Good afternoon. My name is Sarah, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q1 2018 SS&C Technologies earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, you may press pound key. Thank you. I will now turn the conference over to Ms. Justine Stone. Please go ahead.
Hi, everyone. Welcome, thank you for joining us for our Q1 2018 earnings call. I'm Justine Stone, Investor Relations for SS&C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer, Normand Boulanger, President and Chief Operating Officer, Rahul Kanwar, our Executive Vice President, and Patrick Pedonti, our Chief Financial Officer. Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans, and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the 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 our 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, May 1st, 2018. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we'll 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'll now turn the call over to Bill.
Thanks, Justine, thanks, everyone, for being on our first quarter call. We did $435 million in adjusted revenue for the quarter and earned $0.53 in adjusted diluted earnings per share and had a consolidated EBITDA margin of over 41%. Completing the DST Systems acquisition was a great accomplishment for us in the first quarter. We announced this acquisition on January 11th, and we closed on April 16th. We secured the funding. We studied their businesses. We planned the roadmap to manage the business, and we have now begun to execute. Mike Sleightholme, who came to us in March of 2016 with the Citi acquisition, Citi Fund Administration acquisition, is now in charge of the DST business.
We have a lot of confidence in Mike's ability to grow their business, to improve their operations, and obviously to capitalize on the synergies that we have spoken about. Mike has a talented team working with him, and he has the entire organization behind him. I'd also like to welcome Joseph Frank to SS&C. He's our new Chief Legal Officer, and he's going to run M&A for us. Joe joins us from Shearman & Sterling, where he headed the securities litigation and enforcement practice. Joe has a wealth of experience, and we're glad to have him. I'll turn it over to Norm.
Thanks, Bill. We had great results across the board for Q1 2018, while having a strong focus on DST planning, which you'll hear more about from Rahul. We're enthusiastic about the markets we are in, especially the wealth management market, which continues to grow, and our opportunities to replace in-house solutions. To review some of the key deals for Q1, a Canadian bank, whom we have a long-standing client relationship, expanded their scope of service with our Pacer product. An existing client bought SS&C Vision FI reporting tool to replace an inefficient internal system. A U.S.-based insurance company chose SS&C's CAMRA for their portfolio management system, reducing their overall operational costs. A $5 billion investment manager chose our Global Wealth Platform solution because of its single platform front-to-back capabilities.
A $40 billion family office chose a suite of SS&C Advent solutions with our portfolio construction and rebalancing solution, Advent Genesis being the key differentiator. A $19 billion asset manager chose a suite of SS&C Advent solutions, including APX, On Demand, and Moxy, after a competitor failed in implementation. A one and a half billion dollar advisory firm chose Black Diamond solution. The win was due to overall functionality, Salesforce integration, and Charles Schwab integration. A $30 billion bank selected SS&C Primatics's EVOLV product as their CECL solution. Last, a $380 billion bank continues to engage SS&C Primatics for its US GAAP compliance, which is the entire bank portfolio. The partnership continues and has grown over the past nine years. Now I'll turn it over to Rahul to discuss the alternatives business.
Thanks, Norm. SS&C GlobeOp saw a 6.9% increase in revenue for the quarter ended March 31st, 2018 compared to the same quarter in 2017. Our competitive advantages have led to winning bigger, more complex mandates, and we see strong demand in the marketplace. We continue to invest in our application development and technology infrastructure to provide for enhanced functionality and throughput. As Bill mentioned, Mike Sleightholme will manage the DST business. We've been busy in the months leading up to close and the weeks since on several initiatives. We have visited many DST locations worldwide, conducted town halls with the staff, and seen several large customers
We're also introducing DST sales and customer-facing executives to SS&C's suite of products and services. These include our middle and back office offerings, investment accounting systems, regulatory and analytics capability, web portals and mobility, front office infrastructure, and several other areas. Similarly, we have begun to incorporate DST regulated fund and transfer agency services and client proposals, and are working on establishing a pipeline of cross-sell opportunities. Early feedback on the service capability of the broader organization has been positive. The expense synergies plan remains on target. We've identified several early opportunities and are focused on enhancing the customer experience while realizing our financial objectives. I will mention some key deals for Q1 2018. A 20-billion-dollar-plus hedge fund chose to convert in-house operations to SS&C after a careful review of the marketplace. A 5-billion-dollar event-driven fund and current Geneva client chose SS&C for fund services, including regulatory and tax preparations.
A $7.5 billion hedge fund chose to outsource fund administration due to our middle office capabilities and our ability to meet their customized reporting and technology needs. A large financial institution chose our outsourcing services to provide accounting, analytics, and reporting to their private capital clients. Publicly traded infrastructure, real estate, and private equity fund with over 20 billion in assets chose to outsource their fund administration with our Real Assets group. I will now turn it over to Patrick to run through the financials.
Thank you, Rahul. The results for the first quarter were GAAP revenue of $421.9 million and EPS of $0.24. Adjusted revenue was $434.6 million, excluding the adjustments for implementing the new revenue recognition standard and for the acquired deferred revenue related to the Advent acquisition. We had a strong quarter. Adjusted revenue was up 6.1%. Adjusted operating income increased 10.6%, and adjusted diluted EPS was $0.53, or a 20.5% increase over 2017. Adjusted revenue increased $25 million in the first quarter of 2017. The acquisitions of Modestspark and CommonWealth contributed $1.8 million in the quarter. Foreign exchange had a favorable impact of $3.3 million, or 0.8%, in the quarter, mostly due to the strength of the British pound, the euro, and the organic in the Canadian dollar. Organic growth on a constant currency basis was 5.3% in the quarter.
Adjusted operating income for the quarter was $171.9 million, an increase of $16.4 million, or 10.6%, from the first quarter of 2017. Adjusted operating margins increased to 39.6% from 38% in Q1 2017. Foreign exchange had a negative impact of $4.6 million on expenses in the quarter. Margin improvement was mostly driven by improved gross margins and lower operating expenses as a percentage of revenue. Adjusted consolidated EBITDA was $178.7 million, or 41.1% of adjusted revenue, an increase 10.5% over Q1 2017. Net interest expense for the first quarter was $25.4 million. It includes $2.6 million of non-cash amortized financing costs and OID. The average interest rate in the quarter for the term loan facility and notes was 4.5%, compared to 3.8% in the first quarter of 2017, as we've seen the LIBOR increase with Fed increases over the past 12 months.
We recorded a GAAP tax provision of $10.7 million, or 17.2% of pre-tax income. Adjusted net income was $114.8 million, and adjusted EPS was $0.53. The adjusted net income excludes $54.6 million of amortization and tangible assets, $12.7 million of stock-based costs, $2.6 million of non-cash debt issuance costs, $11.9 million adjustment related to the adoption of ASC 606 revenue standard, and $5.4 million of other items, including $0.2 million of FX impact and $5.2 million of other items, primarily acquisition-related costs. Diluted shares increased 3.8% over Q1 2017, mostly due to the increase in the average stock price in the quarter. The effective tax rate used for adjusted net income was 23%. On the balance sheet and cash flow, we recorded a contract asset related to the future license value of term license contracts.
We also netted those contracts that were related to deferred revenue, which the net amount resulted in lower deferred revenue. Gross deferred revenue at the end of the quarter was $22.4 million, an increase of $20.2 million over December 2017. As of March 31st, we had $74.1 million in cash and cash equivalents and a little over $2 billion of gross debt for a net debt position of $1,956 million. Operating cash flow for the three months ended March 31st was $69.9 million, a $12.1 million or 20.8% increase compared to the same period in 2017. Operating cash flows in 2018 were driven by improved earnings and lower tax payments, offset by increases in accounts receivable and a reduction in accrued expenses as a result of our annual bonus being paid in the first quarter. Highlights for the quarter, we paid $61.3 million of total debt in the quarter.
We paid $31.8 million of interest, compared to $40.7 million in Q1 2017 due to lower debt levels. Made $1.7 million in cash taxes compared to $10.4 million in Q1 2017. Our accounts receivable DSO was 54.9 days, compared to 50 days as of December 2017, and 54.4 days in March 2017. We used $11.1 million for capital expenditures and capitalized software, mostly for facilities expansion and IT, as well as leasehold improvements. Our LTM EBITDA was $714.7 million as of March 2018. Includes $2.1 million of acquired EBITDA and cost savings related to our acquisition. Based on our net debt of approximately $2 billion, our total leverage was 2.7 times.
On outlook for Q2, we currently expect the second quarter in the year 2018. We've assumed that the closing of DST acquisition will take place on April 16th, and we've included two and a half months of results for DST in the second quarter. The gross debt balance at the closing is $7.4 billion, and based on current LIBOR rates, the current interest expense will be approximately 4.5%. The equity offering in April, we raised $1.4 billion. 30.3 million shares were issued in that equity offering. Our current expectation for the second quarter of 2018 is adjusted revenue in the range of $895 million-$915 million. Adjusted net income of $131.6 million-$140.8 million, and diluted shares in the range of 248.6 million-249.4 million.
For the full year, our current expectation is adjusted revenue in the range of $3.344 billion-$3.404 billion, an adjusted net income of $546.7 million-$575.3 million, and diluted shares of 243 million-243.5 million. We expect the tax rate to be approximately 25% with the combination of DST. We will update cash flow after Q2, after we've completed the purchase accounting for DST. One item, GAAP revenues in the second quarter as a result of the revenue recognition of 606 will be $9.5 million lower than adjusted and $40 million lower for the full year due to the new revenue standard. Now I'll turn it back over to Bill for final comment.
We have a lot of opportunity ahead of us, we look forward to capitalizing on these opportunities, and we look forward to talking to you after the second quarter. Now we'll open it up for questions.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and then the number one on your telephone keypad. If your question has been answered or you wish to withdraw from the queue, you may press the pound key. We would also like to ask that you limit your questions to one question and one follow-up to allow everyone time to ask a question. Your first question comes from the line of Alex Kramm from UBS. Please go ahead.
Oh, hey. Good evening, everyone. I guess I just want to start with, I think, where Patrick left off with some of the numbers you gave for where the debt is now, et cetera. Can you actually give us an update on what your cash balance is now, too, unless you mentioned this already, because you obviously issued equity and debt. Then more importantly, though, what is your plan with all that money that you raised? Obviously, you looked at Fidessa and that didn't pan out. What is out there and how much firepower do you think, and what are you looking at?
Well, I think, Alex, we raised a little extra cash, and we have, I think Patrick can comment on this, but I think we have about $750 million to $800 million in cash on our balance sheet. Is that about right, Patrick?
That's right, Bill.
So there's a number of properties that are in the marketplace or coming to the marketplace that we have some reasonable interest in. Those would range from probably a cost of $1 billion to $3 billion. I think with the cash on hand, and obviously we still have some dry powder in our debt facilities, that we'd be able to accomplish those without too much strain on us. Obviously, we are moving as quickly as we can at DST to integrate that and get as much capability out of that as we can. We have a talented management team. As I mentioned, Joseph Frank just joined us a couple months ago, and he has a list of acquisition opportunities. We're disciplined about it. We were disciplined about Fidessa. We think that's a good platform. We think that's a good product.
We think that's a good company. The price was nosebleed level. That's not generally what SS&C does.
Fair enough. Secondly, I think you gave a quick update or ran through your confidence level on synergies. Maybe you can just lay this out a little bit more for us. One, I think you upsized the synergies when you did the secondary, so maybe a little bit more color of where those incremental dollars have come from. Maybe just tell us, what do you expect to realize by the end of the year, by the end of year two? Sounds like there's a little bit of an update here as you had a little bit more of a chance to get to know these guys.
This is Rahul. I think it's still early for us. We're pretty confident on the synergies opportunity, that's why we took it up to $175 million. The broad areas remain operational and technology-driven efficiencies, as well as things like corporate costs and use of third-party vendors and things like that. I don't know that we have currently started to stratify it by how much in 2018, 2019 versus 2020. We're certainly feeling pretty good about the opportunity. Look, it's been two weeks since we closed, right? While we've identified some things, we're certainly looking forward to doing more work in the upcoming weeks and months.
We'd also say that we've been really pleased with the talent level at DST and the commitment of the people. We think that Mike Sleightholme has fit in very well and is a very accomplished executive. I think we have lots of opportunity, as Rahul had said earlier, I've probably seen 20, 25 DST clients, and the rest of our senior team has met a number of them as well. As always, SS&C's in a hurry.
Sounds good. I'll jump back in the queue. Thank you.
Your next question comes from the line from Rayna Kumar from Evercore ISI. Please go ahead.
Hi, this is Anthony Suganami on behalf of Rayna Kumar. I was hoping you could just give us some updated thoughts on whether you plan to retain DST's healthcare business or potentially spin that out or sell it. Following some recent healthcare industry consolidation, I would like to hear your thoughts on DST's ability to maintain some of their largest healthcare clients.
Yeah, sure. I think that at the present, we like that business. We like the management team. We like the foothold we have in healthcare. Obviously, SS&C is formed in Connecticut, right outside of Hartford. There's a couple of large healthcare insurance companies there, like Aetna and Cigna, and a number of others. We have a cadre of expertise inside SS&C. Similar to fund administration, which we got into in 2002, and we were told how hard it was. Now it's 15, 16 years later, and now we're the largest in the world. We're not particularly intimidated yet. That doesn't mean that we don't have a healthy regard and humility about what we have to do.
We're technologists, and we have a lot of confidence in our ability to build easy-to-use interfaces, to have secure mobility, and perhaps to bring a fresh set of energy into the healthcare space.
Okay, got it. Just as a point of clarification, in your revenue guidance for full year, does your adjusted revenue include or exclude out-of-pocket reimbursements from DST?
They include.
Include. Okay. Thank you.
Your next question comes from the line of Chris Shutler from William Blair. Please go ahead.
Hey, guys. Good afternoon. I'm going to be the guy that asks you about organic growth. What are your organic growth expectations for Q2 and the full year? Have they changed?
Yeah. The full year is pretty much the same as our previous guidance. In the range, it's 3.7%-5.5%. In the quarter of Q2, it's approximately 2.5%-5%.
2.5%-5% in the second quarter?
That's right.
Okay. Any kind of breakout that you can give on fund admin versus the rest of the business?
For Q1?
Both in Q1 and the guidance, sorry.
Yeah. In Q1, fund administration organic growth was 6.4%. We don't provide that in the guidance.
Okay. Just one more quick one. On the guidance, the DST revenue, I just want to make sure that I'm calculating this correctly. Fair to assume that the DST at the midpoint is about $1.60 billion? Is that fair for the revenue?
For the full year?
Correct.
That's a partial year. At the midpoint, it's approximately $1.6 billion, yes.
Yeah. Okay. Thank you. I'll hop back in the queue.
Yep.
Your next question comes from the line of Chris Donat from Sandler O'Neill. Please go ahead.
Hi, good afternoon. Thanks for taking my question. Bill, wanted to know if with your experience in the market in the last few months, if your sense of where your ceiling on debt to EBITDA, if that's moved at all. Just curious if that's changed or if it's the same as it was before you started down the capital-raising road.
Well, obviously, LIBOR's moved up relatively markedly. At the same time, if you've been around this as long as I have, interest rates are still remarkably low. It all depends on what assets you're going to get, and then making sure that we can really make a lot of money for our shareholders. We want to pay back our debt holders as quickly as we can. We want to be, for I guess about a 5x levered company, at least on a secured basis. We are still pretty conservatively managed. We track cash every week. DST now tracks cash every week. It's something that we focus on, and it's something that I think that, depending on what the asset is, and as you well know, we like Fidessa. We met with them several times. In the end, we're disciplined.
We're not going to be railroaded. We're not going to believe that you don't have to pay the debt back. We're going to focus on the fee structures on our various structures. We work for our shareholders, and we have that focus. I think that while Fidessa was a very good asset, and I continue to believe that, it's not exactly in our wheelhouse. Pretty close, but not exactly. I think that we got DST at a price at about half.
Okay. Just one for Norm. You mentioned a couple Primatics wins in CECL. There's been some chatter in the banking industry that the CECL accounting standard might be delayed or changed or somehow altered. Are you seeing any slowdown or any change in how business goes, or still pretty optimistic with the opportunity for Primatics and the CECL products?
I think we're still optimistic. We don't have a crystal ball, but people just like us have to assume it's going in. They have to take steps now in anticipation of that. It's not the first time a regulation got delayed, but likely it'll continue.
Okay. Got it. Thank you.
Your next question comes from the line of Pete Heckmann from D.A. Davidson. Please go ahead.
Hey, good afternoon. Missed a little bit of the beginning of the call, now that the DST deal is closed, have you thought, is there any way you can give us some more color on the potential revenue synergies and where there may be some focus areas where you think you might be able to get their organic growth headed more towards the mid-single digits?
Yeah, I think, Pete, that the biggest opportunity for us really is to work with the functional experts, of which there's lots of them at DST, and the technologists. Mostly to improve the user interface, and get mobility and more data access. Start showing, which we've been doing, some of the technology that we have. As we can delight their customers, we think there are large opportunities to move our middle office services, outsource more of the middle offices and the back offices of these large loan-only players. Bring them out to see what we've done at Russell and others. I think that those kinds of things are going to inject a lot of oxygen into the process that they have today.
I think that so far, we've already gotten a number of mandates to begin a large-scale refocus to change entire operating processes and procedures at some of the largest loan-only firms.
Okay. That's helpful. Just as a quick follow-up, and this may be just anecdotal, but in the fund administration business, are you seeing any change in practices from the prime brokers around either pricing or bundling of their services that has changed over the last, let's say, six months?
I wouldn't say dramatically. The few prime brokers that still have fund administration businesses are obviously eager to try to bundle some of that, and that's been a competitive item for us for several years. It's not particularly different now.
Okay. I appreciate the update. Thanks.
Your next question comes from the line of Brian Essex from Morgan Stanley. Please go ahead.
Hi, good afternoon. Thank you for taking the question. Bill, just a quick question. I noticed in your prepared remarks, you landed a $20 billion asset PE and real asset group. Any color behind that win in terms of the drivers that got that over the goal line? Just, I guess, from a higher level on the PE side of the pipeline, are you seeing any changes there in terms of what you may be able to bring onto the platform?
That particular opportunity is a fairly long-term customer on a more limited basis, and they launched a large fund. Because of the strength of the relationship, and in particular, the added focus that we had on the real assets area with the hiring of Bhagesh Malde and the talented executives that he's brought into that team. That all played a role. I'd say the biggest change in our private equity and real assets business is that the mandates that we're competing for are bigger. We've got larger deals, and generally, we're doing more for them. Bigger ticket items. Sometimes with slightly longer sales cycles, but generally positive.
Got it. Then, I know it's only been a couple of weeks, but what level of focus do you have on the DST sales force and their pipeline, I guess, to ensure that that pipeline doesn't get disrupted during this process? Any initial thoughts as you've maybe dug in and taken a look at their sales process and sales motion and anything that strikes you as either things you can change or the approach that you're taking to make sure that that pipeline momentum is maintained through the process?
Well, Brian, I think the biggest thing is that we're a pretty sales-oriented organization.
Yep
I think maybe more so than DST was. I think sales force at DST kind of expects a 100-day process between when they get a win and when the paper gets signed. We like that to be about 30 days. That's kind of a big change to go from 100 days to 30 days.
Right.
We would tell you that we would like the 30 to go to 15. I think that's maybe the biggest change. Also that senior level executives throughout SS&C are available to the entire sales force. I think that's been a positive development for DST already.
Got it. Maybe a follow-up. Any initial thoughts on pricing power? I know that you've talked about having pricing power on the SS&C side, and that you're careful how you exercise that. What about on the DST side as you dig into that business and look at the portfolio, particularly on deals that may be coming up for renewal or thoughts on how pricing is structured on that side of the fence?
Yeah, I don't necessarily know about pricing power. What I would say is, there's a lot of things that DST does for their client base that we would view as outside of the contract.
There might be some opportunities to show them that when India comes out with another regulation that perhaps they're not regulating us, they're regulating that customer. Explaining to them that we can't put a bunch of people on this thing and build it out for you for free. There will be some of those discussions, but it has to be valuable. People have to understand that putting really good people on this, doing a great job, they're delivering on time, and we have to pay them and pay them more. We have to have a relationship with people that's open and honest and we have to be valuable to those clients. I think we're laying lots of great groundwork that they're seeing that we put our money where our mouth is too.
Very helpful. Thank you.
Your next question comes from the line of Sterling Auty from J.P. Morgan. Please go ahead.
Yeah, thanks. Hi, guys. Now that you've had a little bit of chance to look underneath the hood, look at the sales organization, the go-to-market motion, what are your thoughts around what the integration of the two companies look like and maybe some synergies that you'll get out of the go-to-market motion specifically?
I think, Sterling, as Rahul said a little bit ago, it's only been two weeks since we closed. I spoke at their Advantage conference a couple of months ago. We have a big conference in Vegas in September, our Deliver conference, and I think we will have all kinds of integrated product and integrated materials as to what we can do to, let's say somebody has a middle office with 140 people in it. Maybe we can show them how they could have a middle office with 40 people in it. Those kinds of productivity gains are pretty attractive in businesses that, while still great businesses, are not quite as lucrative as they were before.
That's fair enough. Then one housekeeping question. I missed it in the spread, but what was the total assets under administration at the end of the quarter?
$1.58 trillion.
Great. Thank you.
As a reminder, ladies and gentlemen, to ask a question, press star and then the number one on your telephone keypad. Your next question comes from the line of Alex Kramm from UBS. Please go ahead.
Hello again. Just a couple of follow-ups. One, Patrick, I think on the debt, on the interest rate, you said 4.5%. Can you just flesh it out a little bit more? I think you're paying LIBOR plus 250. I think LIBOR is at 236. Are you assuming 2% or what are you assuming for the quarter or full year? Just so we kind of know what's in your guidance from a rate perspective.
Well, we're using one-month LIBOR, one-month LIBOR is around two. We're locking it in for a month. The spread is 2.5, that's where we get to 4.5.
Okay.
Current interest rate. We've assumed that in our plan. Obviously, we could see some rate increases through the year from the Fed, right now, we've assumed 4.5%.
Great. Fair enough. Just, I guess, coming back to my first question on the cash that you have raised, obviously, Bill, you laid out your appetite for further acquisitions. Obviously, last year we saw that there may be a time when it's hard to find deals. Given that the cashes are sitting around, any other plans if you can't find anything in the next 3, 6, 12 months when you get impatient? What would be your ideal way to deploy that cash? Would you start delevering again, or would you consider maybe a special dividend? How are you thinking about the cash absence of any deals?
I think that it would probably be a combination of deleveraging and then maybe buying back some shares. The dilution when your stock price goes up is a little onerous, and we just thought as well buy back whatever that is. With the $750 million-$800 million, we generate a lot of cash. It's not like that's the only cash we have. I think we'll probably expect to generate. I know we'll give you some guidance at the end of the next quarter, last year, I think the company, just SS&C generated $450 million or so in cash. My guess is DST is going to generate several hundreds of millions in cash, and we're going to generate probably at least $500 million. You're talking about $800 million-$900 million cash as a company.
We should have some firepower, and we hopefully will find some acquisitions and be able to move more quickly because the financing will be easier because of the cash we have on our balance sheet.
Right. There's no timeline where you say, "Hey, I'll give it so and so many months. After that, I got to be prudent and return the cash," or anything like that?
I think that's the analysis, of course. We're not going to set an artificial timeline on that when something like Fidessa could come up or something else, and we could be right in the middle of it and then have to talk to you about why we didn't do what we said we were going to do on September 13th. We don't want to be obtuse, but at the same time, we want to have some flexibility. No one's more interested in returns for our shareholders than I am. After me, I would say the people on this call from SS&C are extremely interested in returns to shareholders. We're focused on it.
All right. Very good. Thanks again. Good night.
Your next question comes from the line of Surinder Singh from Jefferies. Please go ahead.
Good afternoon. Just a quick question on kind of the outlook for the full year versus maybe the organic growth rate in Q2, where it seemed like it was maybe a little bit lower than the full year. Can you provide any color on that? Is that kind of an idea where maybe clients are taking a little bit of a pause as you guys are in the early stages with the DST deal, or how should we think about that and maybe any near-term impacts?
Are you talking about Q2 versus the-
Full year guide
Yeah. Well, Q2 only includes two and a half months for DST, right?
Okay. The difference is simply timing then.
Difference, right.
at this point.
Yeah. We closed DST on April 16th, so we're assuming 2 and a half months of results for Q2, not full 3 months. That's the main difference.
Understood. I guess, in terms of the conversations that you're having with clients, is there any kind of impact or pause, or is it just kind of full systems go at this point?
I think it's pretty much full systems go. Obviously, these are large-scale, sophisticated clients that, just like Jefferies, doesn't just snap their fingers and start a big project. You have to go through your IT organization, your functional people, the chief operating officer. You got to get through procurement, probably have a CFO that wants to bless it, and then obviously there's the legal department. It's not something that just happens overnight. We're gaining momentum. I think the key to this being really, really successful is that we build on that momentum. That we delight some of these initial contracts that we have and show them the difference between how we attack some of the problems and how the problems were attacked in the past. It's a combination of the expertise we have with the DST organization and the expertise we have in the SS&C organization.
Quickly, we are turning it into one organization.
Understood. Then maybe following up on a question about Fidessa and the commentary around that maybe being on the edge of your wheelhouse. How should we think about the comfort level of how far you're willing to extend the reach and stuff while you're digesting the deal at this point? Maybe does that introduce, the further out you go away from your core, additional risk at this point, or it sounds like you're dealing with some fairly sizable deals in the pipeline at this point.
Well, again, we've been at this for a long time, and we've navigated through, I think DST was our 50th acquisition. I'm not saying we have a perfect track record, but we have a good track record. We went public March 31st of 2010 at $7.50, and I think we closed at $50. I know that that's not Facebook or Google. We do accounting, we reconcile, and I think that the businesses we are in are very solid businesses, and I don't think accounting's going away. Double-entry bookkeeping has been around for about 600 or 700 years. We think it'll see us out.
Fair enough. That's it for me. Thank you.
Your next question comes from the line of Patrick O'Shaughnessy from Raymond James. Please go ahead.
Hey, Patrick, question for you if I could. Curious if you're able to give us the implied DST revenue growth expectation within your guidance.
No. I think we said that we've got about $1.6 billion in here for eight and a half months at the midpoint. I think the DST's revenue is public for last year, you got to be careful because they had a lot of one-time items, I think over $100 million of one-time items, cancellation charges in the last year. I think it's a slight improvement over last year if you take out their one-time items.
It's also-
Yeah
You have IFDS and BFDS acquisitions in the, I think, the first or second quarter of last year, too.
First quarter, yeah.
Got it. Thanks for that. Just curious if you can shed some insight on your revenue reclassification, moving away from recurring and non-recurring in the annual run rate basis. Is it just kind of post-DST, those are a little bit less relevant metrics going forward?
Well, we sit there and go through this with PricewaterhouseCoopers and try to decide what makes the most sense, what gives the best clarity to our financial statements, and this is what we picked. I think that that's really the crux of it.
Okay. Fair enough. Thank you.
Your next question comes from the line of Chris Donat from Sandler O'Neill. Please go ahead.
Hi. Just wanted to ask one follow-up related to DST, because there was a report a couple of weeks ago that Legg Mason is moving a piece of business away from DST. Looked like it was small, related to money market funds. I'm just curious if you have any expectations for attrition related to DST. Just sort of the opposite side of Patrick's question there.
I don't think that we have any giant concerns at all about attrition. Obviously, we're trying to get as close to the clients as we can, as quickly as we can. I think that right now Today, we have some confidence. That can change, of course. Yeah, I don't think that the Legg Mason business is very substantial.
Okay. Thank you.
Your next question comes from the line of Chris Shutler from William Blair. Please go ahead.
Hey, guys. Just going back to, I think, Patrick's question on DST and what's implied, I just want to make sure I understand. If I annualize the 1.6, I'm guessing that because of the IFDS and BFDS, that it's better to look at either Q3 or Q4 of last year as the better kind of run rate revenue for DST or the better comparison. If I do that, it looks like it's somewhere between kind of -5% annualized growth that you're looking for and 1. More color on where in that range, like what the better period to look at is because there was a decent difference between Q3 and Q4.
I think Q1 didn't have the acquisition, that's difficult. In Q2, they had about $90 million of cancellation charges, okay, last year. If you take out the 90, they're running at about 560 or so, and they ran about 560 in Q3, and I think they have some other revenue recognition items in Q4. I think those mid-months are pretty representative of where they were running.
Okay. That's helpful. Thanks, Patrick.
$550-$560 a quarter.
$550, $560?
Yeah.
Okay. Thank you.
I'm currently showing no other questions at this time. I'll turn the call back over to Bill Stone for closing comments.
Thanks, everybody. We look forward to seeing you in July or early August. Thanks.
This concludes today's conference call. Thank you for your participation. You may now disconnect.