SS&C Technologies Holdings, Inc. (SSNC) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon, my name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the SS&C Q1 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Justine Stone, you may begin your conference.

Welcome, and thank you for joining us on our Q1 2019 earnings call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer and Patrick Pedonti, our Chief Financial Officer. Before we get started let me review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the safe harbor 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-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, April 30, 2019. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

Thanks, Justine. And thanks everybody for being on the call, our results for the quarter of $1,150 million in adjusted revenue we are $0.91 and adjusted diluted earnings per share and our adjusted consolidated EBITDA was 443.4 million, bringing our adjusted consolidated EBITDA margin to 38.5%, the top line organic growth was 1.3% and we believe this was a good quarter indeed April 16th marked the one-year anniversary of our DST acquisition thus far, we have achieved 265 million of the 300 million in cost synergy goals we set for 2021. We also have achieved synergies of 19 million for the a software in Intralinks acquisition, we are also implementing and investing in the growth of these businesses DST has expanded their sales force across the organizations and have had some notable success with workflow product AWD and our healthcare business was an expanding sales pipeline. Adoption of SS new cloud platform as the continues to accelerate and now and there are now over 60 clients. on March 14, we announced the issuance of 2 billion in unsecured notes with the 5.5% fixed income rate -- interest rate. I'm sorry. These notes will protect us against any rising interest rate environment and are due in 2027 we used the proceeds from the senior notes and pay down our variable rate term loan debt and we did that in Q1. We expect our leverage ratio to be below four by the end of the year and our secured debt leverage ratio to be below 30. I will now turn the call over to Rahul.

Thanks, Bill . We had a strong Q1, with good execution across the business in product and pipeline development, customer satisfaction and innovation, we're having success that our recent acquisitions on several fronts we've added sales talented DST both in financial services and healthcare and instituted a sales governance process focused on disciplined execution. We increased sales focus in many areas, including events under processing BPO outsourcing, global transfer agency, advanced care groups with our exclusive relationship with Johns Hopkins and a greater emphasis overall on professional services product integrations between AWD a DST workflow application with several of our products including Precision LM and brakes have had positive feedback. We're working on similar integration efforts and several other client facing solutions, the pipelines are building and we are optimistic. A Intralinks we're working on offering private equity and real estate firms. A combination of the Intralinks investor reporting platform and the software and services capability of our private equity fund administration business, modules for capital raising deal making portfolio company monitoring and accounting and reporting are now available to our customers and prospects. More information can be found on our newly launched Intralinks webpage. We've integrated as the into our hedge fund and asset management offering and the comprehensive front, middle and back office suite is getting a positive market reception. Now, I will mention some key deals for Q1 2019. The Baltimore, Maryland-based private equity firm chose SS&C by combining our private equity fund administration services with Intralinks private equity investor communications portal displacing a competitor. SS&C want to fund administration deal for 30 billion plus of global alternatives manager displacing a competitor. Our large US based asset manager extended their relationship with SS&C by purchasing our performance measurement and data management system and over, a turnkey asset manager chose SS&C Black Diamond as a reporting system for the 160 plus our eyes on their program. One of the 20 largest insurance companies and also one of the 40 largest mutual fund companies shows the DST event center to provide call center, processing and return support services for their books and records mailings. US division of a top 10 global insurer entered into a two year engagement with SS&C to upgrade and expand their use of AWD one of the five largest US managers entered into an agreement to migrate their in-house AWD implementation onto SS&C's private cloud, an 800 billion plus investment manager extended their use of Intralinks one space portal across their real estate business. I will now turn it over to Patrick. To run through the financials.

Thanks Rahul. Results for the first quarter were GAAP revenues of $1,137.2 million, GAAP and GAAP net income of $80.8 million and diluted EPS of $0.31, adjusted revenue was $1,150 million Excluding the adjustments for implementing the new revenue recognition standard and for acquired deferred revenue adjustment for the DST Intralinks acquisition we had a strong quarter adjusted revenue was up 164.7% adjusted operating income increased 144.9% and, an EPS was $0.91, a 71.7% increase from 2018. Adjusted revenue increased $750.5 million or 164.7%. The acquisitions as of DST sales as an Intralinks contributed $712.4 million in the quarter. Foreign exchange had an unfavorable impact of $2.7 million or 0.6% organic growth on a constant currency basis was 1.3% driven by the strength in the alternative business, term licenses were lower by $5.2 million to the timing of contract renewals in the quarter. Adjusted operating income for the first quarter was $420.9 million, an increase of $249 million or 144.9% for the first quarter of 2018. Foreign exchange had a positive impact of $4.8 million on expenses in the quarter. Operating margins declined from 37.2% to 36.6% in the first quarter. DST Operating margins were 35.2% in the first quarter, an annual run rate implemented cost synergies reached $265 million at the end of the quarter. Implemented annual cost for its synergies for as an Interlink's combined were $19 million at the end of the quarter. Adjusted consolidated EBITDA was $443.4 million or 38.6% of adjusted revenue, an increase of 148% from Q1 '18. Net interest expense for the quarter was $101.6 million and includes $4.3 million of non-cash amortized financing costs and OID the average interest rate for that, the quarter was 4.7% compared to 4.59% in the first quarter of 2018. We will put recorded a GAAP tax provision for the quarter of $16 million or 16.5% pre-tax income. We currently expect the GAAP tax provision to be approximately 25% for the full year. Adjusted net income was 239.4 million and adjusted EPS was $0.91. The adjusted net income excludes $17.8 million of amortization of intangible assets, $7.1 million loss on extinguishment of debt related to the notes offering completed in the first quarter $20.4 million of stock-based compensation, $4.3 million of non-cash debt issuance costs $17.5 million of purchase accounting adjustment, mostly deferred revenue adjustments and depreciation related to revaluation of assets and acquisitions., $4.2 million of revenue adjustments related to adoption of 606 and $2.5 million of other non-operating costs including $7.5 million gain on mark-to-market adjustments on investments and $3.9 million of severance costs related to staff reduction and the effective tax rate for adjusted net income was 26%. Diluted shares increased 21.1% over Q1 '18 mostly due to the share issuance in connection with the acquisition of DST and Intralinks as well as the increase in the average share price in Q1 2019. On the balance sheet and cash flow, as of March, we had approximately $155 million of cash and cash equivalents and approximately $8.2 million of gross debt for net debt possession of $8.1 billion. At the end of March, we closed on a $2 billion senior note offering and we use the net proceeds of approximately $1.99 billion to pay down the term debt facility. Operating cash flow for the three months of March was $137.4 million is $67.5 million or 96.6% increase compared to the same period in 2018. And highlights for the quarter, we paid down a $138.4 million of net debt since the DST acquisition in April of 2018, we've paid down $1.084 billion of debt. We paid $96.4 million of cash interest in the quarter compared to $31.8 million in Q1 2018. In Q1, we paid $60.3 million of cash taxes, compared to $1.7 million in Q1 of 2018. Our accounts receivable DSO at the end of the quarter was 53.7 days and that compares to 54.9 days as of March 2018. We used $32.6 million of cash for capital expenditures and capitalized software mostly for IT, as well as leasehold improvements. In the quarter, we declared a dividend $25.2 million in common stock dividend as compared to $14.5 million in Q1 2018. Our LTM consolidated EBITDA, which we use for our covenant compliance with $1.833 billion as of March 2019 and includes $287.2 million of acquired EBITDA and cost savings related to acquisitions. And based on the net debt of $8.1 billion, our total leverage ratio was 4.4 times and our secured ratio as of March was 3.3 times and will be below 3 times by the end of 2019. On outlook for Q2 and the full year 2019, we've made one assumption on the organic growth calculation. For the organic growth calculation, we've eliminated the impact of lower out of pocket reimbursed -- reimbursement revenue as DST as we're progressively getting out of that zero margin business. Our current expectation for the second quarter of 2019 as adjusted revenue in the range of $1.138 billion to $1.168 billion. Adjusted net income of $234.8 million to $251.5 million and diluted shares in the range of $268 million to $269.2 million. For the full year, our current expectation on adjusted revenue is in the range of $4.675 billion to $4.765 billion and represents organic growth rate in the range of 1.5% to 3.4%. Adjusted net income in the range of $992 million to $1.42 billion and diluted shares of $266.8 million and $268.8 million. We expect the adjusted tax rate for the full year to be 26%. Cash from operating activities will be in the range of $1.95 billion to $1.135 billion in capital expenditures in the range of 2.6% to 3% of adjusted revenues. And I'll turn it back over to Bill for final comment.

Thanks, Patrick. Yesterday, we also announced that we were awarded $44 million in damages and the trade secrets lawsuit going back three years. That's SS&C's information intellectual property back invaluable to our business and we will vigorously protect it. As we move into Q2, we get increasingly optimistic in our business and what we've done. Obviously, we've always said that when you do acquisitions, you make sure that you get the cash as quickly as you can and the expense reductions and synergies. At the same time, as we're doing that we're building out our sales forces and we're getting focused on our sales so that we have individual names, individual targets, individual sales prices and individual close date. We're getting increasingly strong as a company. And with that, we'll take questions.

[Operator Instructions] Your first question comes from the line of Brad Zelnick with Credit Suisse. Your line is open.

Excellent. Thank you so much. Bill, Patrick, great disclosure. Really appreciate it. I specifically wanted to ask about the out of pocket reimbursements associated with DST winding down and in the context of the organic growth guide that you've given us for the full year of 1.5% to 3.4%. If you were to remove that business entirely this year as you're forecasting it as well as last year, would that -- what would that organic growth profile then look like?

Yeah, Brad, it will be a little bit higher, but it's a no -- it's no in we have no earnings, right, it's a pass through. So our view of it is in Q1, it went from $37 million last year to $26 million this year. So it's just something that we shouldn't ever have done, of course we weren't there and we weren't there to make the decisions to do that. So that's a little gratuitous on my part, but we just don't do things where we don't have margin and I think that's something that we're trying to explain.

That makes perfect sense. And I guess, I'm sorry.

Sorry, I just want to make sure I understand your question. Like, so DST was not organic until the second quarter of this year. So it really didn't impact organic revenue last year but it will start impacting the organic revenue calculation in the second quarter.

Okay. That's helpful, Patrick.

And we're adjusting it out for starting in the second quarter.

And just so I understand, if I look at the revenue guide down, it's solely given your view on where those out of pocket reimbursement are relative to the last guidance that you gave us, correct?

No, the impact for the full year of the lower out of pocket revenue, it is -- by date $8 million that represent 8.5 month, right?

Okay.

But the biggest was the...

Yeah, the biggest was in Q1 but Q2, I think is for -- Q3, I think two in Q4 is two that's about right, right, Patrick?

Yeah, it's about four, three and two. Maybe not.

It won't impact earnings.

Completely get it, Bill. And maybe just moving onto an easier topic. Just wanted to see if there are any changes to how you're thinking about the consolidation opportunity outside of the alternatives fund admin market and perhaps might you consider larger acquisitions in newer adjacencies. For example, in treasury management given the reach you now have into corporates with Intralinks for example?

Well, I think that's a really good question and it's something that we have a lot of interest in. I think what we're doing right now is seeing making sure that with the assets we have, that we are putting together the types of solutions that our clients want and then as we go out and chill them whether it's our singularity product that's getting a lot of traction are the as the clip product now has 65 clients. We have a lot of stuff coming into the marketplace and Intralinks as well. And so we want to make sure that we have a strong handle on what we can offer without any more acquisitions. And then go after acquisitions that we think will really enhance that profile.

Excellent. Bill, thanks so much.

Your next question comes from the line of Alex Kramm with UBS. Your line is open.

Yes, hey good evening, everyone. Just coming back to organic growth for a second, I know obviously everyone is very focused on integrating but clearly organic growth still matter so wondering two things, one, it will look at the old organic growth forecast here for the full year. I think it was 1.9 to 4.1 no saying one, sorry, I think we'll obviously lower right 1.5 to 3.4 I believe. so can you just bridge that delta there from both, maybe some of the stuff, you talked about just now with a pass-through but also what in the business maybe is running a little bit softer than you thought originally given that you markets up hedge funds are doing better, et cetera.

I think ultimately, Alex, it is going to be how well we execute on DST and Intralinks and Edson, Intralinks scenarios are not going to go organic until the end of the year. So there is no pickup on them for that and then the FT has been a flat kind of business for a number of years and we're making a lot of changes that we're making a lot more changes and some of the, we have a big pipeline and getting that pipeline to close is it is a challenge, but it's not because I don't think it's because it's soft. I think it's just it's a healthcare business, they don't move very quickly often they only do on renewal dates and so we have to line those up. And then go not come down and that's why we went in worked as hard as we could do the synergies we could get that. We always had the earnings we had enough cash in which to invest in our sales and marketing organizations who really start to generate organic revenue growth and I think that's what's going to happen , it's just, is as you know the getting the closes done as quickly as we want has been more of a challenge.

All right. And then maybe secondarily, I think just staying on DST for second 2-part question, like one you mentioned a lot of the sales and I guess investments just now, maybe you can be a little bit more specific and also be more specific in terms of the pipeline. I think last quarter you said it was standing at a record. And then just secondly, the bigger picture, I think when you acquired adds with a few years ago, there were some opportunities for pricing because I think may have taken a little bit of a different approach. Can you just talk about this in the context of DST of maybe any opportunities that you see there to get a little bit more I guess economic on some of the contracts and how that could impact the business going forward. Thank you.

I think that we have great clients large sophisticated players around the world. Then I do think that the prior to us acquiring DST. There was a pretty significant up charge in Europe. And as you well know those are not particularly popular and so I think -- we think we have pretty good revenue picture we need a sales execution picture that improves, we made an intensity in our entire sales organization and I think we're getting there. I think it's -- we do have a lot of very large opportunity. They range from $3 million or $4 million to upwards $50 million, $80 million. Right. But no closing $50 million, $80 million accounts going to take multiple presentations, multiple meetings, multiple workflow analysis then and I think we're getting very good at that. And I think we're going to continue to get better at.

Any specifics on the sales force in the pipeline. To my earlier part of the question.

Again, I think last quarter we talked about we have a new Head of Sales in financial services for DST. We have a new head of sales and in Healthcare. We have hired a number of sales people to come in senior people and look there knocking on doors and there getting in front of people in there is enthusiasm no. But enthusiasm and increase in our organic revenue growth is an oxymoron, right we need contracts and that's the only thing that really matters. And you know, but we're going to execute in a very forthright way where we are a very ethical company and we're going to continue to be that, you had and we want people to work hard, but it's job right, it's not always in adventure. And so I think that we're in good shape. We're going to make a lot of money. I think we raised our guidance for the year up [indiscernible]. I think we'd be Q1 by $0.04 we're not going to miss any.

Fair enough. Thank you.

[Operator Instructions] Your next question comes from the line of Surinder Thind with Jefferies. Your line is open.

Good afternoon, gentlemen. I just wanted to follow up on the sales force ramp-up, can you provide a little bit color in terms of the size of the increase that we're looking at and maybe the cadence as the year progresses. And if there is going to be any meaningful impact that we can think about from an expense perspective.

Yes. So if you think there's two things, one we probably added about 15 to 20 salespeople. So far, I'd say we're recruiting for at least that number if not more, but much more than how many right it's how good and I think the how good comes in a number of different ways, but the thing that Bill talked about is a lot of focus around what are those opportunities where exactly are we would those opportunities. What does it take to win and then can we schedule signature date. Right. And so that's the kind of attention that the sales force is getting on each and every opportunity that they have. We're already starting to see a pay off and we're optimistic that will continue.

Understood. And as a follow-up. Wanted to touch base on as an Interlinks any color you can provide there on those specific standalone firm like an organic growth perspective. Meaning what kinds of gains, are you seeing there year-over-year. At this point, given that they're not in the organic numbers.

So we probably has the figures, but from a, just from a from my view Intralinks continues to have a lot of momentum. I think bookings are strong there opportunity creation process is strong and then Bill mentioned on as in particular we're pretty optimistic about this Eclipse product, we already have 60 customers on it. We have gone out and downloaded to some of our biggest customers and seeing fair amount interest there as well. So if we feel good about both those businesses.

Got it. I'll save myself for the follow-up. Thank you.

Your next question comes from the line of Rayna Kumar with Evercore ISI. Your line is open.

Good evening. The 1Q organic revenue growth of 1.3% help us better understand how much of that was related to the lower pass-through revenue versus other underlying factors and then specifically what was the organic revenue growth for the alternatives business in the quarter?

The out-of-pockets, as Patrick said is DST and so that had no impact, that only had an impact on the total revenue number we have supplied the [indiscernible] and then I believe the alternatives business grew at 4.1%.

And specifically, what are you looking for second quarter organic revenue growth.

I think, Matt. Go ahead Matt.

You know, up under a 0.5% in the second quarter.

And if you can just explain why that lowers than your full-year guidance.

The amount of revenue that we get in the second quarter is historically have more of a challenge, across all of our businesses. Right, because Q1, particularly in the Fund's businesses includes an awful lot of stuff for financial statements and tax returns and all that preparation time. So there is a lot of revenue that comes in with that and a lot of regulatory revenue as well, so the second quarter is always more of a challenge. And then we will have DST starting as of April 16. So for 2.5 months, we'll have this $550 million in revenue, that was basically flat. So flat doesn't add to 1.3. It's Doug and so I think that's the biggest challenge but I to said we got opportunities. And if we execute and things fall in line for us. Maybe we can surprise you positively.

Thank you.

If you go from Q1 to Q2 organic, our core business and based on the midpoint of our guidance improves in Q2 over Q1. But DST, the impact of DST lowers the organic growth sequentially.

That's very helpful. Thank you.

Your next question comes from the line of Chris Shutler with William Blair. Your line is open.

Hi guys, good afternoon. This is actually Andrew Nicholas filling in for Chris. Just the first question I had just to talk little bit more about organic growth and your plans for accelerating in the back half of the year. Obviously DST is a big component of that, but I'm just curious if you could provide any more color on what gives you confidence in that acceleration in the back half of the year and if any of that confidence is based on sales that are already close, but not yet converted or if it's more to some of the points you already made about executing on current sales processes?

Yeah, I mean I would say that, it's, it's some of both with probably executing on unsold probably be three quarters and they maybe they giving it implemented being one quarter but our alternatives business remained strong. I think we think it will accelerate through the year and for a whole can comment on that and we have a lot of initiatives that we're pretty optimistic about and -- again we thought, when we bought DST that we were going to have somewhere around $125 million to $250 million worth of synergies. We are already at 265 and I think we will get to the 300 that we're targeting by the end of 2021. I'm so we try to put our management time where we can make the most impact on our financial statement soon. Obviously, getting into the sales cycle on these long sales cycles and trying to change attitudes and approaches it's a difficult process. But we've been working at it and we're going to keep working at it and we've got some really good people working on it and we have a lot of confidence in their capabilities.

Great, thank you. And then just one quick follow-up for Patrick. Would it be possible to get the breakout of revenue from DST Intralinks? And as I know you gave it as a group, but it might be helpful to us if we can get those three broken out since there are obviously larger than usual.

Sure. So the total acquisition revenue was $712.4 million. DST was $557.1 million. As was $68.6 million, Intralinks was $84.3 million and then there was a couple million from CACEIS, which we closed in the second quarter of last year.

Perfect. Thank you very much.

Your next question comes from the line of Hugh Miller with Buckingham. Your line is open.

Thank you very much. So as we think about DST and the split between the healthcare side of the business and the financial side of the business, can you talk about what you're seeing there between those two just in terms of kind of the pipeline and the extension of kind of contracts coming to the close and just giving a little bit more color between those two businesses decreasing any differences among them?

Well, again, obviously, they're not the same businesses but you're selling a large chunky recurring revenue business into big sophisticated organizations and often you have renewal dates that tend to be the ones where you have opportunity. We have just recruited another topic executive Forest Denham in Kansas City, Rob Coolitz, who's going to run our are part of our healthcare business and we have a lot of PAs excitement about him. and we also have as I said, new heads of sales and healthcare and financial services. And as Rahul said we have 15 to 20 new salespeople. So we're doing the things necessary so Mike is going to catch up somebody is got to make backhaul and we've got to get the end zone and we're more than aware that's what we have to do, But we did make $0.91 this quarter, and last year, we sanguine about where we are. And that does not mean that we are asleep, we are not.

Okay. And I appreciate the color there. And then shifting a little bit towards Black Diamond. If you could just talk about kind of that the growth that you're seeing there? Peer review or is it kind of enhance their wealth planning offering through acquisition. Wanted to get a sense of what you're seeing in terms of Black Diamond how it's competitively positioned and if you're seeing any a need to kind of make further investments in that offering and your thoughts there for the growth opportunities.

We think that's a great product. We think Steve Leivent who work for Rob and they run that business and Bob, can you clear it runs the sales side of it, but they're very talented people and they are investing in that business all the time and you have the full support of our organization and we're looking at acquisitions to build into Black Diamond all the time and we think it is a very competitive product.

Thank you. Your next question comes from the line of Peter Heckmann with Davidson. Your line is open.

Good afternoon. Thanks for answering all these questions just thinking about your guidance for the second quarter and how DST into the calculation, I would have thought that with the positive market action your assets that are registration assets under management would have been at a high point at the end of the quarter and that would had some benefit I mean, does that suggest the DST's revenue on an organic basis might be down 3% or so in the second quarter?

I don't know about 3%. I think, that relative to Q2 for DST last year when obviously we owned it for 2.5 months. It will be -- it will probably be down $10 million or $12 million, is my guess, which is probably between 2%, 2.5%, maybe. But again, they have opportunities and it really is changing the cadence of the sales process and it's happening. We wish it would happen faster, but it's a very large organization and we have good people in there and they're working hard. But again, we have to accelerate to close.

Right. And so you're -- you still feel confident though is that the cost reduction at DST are not impeding your ability to re-accelerate the top line?

It's improving it.

Good. I look forward to that. Thanks.

Your next question comes from the line of Mayank Tandon with Needham & Company. Your line is open.

Thank you. Good evening. Rahul, you mentioned there are several competitive wins. I would love to get some more details around what are the determining factors behind those wins, is that price, the technology, a combination of both or other factors that might have played a part in you winning and displacing some of these competitors?

Thank you. Obviously, everyone is somewhat unique. But I think things that go across them is as we've collected a lot of these capabilities and built a lot of capabilities. When we go into some of these opportunities, the number of things that we can do for them and the number of pin points we can address is differentiating. So if you look at any one of the larger opportunities, we might be selling five, six, seven products and services in there, whereas our competitors might be in for a point solution or two or three at the most. So it makes us a lot more strategic and improves the likelihood of us winning.

Great. And then as a quick follow-up for Patrick maybe, I think you may have mentioned our build at the $19 million in synergies from as an Intralinks, could you remind us of what the plan is and where you are tracking versus that plan? And then if we isolate the impact of the synergies from the acquisitions, our core margin still improving, about 50 basis points give or take on an annualized basis. Thank you.

I think that, it's Patrick. The combined Eze and Intralinks synergies target, it was $45 million at the end of three years all that's our target there, I think where we are, where we're at '19 right now $80 million, $90 million implemented not all realized at this point but implemented.

Right. And Patrick if you isolate the impact of the synergies on a core basis, are you still improving margins about 50 basis points annually. Is that still the target model for the company.

That's definitely the target model for the company. I think obviously we've become much bigger company in the last 12 months. Soon we've got higher corporate function costs like marketing and finance and HR, we're not necessarily allocating those, the new acquisition, but if you strip out the increase in the corporate functions that are supporting the whole business, our goal is to continue to improved core margins and we're seeing that.

Got it. Thank you.

Your next question comes from the line of Andrew Schmidt with Citi. Your line is open.

Hey, guys. Thank you for taking my questions. First question regarding is the pipeline. Last quarter you guys mentioned that won't be lumpiness in the pipeline for large deals in it, I assume some of the back half pickup is predicated on that, but do you have any do what's your visibility relative to last quarter, in terms of just utilizing those deals.

You think probably the things that I would point to are in addition to the lumpy ones. What we've been able to do in places like DST is create some opportunities for so medium size ones and some smaller ones. So it's a little more balanced than it was before. And as we get closer to the sales force. And as we get a little more discipline. We're also getting a lot more visibility into exactly where we are on those opportunities. And when we expect to close we've closed several and there lots more that are, that we're working on.

Got it. That's helpful. And if you remember correctly, I think DST client walks that occurred last year. We have an impact on DST growth this year. To what extent I guess is that impacting growth this year. Could you try to parse that out, that would be helpful. Trying to get a better sense the underlying growth there.

Yes, I don't know that I've got the figures, but there are certainly, if you look at DST last year there were some one-time things related to customers that by definition don't repeat so that does have an impact.

Okay. And then someone alluded to, obviously, there's been some spend M&A in the space, large asset manager. Nothing out of the ordinary, but when you, when you go to clients for deals. Has anything changed in terms of just the conversations or how you go to market. or is the value proposition changed at all.

I wouldn't see the value proposition is changed. But the view on how technology is used in all of these different segments and subject in sub segment it's is changing a little more rapidly, particularly the use of AI and no and robotics machine learning and all of that that's coming together. You know that the systems continually get more powerful in and you will see where we're different organizations are I think Mitsubishi just says they're going to cut half of their corporate staff because they can automate them, when I think that that's going to be a pretty strong wave going forward, and I think SS&C has been smart and gotten out in front of that and I think we're going to be able to catch that wave and hopefully we start catching it in the second quarter third and fourth quarter, but we're very optimistic about it.

Got it. Thanks Guys. Appreciate the thoughts.

Your next question comes from the line of Ashish Sabadra with Deutsche Bank. Your line is open.

Thanks, Patrick. You mentioned the film license were lower due to timing of the contract renewal. Can you just, what was the revenue is pushed out from first quarter to second quarter and day impact organic growth in the first quarter.

It's some background when 606 was implemented last year change revenue recognition from ratably to recognizing the license portion of the contract upfront. So at Advent a lot of contracts are multi-year very share annual contract . So if a contract came up for renewal in Q1 of '18 and we renewed for three years, we'd have three years of license revenue in Q1 '18 and then it wouldn't come up for renewal in Q1 of ' 19 and we have zero revenue for that contract other that we have the same maintenance. So that's kind of what's impacting us a little bit in the second year of 606 revenue standard of any contracts that we signed, multi-year arrangements for last year, we're not getting any revenue on this year.

Okay, that's helpful. And is that being on the organic growth in the quarter because I know this question was asked multiple times differently because DST was not organic in the quarter. So it wasn't clear what clearly caused that.

The term license. I think as we mentioned the alternative business of 4.1% and the term license business was down.

Thank you. That's helpful and then just a quick model question, just the AUA at the end of the quarter and how much is the retention rate.

Yes to the AUA is $1.67 trillion.

Okay. And the retention rate.

Did you ask for client retention.

Yeah, but client retention for the last, we measure for the last 12 months or last 12 months as of the end of March. Total client retention was 94.9%.

Okay. That's helpful thanks.

Your next question comes from the line of Jackson Ader with JPMorgan. Your line is open.

Great, thanks. Good evening, guys. The first question from my side. At the 60 or so customers that are now using the Eclipse platform cloud offering from Eze. Can you give us any kind of a sense of what those customers look like it's part size, maybe what types of funds, they are just the flavor of those six.

So you know, look at this client base in general is geared towards hedge funds. Right. And within didn't hedge funds. It's geared more towards equity and equity linked derivatives than it is towards fixed income and foreclosed. So you know that the as Eclipse client base reflects that. We do have some diversity in the sense that there are some asset managers with broader portfolios in there as well. And as we look at our pipeline is pretty well-rounded.

Okay, that's helpful. And then a follow-up for you, Patrick. Gross margin up again nicely sequentially. So when or where should we start thinking about these topping out is the 60% kind of non-GAAP gross margin range that we saw a couple of years ago before these of this kind of acquisitions, is that the right range. We should be thinking about.

Well, I think if you look at the synergies. And we've got another 35 million at DST in another now and a 25 million as an Interlinks, a good part of those will be gross margins. So those are, those will continue the acquisition will continue to improve our gross margin and then our target of improving operating margins by 50 bps the year, a good portion of that is also at gross margin as we continue to invest in research and development and sales

All right. Thank you.

Your next question comes from the line of Chris Donat with Sandler O'Neill. Your line is open.

Hi. Just wanted to ask one of Patrick on the full year guidance for revenue and in earnings. Just because when we look at what the first quarter results were, and the full-year guidance, we see that adjusted net income should be up about 2.5% from what your prior guidance was, revenue is down around 40 basis points. Can you just talk us through what the major moving pieces of that are from three months ago?

I think the major moving pieces are -- we were up about $3 million in Q1 from the midpoint of our guidance. Our current guidance in Q2 is down about $20 million and then the rest of the year is pretty steady from where we thought it would be. We are seeing -- and then we've got good operating margin improvement in Q1 which we're building into the annual forecast, that's helping us and then it's, this is all that is being offset a little bit by share count increase which is mostly due to the stock price being up -- stock price being up and that impacts diluted share count. So it's a kind of a mix of those three and in the end, I think we're up $0.05 or so.

Yeah.

On the range.

Okay. And then within the second quarter being down $20 million from prior and just any color there?

I mean the alternative business continues to perform well and continue our expectation for the rest of the year. I think we're seeing more impact on this term license than we expected and the DST contribution were little bit less.

Okay. Thanks very much, Patrick.

Your next question comes from the line of Brian Essex with Morgan Stanley. Your line is open.

Hi, good afternoon and thank you for taking the question. I guess, Bill or Rahul, maybe if you could talk a little bit more in terms of what you're seeing in the market in terms of pressure that your customers are under, particularly in the asset management space, we have asset manager PE multiples, 20-year lows, those of declined dramatically over the past couple of years. Passive is now 25% of global AUM. What kind of strategies are you seeing, your customers deploy to I guess remain competitive in the market, is it penetration of emerging markets, private markets, packaging solutions, I mean you mentioned AI? Is there -- are there any kind of prevailing themes that you're seeing and maybe how you're lined up or how you are strategically thinking about getting ahead of those other ones kind of again outside of AML?

Yeah, Brian, I think what the big asset managers are trying to do is to become more strategic with their customers. And that requires them to have a broad array of product type and a broad array of experts, whether those experts are in the state planning, tax, wealth preservation, those types of things and I think whether it's a Morgan Stanley or it's a St. James Place or its all mutual right, they all have different wrappers around their products and there is a tremendous amount of regulation around the world. And so how those wrappers work with the regulation and with the vaccine authorities becomes increasingly important to the individual investor and then by default into the pension funds, and endowments and others that are really collective pools of money for those for those people. So we think that having the intellectual capabilities that we have and the prowess that we have with building software, it's something that's going to be a winner. so that when these big organizations want to protect their businesses they're almost all pretty well aware that doing it in-house is an extremely expensive process where the people that built their systems for them want to move onto another system and then they have people maintaining their systems that aren't as bright as the people that built their systems. So I think the value proposition that we bring is pretty tangible and I think that that's going to play out in and I think it's going to really work to our favor versus some of our larger competitors.

Great. Okay, that's helpful. Any movement yet on the private equity side or real assets in terms of acceleration of decisions to outsource, because of what they are seeing in the market or is that still kind of a slow grind?

Those are good businesses for us. Right. And we have, we have really strong pipelines and good conversion and they go and they growing faster. So I wouldn't really say that there's a huge catalyst to outsourcing, but there seems to be some steady pickup every year. And for us that has been pretty positive. I also think that on that point that very large ones which you haven't outsourced, are trying not to in source anymore. Right. So as they have new funds are all as they get into a new asset class are as they go into a new geography now they're looking to try say us as a complement to what they do and then over time, if we do a really good job they may move some of their stuff to us and that's what we've seen.

Right. We just need to knock down another top 5 asset manager PE firm but very helpful, thank you very much.

Your next question comes from the line of Alex Kramm with UBS. Your line is open.

Yeah, hey, thanks again. Just couple of quick ones. One, Rahul, you just gave the AUA number earlier when somebody asked then I noted it was down quarter-over-quarter. I know redemption activity was obviously elevated given the end of last year but hedge funds did really, really well in the first quarter. And so maybe you could just flush out the puts and takes and why that wasn't better which is what I expected?

Yes. So look, it's -- you think the comparison as it's down $17 billion Q1 to Q2. Right. Included in that is one customer for $32 billion of assets and very little revenue. Right, so not much impact or change to our revenue profile. But when you look at it in terms AUA, that's the primary difference.

Okay. Great. And then maybe just real quick, just to finish on the synergy side and the cost side I think DST almost done now. I think $35 million left. Can you just give us a couple of the big buckets that are in the $35 million because you clearly saying 2021, just wondering what kind of big projects, there are still left? And then any stones you haven't turnover yet? Any areas where we you haven't really looked much detail yet that we should be thinking about?

The two -- the big areas for us. Right, IT and IT spending in general spending on third parties is continues to be in that we're not, we're really trying to do it when the contracts come up for renewal, right, which happens on a regular way throughout the course of the year and next year. And then we're very focused on productivity and productivity pickups which is automation and building software and that also is something that's a continuous process.

And also Alex, we think that we can -- we had two enormous data centers, one in outside of Kansas City and one outside of outside of St. Louis. And we also have one obviously in New York town Heights here in New York. And I think our ability to begin to lever that data processing capability to sell it. I think it's pretty valuable and people are interested.

All right. Thanks again. Good night.

That concludes our questions for today and I'll turn the call over to Bill Stone for closing remarks.

Well, we appreciate as we said before, and we look forward to seeing you next quarter. Bye.

This concludes today's conference call.. You may now disconnect.