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 and C Technologies 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. I will now turn the conference over to Ms. Justine Stone. Please go ahead.
Hi, everyone. Welcome and thank you for joining us for our Q1 2018 earnings call. I'm Justine Stone, Investor Relations for SS and C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer Norm Bollinger, President and Chief Operating Officer Rahul Kanwar, our Executive Vice President and Patrick Vedanti, 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 our 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, May 1, 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 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'll now turn the call over to Bill.
Thanks, Justine, and thanks, everyone, for being on our Q1 call. We did $435,000,000 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 Q1. 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 Slidholm came to us in March of 'sixteen 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 and he has the entire organization behind him. I'd also like to welcome Joe Frank to SS and C. He is our new Chief Legal Officer, and he's going to run M and A for us. Joe joins us from Sherman and Sterling where he headed the securities litigation and enforcement practice.
Joe has a wealth of experience and we're glad to have him. Now 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 DSD 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, who we have a long standing client relationship, expanded their scope of service with our PACER product. An existing client bought SS and C's Vision Fi reporting tool to replace an inefficient internal system.
A U. S.-based insurance company chose SS and C's camera for their portfolio management system reducing their overall operational costs. A $5,000,000,000 investment manager chose our Global
Wealth Platform solution because of
its single platform front to back capabilities. Rebalancing solution, AdventGenesis, portfolio construction and rebalancing solution, AdventGenesis being the key differentiator. A $19,000,000,000 asset manager chose a suite of SS and C advent solutions including APX, On Demand and Moxie after a competitor failed an implementation. A $1,500,000,000 advisory firm chose Black Diamond solution. The win was due to overall functionality, sales force integration and Charles Schwab integration.
A $30,000,000,000 bank selected SSC Primatics Evolve product as their CECL solution. And last, the $380,000,000,000 bank continues to engage SNC Primatix first U. S. GAAP compliance, which is the entire bank portfolio. The partnership continues and has grown over the past 9 years.
And now I'll turn it over to Raul to discuss the alternatives business.
Thanks, Norm. SS and C GlobeOp saw a 6.9% increase in revenue for the quarter ended March 31, 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, provide for enhanced functionality and throughput. As Bill mentioned, Mike Slighthome will manage the DST business.
We've been busy in the months leading up to close and the week since on several initiatives. We have visited many DSD locations worldwide, conducted town halls with the staff and seen several large customers. We're also introducing DSD sales and customer facing executives to SS and C suite of products and services. 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 DSD 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. Now I will mention some key deals for Q1, twenty eighteen. Chose to convert in house operations to SS and C after a careful review of the marketplace.
A $5,000,000,000 event driven fund and current Geneva client chose SS and C for fund services including regulatory and tax preparation. A $7,500,000,000 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 $20,000,000,000 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, Raul. The results for the first quarter were GAAP revenue of $421,900,000 and EPS of $0.24 Adjusted revenue was $434,600,000 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 20.5% increase over 2017. Adjusted revenue increased $25,000,000 in the Q1 of 2017.
The acquisitions of Modest Spark and Commonwealth contributed $1,800,000 in the quarter. Foreign exchange had a favorable impact of $3,300,000 or 0.8 percent in the quarter mostly due to the strength of the British pound, the euro and the organic and the Canadian dollar. Organic growth on a constant currency basis was 5.3% in the quarter. Adjusted operating income for the quarter was $171,900,000 an increase of $16,400,000 or 10.6% in the Q1 of 2017. Adjusted operating margins increased to 39.6% from 38% in Q1 2017.
Foreign exchange had a negative impact of $4,600,000 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 $1,000,000 or 41.1 percent of adjusted revenue, an increase of 10.5% over Q1 2017. Net interest expense for the Q1 was $25,400,000 and includes $2,600,000 of non cash amortized financing costs in OID. The average interest rate in the quarter for the term loan facility and notes was 4.5% compared to 3.8% in the Q1 of 2017 as we've seen the LIBOR increase with Fed increase over the past 12 months.
We recorded a GAAP tax provision of $10,700,000 or 17.2 percent of pre tax income. Adjusted net income was $114,800,000 and adjusted EPS was $0.53 The adjusted net income excludes $54,600,000 of amortization of intangible assets, dollars 12,700,000 of stock based comp, $2,600,000 of non cash debt issuance costs, dollars 11,900,000 adjustment related to the adoption of ACS 606 revenue standard and $5,400,000 of other items including $200,000 of FX impact and $5,200,000 of other items primarily acquisition related costs. Diluted shares increased 3.8 percent over Q1 'seventeen mostly due to the increase in the average stock price in the quarter. And the effective tax rate used for adjusted net income of 23%. On the balance sheet and cash flow, we recorded a contract asset related to the future license value of term contracts.
We also netted those contracts that were related to deferred revenue which resulted with the net amount resulted in lower deferred revenue. Our gross deferred revenue in the quarter at the end of the quarter was $2,400,000 an increase of $20,200,000 over December 2017. As of March 31, we had $74,100,000 in cash and cash equivalents and a little over $2,000,000,000 of gross debt for a net debt position of $1,956,000,000 Operating cash flow for the 3 months ended March 18 was 69,900,000 dollars a $12,100,000 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 Q1. Highlights for the quarter, we paid $61,300,000 of total debt in the quarter.
We paid 31.8 $1,000,000 of interest compared to $40,700,000 in Q1 of 'seventeen due to lower debt levels. Paid $1,700,000 in cash taxes compared to $10,400,000 in Q1, 2017. Our accounts receivable DSO was 54.9 days compared to 50 days as of December 'seventeen 54.4 days in March 2017. And we used $11,100,000 for capital expenditures and capitalized software, mostly for facilities expansion in IT as well as leasehold improvements. Our LTM EBITDA was $714,700,000 as of March 18, includes $2,100,000 of acquired EBITDA and cost savings related to our acquisition.
And based on our net debt of approximately $2,000,000,000 our total leverage was 2.7 times. On outlook for Q2, we currently expect the 2nd quarter in the year 2018 and we've assumed that the closing of DST acquisition took place on April 16th and we've included 2.5 months of results for DST in the 2nd quarter. The gross debt balance at the closing is $7,400,000,000 and based on current LIBOR rates, the interest current interest expense will be approximately 4.5%. The equity offering in April raised 1,400,000,000 and issued 30,300,000 shares were issued in that equity offering. Our current expectation for the Q2 of 2018 is adjusted revenue in the range of 895,000,000 dollars to $915,000,000 Adjusted net income of $131,600,000 to $140,800,000 and diluted shares in the range of $249,400,000 to 248,600,000 For the full year, our current expectation is adjusted revenue in the range of $3,404,000,000 to $3,344,000,000 and adjusted net income of $546,700,000 to $575,300,000 and diluted shares of $243,500,000 to $243,000,000 And we expect the tax rate to be approximately 25 percent with a combination of DST.
We will update cash flow after Q2 after we completed the purchase accounting for DST. One item, GAAP revenues in the 2nd quarter as a result of the revenue recognition of 606 will be $9,500,000 lower than adjusted and $40,000,000 lower for the full year due to the new revenue standard. Now I'll turn it back over to Bill for final comments.
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 Q2. And now we'll open it up for questions.
Your first question comes from the line of Alex Kramm from UBS. Please go ahead.
Hey, good evening, everyone. I guess I just want to start with I think what Patrick laid off left off with some of the numbers you gave for where the debt is now etcetera. Can you actually give us an update on what your cash balance is now too? And unless you mentioned this already because you obviously issued equity and debt? And then more importantly though, what is your plan with all that money that you raised?
Obviously, you looked at Fidesa and that didn't pan out. So 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 Patrick can comment on this. But I think we have about $750,000,000 to $800,000,000 in cash on our balance sheet. Is that about right, Patrick?
That's right, Phil.
And so there's a number of properties that are in the marketplace or coming to the marketplace that we have some reasonable interest in. And those would range from probably a cost of $1,000,000,000 to $3,000,000,000 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. But we have a talented management team. As I mentioned, Joe Frank just joined us couple months ago and he has a list of acquisition opportunities and but we're disciplined about it.
We were disciplined about Fidezza. We think that's a good platform. We think that's a good product. We've got a good company. But the price was nosebleed level.
So that's not generally what SS and C does.
Fair enough. And then 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. 1, 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.
And then maybe just tell us what do you expect to realize by the end of the year, by the end of year 2? It sounds like there's a little bit of an update here and 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 and that's why we took it up to $175,000,000 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. But we're certainly feeling pretty good about the opportunity.
And look, it's been 2 weeks since we closed, right? So while we've identified some things, we're certainly looking forward to doing more work in the upcoming weeks months.
We'd also say that we've been really pleased with the talent level at DST and then the commitment of the people. And we think that Mike Slighthome has fit in very well and is a very accomplished executive. And I think we have lots of opportunity. And as Rahul 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. And as always SS and C is 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 Cyganovich on behalf of Rana 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? And following some recent healthcare industry consolidation, I would like to hear your thoughts on BST's ability to maintain some of their largest healthcare clients.
Yes, sure. I mean, I think that at the present we like that business. We like the management team and we like the foothold we have in healthcare. Obviously SS and C is formed in Connecticut, right outside of Hartford. There's a couple of large healthcare client, healthcare insurance companies there like Aetna and Cigna and a number of others.
So we have a cadre of expertise inside SS and C. And similar to fund administration, which we got into in 2,002 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.
But 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. And 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 asked you about organic growth. So what are your organic growth expectations for Q2 and the full year? Have they changed?
Yes. The full year is pretty much the same as our previous guidance. It's in the range of 3.7% to 5.5%. And in the quarter of Q2, it's 2.5% to 5%.
2.5% to 5% in the second quarter?
That's right.
Okay. And any kind of breakout you can give on fund admin versus the rest of the business? For Q1? Both in Q1 and the guidance, sorry.
Yes. In Q1,
foreign administration organic growth was 6.4%. And 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. So fair to assume that the DST at the midpoint is about $1,600,000,000 Is that fair for the revenue?
For the full year? Correct. That's a partial year. At the midpoint, it's approximately 1.6, yes.
Yes. Okay. Thank you. I'll hop back in the queue.
Your next question comes from the line of Chris Gena 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 you're 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 has moved up relatively markedly, but at the same time, if you've been around this as long as I have, interest rates are still remarkably low. So there's 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. And we want to pay back our debt holders as quickly as we can. And we want to be for a, I guess about a 5 times levered company at least on a secured basis. We are still pretty conservatively managed.
We track cash every week. GST now tracks cash every week. And 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 Podesta. We met with them several times and but in the end we're disciplined. And 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 and we work for our shareholders and we have that focus. And I think that while Fidesco was a very good asset and I continue to believe that, it's not exactly in our wheelhouse, pretty close but not exactly. And I think that we got DST at a price at about half.
Okay. And then just one for Norm. You mentioned a couple of 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. Just are you seeing any slowdown or any change in how business goes?
You're still pretty optimistic with the opportunity for Primatics and the CECL products?
I think we're still optimistic, right? We don't have a crystal ball, but people just like us have to assume it's going in, right? So they have to take steps now in anticipation of that. And it's not the first time the regulation got delayed, but likely it will 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 at the beginning of
the call, but now that the DST deal is closed, have you thought is 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?
Yes. I think Pete that the biggest opportunity for us really is to work with the functional experts of which there are slots of them at DST and the technologists, but mostly to improve the user interface and get mobility and more data access and start showing which we've been doing some of the technology that we have. And then 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 the large long only players and bring them out to see what we've done at Russell and others. And I think that those kinds of things are going to inject a lot of oxygen into the process that they have today. And I think that so far we've already gotten a number of mandates to begin a large scale refocus and to change entire operating processes and procedures at some of the largest long only firms.
Okay, that's helpful. And just as a
quick follow-up and this may be just anecdotal, but on the 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, 6 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 and thank you for taking the question. And Bill, just a quick question. I noticed in your prepared remarks, you landed a $20,000,000,000 asset PE and Real Asset Group. Any color behind that win? Group.
Any color behind that win in terms of the drivers that got that over the goal line? And 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?
Yes. So that particular opportunity is a fairly long term customer on a more limited basis and they launched a large fund and 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 Pakesh Malde and the talented executives that he's brought into that team. So 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, right? So we've got larger deals and generally we're doing more for them.
So bigger ticket items, sometimes with slightly longer sales cycles, but generally positive.
Got it. And then, any 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? And 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 to the process?
Well, Brian, I think the biggest thing is that we're a pretty sales oriented organization. And I think maybe more so than DST was. And I think Salesforce 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. So that's kind of a big change to go from 100 days to 30 days.
Right. I would
tell you that we would like 30 to go to 15, right. So I think that's maybe the biggest change. And then also that senior level executives throughout SS and C are available to the entire sales force. I think that's been a positive development for DST already.
Got it. And then maybe a follow-up, any initial thoughts on pricing power? I know that you've talked about having pricing power on SS and C side and then you're careful how you exercise that. What about on the DST side as you kind of 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?
Yes, I don't necessarily know about pricing power. What I would say is that there's a lot of things that DST does for their client base that we would view as outside of the contract. So 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 right? And then explaining to them that we can't put a bunch of people on this thing and build it out for you for free. And so 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. So we have to have a relationship with people that's open and honest and we have to be valuable to those clients. And 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 JPMorgan. Please go ahead.
Yes, thanks. Hi, guys. So now that you've had a little bit 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 2 companies look like and maybe some synergies that you'll get out of the go to market motion motion specifically?
Well, I think Sterling, as Rahul said a little bit ago, it's only been 2 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. And those kinds of productivity gains are pretty attractive in businesses that are still great businesses are not quite as lucrative as they were before.
Fair enough. And then one housekeeping question, I missed if it was said, but what was the total assets under administration at the end of the quarter?
1,580,000,000,000
dollars Great. Thank you.
Your next question comes from the line of Alex Graham from UBS. Please go ahead.
Hello again. Just a couple of follow ups. One, just Patrick, I think on the debt on the interest rate you said 4.5%. Can you just flush it out a little bit more? I think you're paying LIBOR plus 2.50.
I think LIBOR is at 2.36. So 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 1 month LIBOR and 1 month LIBOR is around 2. So we're locking it in for a month. So and the spread is 2.5. So that's where we get to 4.5 percent current interest rate. We've assumed that in our plan.
Obviously, we could see some rate increases through the year from the Fed, but right now we've assumed 4.5%.
Great, fair enough. And then just I guess coming back to my first question on the cash that you have raised. And obviously, Bill, you laid out kind of like your appetite for further acquisitions. But obviously, last year, we saw that there may be a time when it's hard to find deals. So given that the cash is just sitting around, any other plans if you can't find anything in the next 3, 6, 12 months when you get impatient like what would be your kind of ideal way to deploy that cash?
Would you start delevering again or would you consider like maybe a special dividend? How are you thinking about the cash absence of any deals?
Yes, 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 as well buyback whatever that is. And with the $750,000,000 $800,000,000 and we generate a lot of cash, right? 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, but last year, I think the company just SS and C generated $450,000,000 or so in cash. And my guess is DST is going to generate several 100 of 1,000,000 in cash and we're going to generate probably at least 500,000,000. Dollars You're talking about $800,000,000 $900,000,000 cash as a company. So 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. But there's no and maybe I didn't ask this right, but there's no timeline where you say like, 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?
Well, I mean, I think that that's the analysis, of course, but we're not going to set an artificial timeline on that when something like Fideszka 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 13. We don't want to be obtuse, but at the same time we want to have some flexibility. And no one's more interested in returns for our shareholders than I am. And after me, I would say the people on this call from SS and C are extremely interested in returns to shareholders. So we're focused on it.
All right. Very good. Thanks again. Good night.
Your next question comes from the line of Surinder Thind 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 2Q 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 of 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?
Well, Q2 only includes 2.5 months for DST, right?
Okay. So the difference is simply timing then
at this point. Yes, we closed DST on April 16. So we're assuming 2.5 months of results for Q2, not full 3 months. That's the main difference.
Understood. But I guess, is there any 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. I mean, 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. So it's not something that just happens overnight, but we're gaining momentum. And I think the key to this being really, really successful is that we build on that momentum, right, 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.
And it's a combination of the expertise we have with the DST organization and the expertise we have in the SS and C organization. And quickly, we are turning it into 1 organization.
Understood. And then maybe following up on a question about FIDESA 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, I guess, the reach and stuff while you're digesting the deal at this point? And 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. And I'm not saying we have a perfect track record, but we have a good track record. And we went public October 31st I mean March 31, 2010 at $7.50 And I think we closed to $50 And I know that that's not Facebook or Google, but we do accounting. We reconcile and I think that the businesses we are in are very solid businesses and I don't think accounting is going away. Double entry bookkeeping has been around for about 600 or 700 years.
We think it will see us out.
Fair enough. That's it for me. Thank you.
Your next question comes from the line of Patrick Occhinacea from Raymond James. Please go ahead.
Hey, Patrick, question for you, if I could. I'm curious if you're able to give us the implied DST revenue growth expectation within your guidance?
No, I don't I mean, you can I mean, I think we said that we've got about $1,600,000,000 in here for 8.5 months at the midpoint? And I mean I think the BST's revenue is public for last year, but you got to be careful because they had a lot of one time items, I think over $100,000,000 of one time items cancellation charges in last year. So I think it's a slight improvement over last year if you take out their one time items.
And it's also you have IFDS and BFDS acquisitions in the 1st or second quarter of last year too.
1st quarter, yes.
Got it. Thanks for that. And then 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, I think that that's we sit there and go through this with Pricewaterhouse and try to decide what makes the most sense, what gives the best clarity to our financial statements and this is what we picked. So I think that that's really the crux of it.
Okay, fair enough. Thank you.
Your next question comes from the line of Chris Turney from Sandler O'Neill. Please go ahead.
Hi. Just wanted to ask one follow-up related to DST because there's a report a couple of weeks ago that Legg Mason is moving a piece of business away from DST. It looks like it was small related to money market funds. But 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. And I think that right now, today, we have some confidence. It can change, of course. But yes, 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 the I think to Patrick's question on DST and what's implied, I just want to make sure I understand. So if I annualize the $1,600,000 it looks to I'm guessing that because of the IFDS and BFS 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 negative 5% annualized growth that you're looking for and positive one. Any 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, I mean, Q1 didn't have the acquisition. So that's a close. In Q2, they had about $90,000,000 of cancellation charges, okay, last year. So that's if you take out the $90,000,000 they're running at about $560,000,000 or so. They ran about 560 in Q3 and I think they have some special some other revenue recognition items in Q4.
So I think those mid months are pretty representative of where they were running.
Okay. That's helpful. Thanks, Patrick.
$5.50 to $5.60 a quarter. $5.50 to $5.60?
Yes.
Okay. Thank you.
And I'm currently showing no other questions at this time. I'll turn the call back over to Mr. Bilstone 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.