My follow-up was actually asked already, but just while I'm here real quick, any bigger picture comments on kind of like DST's end markets and what you're expecting there? I think when we talk to, I guess, executives there, it sounds like there's still an expectation for a lot of spending. Are you hearing the same thing? And then I think in that market, we've also seen a little bit more M and A.
So maybe just talk about how that may impact you. I mean Invesco, Oppenheimer for example is an example that I think may actually benefit you. I don't know how specifically you can talk about that, but any bigger picture thoughts on that end market and what's happening there? Thanks.
Well, as you know, it's that those end markets are they're great end markets, right? The world's getting wealthier, there's a lot of money to manage. And of course, there's some headwinds of passive to active. But it is not that doomsday scenario that some people paint. We have a lot of new products and services that are coming out to those groups of clients of ours.
And we're getting very close to them about really delivering technology more rapidly. Our advanced workstation distribute our advanced work distributor, which is a workflow product, it's highly, highly functional. And we're really building out a whole new generation and in a hurry. Our wallet share product, which was going to be rolled out in the Q1 of 2020, we rolled out in Europe, we rolled out in the Q4 of 2018. So as you start to accelerate the technological advances for your clients, it's can help them accelerate their businesses and it's both going to accelerate their businesses on a revenue standpoint, but also in their ability to manage their costs.
All right. Thanks again.
Your next question
Your next question comes from Ken Hill with
Rosenblatt Securities. Your line is open.
Good evening. I think you might have just touched on this a couple questions back, but with DST, but kind of on overall margins, you've seen nice progress here over the past couple of quarters to 37%. How are you thinking about the trajectory throughout the rest of this year as you get 40%? And kind of what things would you know maybe on the revenue side or expense side that could push that higher or little bit lower for you guys?
Well, I think we have teams of people looking at all kinds of things. Obviously, we have data processing centers that are used by DSP, the data processing centers are used by Intralinks. We have data processing centers that are used by Eze. And obviously, we have historic data processing centers. So I think Anthony Chiapa, who's our new Chief Technology Officer, who's probably been with us 10 months, very talented, very capable, came out of Bloomberg and he's doing a great job for us, but that's a lot of expense.
And so understanding how to really make that redundant, highly performant and very cost effective are 3 objectives he has. And so far he's done a great job and he has a number of very talented people working with him.
Okay, that's helpful. I guess just one modeling one from interest expense just given all the debt issued and the aggressive pay down you guys have, any guidance you can provide for the next couple of quarters as far as interest expense coming up?
We'll use all free cash flow to pay down debt. Typically, our Q1 is a little slower because that's when we pay our employee annual bonuses, but then it will pick back up the second, 3rd and fourth quarter. We're currently in our plan expecting interest rates to stay fairly stable from where
they are today at
about 4.75%, 4.8% because we're at LIBOR plus 2.25%. So we're currently assuming that interest rates stay pretty stable for the year and then other than the 1st quarter will be the slowest debt pay down quarter and then it will pick up in the next three quarters.
Okay, great. Thanks for taking the questions.
Thank you.
There are no further questions at this time. I will now turn the call back over to Bill Stone.
Again, thanks everybody for listening to our call and we look forward to talking to you some of you in person and then the rest of you on the call next quarter. Thanks.
This concludes today's conference call. You may now disconnect.