Q2 2019 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. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you Justine Stone you may begin your conference.
Hi, everyone welcome and thank you for joining us for our Q2 2019 earnings call I'm Justine Stone Investor Relations for assistance. He technologies with me today is Bill Johnson, Chairman and Chief Executive Officer, Who'll, Kanwar, President and Chief operating Officer and pass it onto your 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 provision under the private Securities Litigation Reform Act of 995 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 factor section of our most recent annual report on Form 10-K , which is on file with the FCC and can be accessed on our website.
These forward looking statements represent our expectations only as of today July 29, 2019, while the company may elect to update these forward looking statements. It specifically disclaims any obligation to do so.
During today's call, we will be referring to certain non-GAAP financial measures 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.
<unk> Www dot at sea Tac Dot Com I will now turn the call over to Phil.
Thanks, Justine and thanks, everyone. A result for the quarter or 1 billion 155.8.
Million dollars.
And adjusted revenue and we are 91 cents in adjusted diluted earnings per share. Our adjusted consolidated EBITDA was 448 million, bringing our adjusted.
The EBITDA margin.
38.8% Q2 organic revenue growth 3.6%.
Adjustments made to organic revenue growth include <unk> do you see out of pocket revenue, which we've spoken about before it zero margin and lost clients from DSP prior to the acquisition close after walking through the exact numerical amount.
And his call.
We have also included a slide deck that our earnings release, which can be found on our investor Relations website under quarterly results.
We will update and distribute this flight deck quarterly.
Top line performance was driven by several businesses all our Uh huh.
Our alternatives business grew over 5% and 4.8% organically and a real real assets business describing.
Geneva, our best in class portfolio accounting system had a strong winds this quarter and our our eighth solution Black Diamond continues to post double digit growth.
Black Diamond now has over a trillion in assets across 14 Monika.
We're also seeing the DSD sales organization moving more to a to a more aggressive and proactive culture, the cross selling up selling opportunity at existing clients is massive and we are starting to see these opportunities come to fruition.
Waddell <unk> Reed marketplace example of her firms moving to an in house from an in house technology solution to outsourcing without.
In the past two years 20 of our largest clients about sort of some or all of their operational functions.
We expect this trend to continue as asset managers focus on their core competencies.
And move towards a cost effective variable expense operating model Inorganically. The M&A market is very active we were able to incorporate.
Financial record keeping from a wider range of end markets, including international opportunities.
With our revenue leverage ratio at 4.21 consolidated EBITDA, we have ample capacity for high quality.
Acquisition.
I'll now turn it over to Rahul.
Thanks, Bill we had a strong quarter with innovation sales performance across the business good future pipeline development and continued integration.
Innovation remains at the forefront.
We are investing in a number of new products and services across our business. These include singularity or smart cloud based investment in operation system core our central data gathering and enrichment system Ensight line, which allows for advanced visualization, a large and complex datasets.
We delivered enhancements to our business process management solution known as AWB, which is particularly relevant to the financial services insurance banking and healthcare industries, which have data intensive and complex processes.
Our services and outsourcing business remains strong.
Highlights include our private equity and real assets business, which continue to win new mandates and gain market share as investment from search for operating leverage our suite of products and services designed to simplify scale and transform their operations is gaining momentum.
We continued during the quarter to integrate the newest additions to SNC intralinks and as as is now selling more into larger and traditional asset managers, which is one of our objectives for this acquisition there are new product the as eclipse platform as a cloud based solution that further differentiates us in the marketplace as Geneva, and global give us a unique front middle and back office offering at Intralinks, We're seeing progress in their alternatives business combined with our fund administration business.
Seven out of the top 10 M&A deals in North America used Intralinks in 2019, and we continue to invest in next generation capabilities, including artificial intelligence to derive insights from deal room data.
Now I will mention some key deals for Q2 2019.
A Chinese fund administrator chose Geneva as the portfolio management system for the 100 billion plus assets under administration, a $12 billion asset manager and advent client for over 25 years upgraded their on premise software to our hosted outsource services model.
A $4 billion asset manager and longtime access Cline upgraded their system to black Diamond one of the world's largest private equity firms chose Intralinks is investor reporting total funds space Hong Kong based hedge fund chose a combination as his front to back solution and SNC Global Fund administration services.
And existing fund administration clients took on more services from SNC go above, including Investor services regulatory reporting and tax services.
And existing SNC health client chose our business process management platform MWD to streamline their operations and existing client and DSD asset management chose DST digital solutions for their statement composition and design I will now turn it over to Patrick to run through the financials.
Thank you.
Results for the second quarter.
GAAP revenues of $1 billion 148 million GAAP net income of 121.1 million.
And.
Diluted earnings per share of 45 cents.
Adjusted revenue was 1 billion won 55.8.
Our next excluding the adjustments.
Implementing the new revenue recognition standard.
And for acquired deferred revenue adjustment for the DST Intralinks acquisition.
Overall, we had a strong quarter adjusted revenue was up 27.2%.
Adjusted operating income increased 56.8%.
And diluted EPS was 91 cents.
An increase of 46.8% over 2018.
Adjusted revenue increased 247.3 million the acquisitions of DST.
Assays as Intralinks contributed 244.3 million.
Foreign exchange had an unfavorable impact of $9.2 million for 1% of the quarter.
Do you see pre acquisition terminated clients and the reduction of out of pocket revenue.
The impact to the quarter for 20 million.
Organic revenue growth on a constant currency basis and adjusted.
Adjusting for the reduction of the DST revenue.
It was 3.6% driven by strength in the alternatives and advent businesses.
Adjusted operating income for the second quarter was $426.2 million an increase of 154.
Point $4 million or 56.8% over Q2 2018.
Foreign exchange had a positive impact of $8.2 million on expenses in the quarter.
Operating margins improved sequentially from 36.6% of the first quarter to 36.9% in the second quarter.
DSG operating margins were 33.8% in the second quarter.
Annual run rate implemented cost synergies reached 288 million as of June 32019.
Adjusted consolidated EBITDA was 448.2 million or 38.8% of adjusted revenue an increase of 53.6% over Q2 2018.
Net interest expense for the second quarter was.
It was 104.3 million.
And includes $4.5 million of noncash amortized financing costs and no I'd.
The average interest rate in the quarter for our credit facility and our senior notes.
Combined was 4.96%.
Compared to 4.39% in the second quarter of 2018.
We recorded a GAAP tax provision in the quarter of 34.2 million or 22% or pre tax income.
We currently expect the GAAP tax rate to be approximately 23% for the full year.
Adjusted net income was 241.6 million and adjusted EPS.
It was 91 cents.
The adjusted net income excludes a $158.8 million of amortization.
Of intangible assets.
18.2 million of stock based compensation.
$4.4 million of amortization of noncash debt issuance costs.
$12.1 million of purchase accounting adjustments, mostly deferred revenue adjustments depreciation related to revaluation of assets.
$3.9 million of revenue adjustments related to adoption of.
Revenues have six so six.
And 26.3 million of nonoperating net gains.
Including a 29.5 million gain from mark to market adjustments on investments.
Net of $4.5 million of severance costs related to staff reductions.
The effective tax rate is for adjusted net income was 26%.
Diluted shares increased 7.3% over Q2 18, mostly those shares issued.
Where the Intralinks acquisition in the fourth quarter.
Of 2018 and employee stock option exercises.
On our balance sheet and cash flow as of June we had approximately 131 million.
Of cash and cash equivalents and approximately $7.9 million of gross debt.
For net debt of approximately 7.8 billion.
Operating cash flow for the six months ended June was 406 416.6 million.
At $296.9 million or 248% increase compared to the same period in 2018.
A couple of highlights for the six month period ended June Weve paid down.
$414.9 million of net debt year to date.
And that brings the total paid since the DST acquisition in April 2008 to 1.339 billion.
We paid 73.5 million of cash interest compared to 100 million.
The same period last year.
The unsecured note interest is due semiannually in September and March So we did not make a payment.
On the unsecured notes in the second quarter.
We paid 125.8 million cash taxes compared to 67.9 million in the same period last year.
Our accounts receivable dsos improved in the quarter.
To 51.8 days compared to 53.7 on March 2019.
And we used $59.5 million of cash for capital expenditures of capitalized software.
Mostly for Ti and lease hold improvements.
Our LTM consolidated EBITDA use for Covenant compliance was 1.853 billion as of June .
2019.
Based on net debt of 7.8 million, our total leverage ratio was 4.21.
As of June secured leverage ratio was 3.13 as of June Thirtyth.
Our outlook for the third quarter of 2019.
Our current expectation for the third quarter as adjusted revenue in the range of.
1.123 billion to $1.153 billion.
Adjusted net income of 227.5 million to 243.5 million and diluted shares shares in the range of $266.4 million to $267.6 million.
Our current expectation for the full year as adjusted revenue in the range of 4 billion.
Approximately 571 million.
Two 4 billion.
631, Bill Melia.
Adjusted net income of 947.5 million to 988.5 billion.
And diluted shares in the range of 265.7.
The 266.7 million.
And we continue to expect that the adjusted tax rate will be 26% for the full year.
Cash from operating activities will be in the range of 1.050 billion.
The 1.080 billion.
Capital expenditures in a range of 2.6% to 2.8%.
Of adjusted revenues.
And I'll turn it back over to Bill for final comments.
Thanks, Patrick.
We continue to work hard for our shareholders and even though our growth has slowed we believe that we are putting the things in place to start to accelerate again.
Our three Q2 018 acquisitions have encountered encountered some headwind.
Trading volumes are down across Wall Street myth will impact as his network fees by about $10 million for the rest of the year.
We have also seen M&A slow and with that flowing intralinks revenue growth will slow by about 23 million.
Finally, DFT has attrition and revenue for the year is expected to be down 53 million from our guidance at the end of Q1.
Obviously, our core businesses are also in financial services.
Which have slowed and trading has slowed and so we're going to have some trade when some headwinds in there and were expected the overall.
Core business to be down about $32 million.
Now with all that at the mid point, we're going to be at that.
4.6 billion in revenue, which is up about 34% from last year.
And our earnings again will be considerably stronger than that and as we announced last week. We believe the new management team at FMC health as a tremendous opportunity to grow.
Sean Hogan, our new president of efficacy.
Hell be responsible for both our health and pharmacy solutions group.
And this chart growing new businesses, Rob Coolest President invested would be helpful is focused on extending asset disposition in claims and medical management plan growth in advisory enablement, and Mark Palmer President deformity solution footprint with our team. Since 2014 is responsible for providing technology enabled solutions that improve clinical and financial outcomes for clients.
We're excited about this team and expanding our market position and maximizing our exclusive relationship with Johns Hopkins.
Going forward.
I will now open it up.
To ask a question. Please press star one on your telephone keypad. Please limit yourself to one question and one follow up. The first question comes from Brad Zelnick of Credit Suisse. Please go ahead. Your line is open.
Great. Thanks, so much for taking the question.
Phil I appreciate your commentary and some of the numbers that you gave us in your final remarks bridging from the prior guidance to your current outlook.
For the full year, but I, specifically wanted to drill down into the DST revision downward 53 million from where you were guiding at a Q1.
Can you just talk us through.
What's changed more specifically these the relationships that you expected to endure that maybe now or leaving were they heading to because I thought this was a stickier.
Kind of business with very high switching cost for the customer.
Well I mean, it's good question, Brad I think you know realize that you're talking about a 2.2 billion dollar business right. So.
When you talk about $53 million.
That sounds like an enormous amount of money, but but it it's just really tied up in a few customers.
And some of the attrition and DFT prior to us.
Acquiring them you know they they were able to get off quicker than we had expected.
And I think that that you know you're going to have some attrition you know I think the business is way stronger, we're earning way more money.
And.
The.
The changes to the business and the operating model in the sales culture in the cross sell and up sell and getting releases you know on their technology out on time and we've made.
Three releases on on the.
Advanced work for distribution system, AWB, and that's made a huge impact on our clients. So I think there's a lot of things that we're doing right and you know there is a kind of a slowing on wall Street right now, but that is not exactly.
Putting wind in our sales we have things like.
A large fixed network fees and and we have our own beta business until none of those things are really adding to any growth whatsoever, and I think thats whats really happened and you know we're still optimistic on on PSP, we have lots of things sean's of really talented guy and with Rob and more Palmer.
We think we have a great group there and we've made changes across financial services, whether it's.
Its people like.
Bernie O'connor or putting in Mike slide home or are bringing in a whole new group of managers know probably 10 of the.
Senior people from DST have left in the first seven eight months of 2019, and you know, we're rebuilding and and you know rearming and we think that we'll end up with a really great business Thats growing.
In mid single digits is it just going to take US a couple of more quarters than we expected.
Thanks for the perspective, Bill and maybe just a follow up I mean look there's clearly a lot of bright spots and good things happening within the portfolio, but in light.
Of what you characterize as just a broader slowdown and financial services, if we think about.
The expense structure and maybe a question for Patrick.
How do you think about the investments you're making.
The hiring plans going into the remainder of the year in light of these various pressures.
Whether it's in the context of synergies that you were able to deliver on the on the deals that you've done or even in the core business any updated thinking there would be helpful. Thanks.
Well as you know, we manage our expenses pretty tightly and.
As people understand when they don't hit the revenue target.
They're not going to hit our expense targets either.
So you know we've implemented plans and.
And again, we're still going to generate close to a billion dollars in free cash flow and.
We are paying off that quickly I think we paid off a billion 339 cents.
Since the DST acquisition until you know, we're going to continue to do those things and.
And we're still going to invest in products that we think we're going to give us competitive edge.
We're still winning large deals and I think that will continue.
Okay. Thanks, a lot I'll get back in the queue.
If you look at the guidance, we provided for the quarter I think you'll see that.
Yes.
Obviously, we talked about the revenue reduction, but we've also got cost controls that were putting in place.
And the plan is showing you know reducing costs from our previous guidance.
Thanks, Patrick.
Your next question comes from the line of Dan Perlin of RBC Capital markets. Please go ahead. Your line is open.
Thanks, So Patrick I'm, just trying to make sure I understand what's the what are you embedding based on this definition that used for organic growth in the third quarter and then for the full year.
So let me just start there first.
Yes sure so.
So its a right right now what we're seeing.
And what's embedded in.
The guidance for Q3 and Q4.
It is approximately.
$10 million of FX and the six months.
And about $38 million.
Oh.
DST.
Lost clients that we were notified prior to the acquisition.
[noise].
Okay. So is the.
Okay, so you're suggesting its going to be running below the three.
Plus percent range in the back half of the year that we are is that what your calculations are telling us that ticket the midpoint, it'll probably I mean, it will run in the range of Percentto person and a half.
Yeah.
Point.
Okay.
So bill when we talk about Guinea like Golly things, you're talking about getting back to the mid single digit growth rates.
As a company and it's taken a couple of quarters I mean, this seemed to unravel pretty quick and you've always prided yourself on being able to kind of hit EPS numbers, even if organic growth kind of be dam and this this quarter kind of a lot of those things actually fell apart in the in the kind of calculus and so I'm just trying to understand why you think you you know you can get this thing backup the mid single digits win.
I think a lot of these acquisitions, maybe ended up surprising certainly surprised us, but maybe they surprise you guys as well.
Well you know again I.
I I wouldn't say that they performed exactly like we have had thought they would or have expected they would.
But there is still good businesses and we don't have too.
You know I think second quarter was actually really good frankly, you know.
Record earnings record revenues.
And so it's not second quarter that was a problem Dan I think it's maybe the third or fourth quarter that are more of a problem and.
You know it's not like.
We don't have chances weve got chances.
But you know it.
In these kinds of of.
You know somewhat headwinds you have to execute at a very very high level.
And you know.
Make getting the team to work together.
And recognize that some of the things we have.
You know well work with two system right now made to build two of them.
But I'd say, it's a big organization now with lots of people and lots of things that you have to change and I think thats something that Tom.
That the intensity level and in different parts of the business.
It will probably be rash or you ratcheted up over the next several quarters.
Okay. Thank you.
Your next question comes from Alex Kramm of few B.S. Please go ahead. Your line is open.
Yes, hi, thank you.
Just to clarify again I think Patrick you just set a at the mid 0.1% to 1.5% organic growth will that Threeq you comment on for the full year, maybe just give those to numb to a superior separately. Please.
Yeah, no that was the range.
For the second half, but right now at the mid point.
The full year is about 1.7%.
In the third quarter is about 1.4%.
Okay.
Great and then.
Hi, Thank you and then just maybe just a second quarter again, I mean, I'm just looking about up once you changed here in terms of the organic growth.
Presentation.
If I if I think about this correctly I think you said last quarter that the you start organic growth is going to be less than half a percent if I take that adjustment out I still get to I think 1.3% or so just want to make sure I'm comparing the numbers correctly that it'll gannett growth actually come in a little bit better than he was thoughts are for the second quarter and if so why or or am I just not comparing these numbers correctly with the new presentation.
No. So so the.
As we said there you know if we include the off CST clients.
Pre acquisition right, 3.6%.
Oh, that's not lost.
That lost revenue was 16.1 million in the quarter.
So so that takes that that helps the organic growth by about 1.8%. So.
Oh, So we were at about a under the old calculation, we were up about 1.8% organic growth.
Which is definitely an improvement over the guidance.
Any particular reasons why sorry.
Oh or anything like that was better than you had expected.
Yes.
We had eight sorry, Patrick we had a pretty good quarter in in alternatives, but we had a particularly strong quarter in our had been license business.
And so those are those are some of the reasons.
Okay. Thank you.
Your next question comes from Rayna Kumar of Evercore ISI. Please go ahead. Your line is open.
Hi, Thanks for taking my question.
The $53 million reduction the DSP revenue is that related to the financial services business, our health care business.
If it's about how much comes from each business.
Hey, It is it is why it is across the business I don't I don't have the exact across each group, but I, but I would suspect probably two thirds of it is out of the financial services business and the rest of the healthcare.
I think the majority of the financial services is from Europe .
Understood.
If you could also help us.
Give us an idea of the alternatives organic revenue growth that you're expecting specifically for the third quarter and then for 2019 as a whole.
Well we're.
We're expecting about.
4.2% in the third quarter and about.
4.2% for the full year at the midpoint of the guidance.
Thank you.
Your next question comes from Andrew Smith of Citi. Please go ahead. Your line is open.
Hi, guys. Thank you for taking my question a quick question on the core business you mentioned the $30 million reduction I Wonder was worried you talk about to what extent the the reduction is.
Mark It really two factors versus attrition and other factors just to drill down a little bit there that'd be great.
So you think there is a few different things going on.
One being as Bill said that in general the environment with.
Reduced trading volumes and some slowdown in the pace of activity has a impact on the demand environment across our business.
Okay. So thats, probably part of it I think we are seeing a little bit of an overhang in our hedge fund business is kind of one example, and then I think.
In our software businesses, particularly in advent, we still have a little bit of a comp issue with.
Six so six and the way revenue Rec is recognized on renewals and that's that's a part of the issue.
Got it Thats helpful and then switching back to DST.
So I wanted to talk about to what extent the attrition the attrition you're experiencing.
Continues in F. like 20, and then at what point do you think the initiatives you set in place can offset some of the incremental attrition you've recently experienced.
Yeah, I think that you.
You know I think Sean started three weeks ago, So were not home loaded up with too much just quite yet.
But we think you'll start having an impact towards the end of this quarter and then fourth quarter, but these are large contracts and the revenue to start flowing until now sometimes 60 90 days. After you. After you sign them in some cases six months. After you sign them. So we still have a bunch of revenue that we're still getting ready to start recording, but but it takes time to get them installed.
And given processing, so, but I would think that that.
By the second quarter of next year.
We should have all kinds of.
Of new singularity sales of new.
Integrations with AWB in precision LM and and opportunities throughout the transfer agency business with some of the stuff that we've done in.
In AI and machine learning and robotic process automation, but the stuff takes time to get people to adopt it and we have all kinds of enthusiasm.
But you know I don't count for much revenue.
We need to get the revenue, we would get the ink on the contract and get the people installed.
And we need to have an imminent density kick up.
I think it's important to note that.
Yes the.
Well the major part of what's impacting the DST revenue are.
Clients that terminated pre acquisition.
That are now coming off the platform.
But if you look at.
DST revenue retention.
Since we've acquired them when you look at revenue retention over the last 90 last 12 months.
It's averaging at about 96%. So we've had pretty good retention at DS two since we acquired them.
Well, we are getting impacted by some of the terminations pre acquisition.
Okay. That's helpful just to be clear the incremental 53 million is attrition post the acquisition correct was completed.
Oh did.
The attrition post acquisition for the year.
Of 19, as you know somewhere around.
Thanks somewhere around $20 million.
For 8-K.
Well a lot of that a lot of the slowdown is the pre acquisition terminations.
And.
And some of the professional services work Thats not being replaced.
Yes, okay. Okay.
I think the other the other kind of point is we're comparing guidance to guidance right. So included in our guidance that at the end of the last call for DST had a sales projection in it. So it's not all attrition and lost clients. It is also as we're going out in the marketplace and we're competing for these big deals like Bill said get an ink on paper and then getting that revenue started is a process and we're finding that thats taken more time than we had anticipated.
And I think the total amount of revenue that.
That had.
Been terminated prior to our acquisition was 119 million of which 80.
Has already been absorbed.
Well there is still 39 to go so of the 53.
That's 39 is probably not completely in that 53, because that 39 might run off.
Some some in 2020.
But but it all depends on how quickly you know very large.
Organizations can can get off a platform that is someone said very sticky.
Understood guys. Thanks for the welcome to appreciate it.
Your next question comes from certain Dustin of Jefferies. Please go ahead. Your line is open.
Good afternoon.
Couple of quick questions here, just revisiting the organic growth.
Is there a way that you can perhaps simplify it or give pro forma number there's lots of different growth numbers out there, but if we just think of it in terms of.
All of the acquisitions, having close maybe at the beginning of 2018.
What does that organic growth number in 2019 look like excluding the obviously the the adjustments for DST are you able to provide that number and then maybe.
What the breakdown might be at the individual level in terms of like as an intralinks DST in core.
You mean pro forma in 2018 for the acquisitions.
Correct, Yes, if what 2019 looks like versus 2018 on a pro forma basis.
I apologize I didn't hear that.
We havent prepare those numbers, okay I understood.
Maybe a different big picture question here following up on an earlier question about the cost structure.
At what point do you guys think about or how much how lean are you currently running is maybe the better we'd asked his question in terms of the flexibility that you might have.
If we were to kind of remain around the current growth rates of flattish to maybe slightly positive.
We were we ran the second quarter, 3.8% EBITDA margins.
We have.
Opportunities wherever we want to have opportunities.
You know the growth rate impact us a little bit, but it doesn't really impact us that much on how much cash we generate or even how much earnings.
Our adjusted earnings last year were $2.92 and I think at the midpoint. Our adjusted earnings are going to be 3063 cents.
All right I mean, I don't know and I know you guys got these great companies in your portfolio as I know, but I think thats, 20%.
Now I'd, rather was four hours instead of $3 to 63 cents, but.
As far as the company that is very profitable.
We think in general pretty well run.
Perhaps we could forecast better and I wish we had but we didnt.
So it doesn't mean, we've just started eating downhill.
Now we'll figure this out we figured it out all the time before we'll figure out this time.
And we will start growing again, we always had before and we will now.
Yeah hard to argue with your track record of execution.
That's it for me thank you.
Your next question comes from Ken Hill of Frozen lot Securities. Please go ahead. Your line is open.
Yes. Thanks, So I had one question on one of the deals you mentioned in your prepared remarks.
The Waddell <unk> Reed deal outsourcing some functionality that with some core transfer agency services can you outline the size of that type of deal.
And maybe if kind of shying away from specific numbers, there just kind of think through the market and the opportunity set for what else is kind of still out there given I think you have 20 or largest clients outsourcing.
Can you guys right now so just kind of trying to get a grasp on what still what's still left there.
Yeah, I think one of the things to think about is that they're not outsourcing everything to us.
So you know a lot of these places still have huge internal.
Workforces that increasingly become expensive.
And.
And getting the attention of the senior executives.
And at the large fund companies and other financial institutions.
So we still think there is an enormous opportunity.
Well they'll read this.
Great Great and you've got to.
A nice deal with them.
I think the.
It will be.
Double digit.
Millions in revenue, but but it's not going to be as much as some people are.
Our our forecasting it's not 30 $40 million a year, it's less than that but it's still a very good deal and then it will be profitable for us and it's also a great name that that we can really showcase a number of our products.
So we're excited about that but there's probably.
You know if you just take the top 50, there's probably several hundred million dollars worth of outsourcing opportunity in the top 50.
Okay.
I appreciate the color on that one one question then on smaller piece and they kinda shied away from giving organic growth for some of the newer acquisitions, which I don't believe were included in your organic growth rate right now, but just on as specifically I think you noted some some headwinds there but.
I also noticed some good client sign ups over the since the last quarter and just wondering if you could talk about maybe the revenue growth trajectory on for that business.
Yes.
This has been.
Basically flat really.
And but they've done a great job on managing their expenses their their EBITDA margin is up you know they have a big you know up you know fixed big fix business.
They get paid and when trading volumes drop off so do the the payments that they get so you know, but you know generally.
Things come back in and as you know we like the team we have been.
And and we're optimistic and as eclipses.
As we noted just signed their 70 of client and so you know we're we're we're.
Cautiously optimistic.
Okay. Thanks for taking the questions.
Your next question comes from Peter Heckmann of Davidson. Please go ahead. Your line is open.
Good afternoon, Thanks for taking my question.
On the inside.
When you think about lower trading volumes and how that moves around and then you look out a little bit further.
Is there an opportunity with a I believe Bloomberg is going to send sit there.
Ah order management system.
Is there an opportunity to really break out it would be more of the leader there when you combine it with Jeep, well, Bob and really take some share and.
It's a business that you think can grow double digits organically over the next three years.
Yes, Hi, Pete we would have the kind of the opposite we don't think that bloomberg's gum retire their system in fact, we compete against them often.
But I I think you you know.
To say double digit growth on a 300 million dollar business.
Over the next three years I think we'd be optimistic.
But I do think we can get to mid single digits.
But you know we have a pretty good sales force and Jeff form is a pretty good leader.
So I think we have a great opportunity to.
To maximize what what we can what we can get out of the is that has that quickly.
Also just to add to that what they are doing successfully is going up market. So so we have been able to get more traditional asset managers to buy in larger chunks than in the past and we think that will continue.
Got it got it and then.
Patrick did I hear you say there is.
[noise] $25 million or 10 games in the quarter from an asset sale.
No. It's a it's a non cash mark to market gain.
Mark to market Okay.
Yeah, well, we adjusted it out of adjusted earnings.
Thank you very much.
Your next question comes from Chris Shutler of William Blair. Please go ahead. Your line is open.
Hi, guys good afternoon.
You called out the 1.8% organic in Q2. If you include the DST clients lost prior to the acquisition could you just give us the comparable number for Q3 Q4 and the full year under the.
That definition.
[noise].
<unk> I think under that.
So at the midpoint, we're saying organic cross about 1.7%.
Excluding those.
You know what the impact of those terminated clients.
And it.
And those terminated clients.
Our adjusting organic growth.
Compared to the previous wake out here by about 1.6% so.
[noise] under the old method or if you excluded that it'd be about flat.
[noise], Okay got it.
[noise] and then Patrick could you break out the revenue contribution in the quarter from each of the acquisitions DST Intralinks et cetera.
Oh, yes.
Yes.
Yeah. It is to you remember is only half a month right its only the yep.
So.
He and his team was 91.8 million.
Well as an intro last combined or 152.9.
150.8.
Sorry 150.8.
And then.
Because he says 1.7 million.
[noise] [noise] 91 eight.
Hundred 50.8 and 1.7.
Okay perfect. Thanks for that.
And then sorry, just a bunch of different items that were mentioned pretty quickly could you run through.
The you talked about the different headwinds.
Could you run through what you said for each of the businesses again, So you said as trading volumes and 10 million and just could it be clear on the time frame. So was it we're all of the items you mentioned relative to the prior guidance.
Yes, they are all relative to the prior guidance and its impact on full year guidance.
Okay.
And the four 4.2% that you mentioned earlier was the alts business in the quarter.
No the health business in the quarter was it was I think over 5% 5.3, and it was 4.8% organic.
In the 4.2, we'll have one Q3 organic that's in the guidance for alternatives.
For the back half.
Just Q3.
3.234 year 4.2.
Okay. Thank you guys.
Your next question comes from Chris Donat of Sandler O'neill. Please go ahead. Your line is open.
Hi, Thanks for taking my question just wanted to follow up on that last question until the tail end of your prepared remarks on on as an internally.
Can we expect that sort of.
Volatility or variability in earnings out of them tied to trading volumes and M&A activity going forward I mean, and I know that was taken away can sometimes be added back in a better environment I'm just trying to.
To get a sense on on how much.
We have like incremental margins of like 80, or 90% or 70 or something on these businesses. When times are good, but then sometimes times aren't as good.
Well I don't think that you know they have.
Well put in.
Some reasonable expense controls given that they've had a little softness in revenue.
But we don't we don't look at it is particularly volatile.
You know it is something where.
Where we're getting similar kind of statistics that we track.
Yes that would say that we should be generating more revenue than we are.
But I think that has to do with how many documents they put in the data room or how often they access it or how many people act.
That has been a little bit soft and so.
I think it's something where you need to.
You know stay at it and and win more do you.
And make sure that Matt.
The innovations that we bring to the market are well accepted.
Okay, and then just thinking about the eclipse products from from AZ.
Is that something that.
How should we think about the future revenue contribution for that is that something that is potentially going to cannibalize existing as.
Revenue or is that really added 11, new products it will.
In addition to existing as revenue.
Well I mean, obviously, you're you're going to have some.
Some transfers from the as I want to ask to them the eclipse cloud platform that that's going to happen.
But what it does give you a longer lifespan with that client and gives you opportunities to sell additional products into the air and as Rahul said earlier.
When you get into an EV client and they might want Geneva.
And then one thing we have to deal with in my side really we all know what outdoor.
These various functions to global.
You know you can pick up and as the clips sale for 100000 and turn it into a 5 million dollar revenue.
So you know that the challenge is making sure that we're netting those things.
In lots of different places so that that.
Our people know.
What we need to do in order to be able to.
To drive more revenue.
Okay got it thanks very much.
Your next question comes from Ashish Sabadra of Deutsche Bank. Please go ahead. Your line is open.
Hi, Thanks for taking my question. So maybe just a quick follow Brazil, you mentioned that the scenes biplane, maybe taking slightly longer than what you originally anticipated.
Just wanted to better understand how do you deal just pushed out or they lost or decline decide not to.
Go ahead with it any color on that trend and was this one of few will be one or two deals that we're doing a lot of them in any particular seasons for the delay any color that you can give us just don't get comfort around maybe these are just pushed out.
Sure. So I think the comment in specific is for DST right and we had some.
Expectations and some assumptions on what would happen as we brought in these new sales leaders then they went out and started to generate pipeline and.
I think as we look at it now we're still very optimistic amount about the amount of pipeline that they have generated so it's not as if those deals went away or lost they just haven't closed as fast as we would like.
And they haven't.
I think what we're discovering is that we're working our way through their processes and we are doing well and we do expect.
The majority of those deals to close in the future just likely not enough to have a significant impact in Q3 and Q4.
No Thats very helpful. Then maybe.
I don't know have you taken a more conservative view now just based on the experience that you've taken a more conservative view and that could potentially be upside depending on the timing of the closing of these deals.
We sure hope so.
Okay.
So thats helpful. Then maybe bill a question for you you talked about.
It will be has done a great job of managing expense control and how should we think about I think one of the questions that we get from investors is how should we think about earnings power in 2020 and beyond and is there any read.
Do you think that that could slow down going forward as we continue to see this kind of a sustained earnings momentum going forward.
I mean, I don't think that we're.
We're treating our business model and I think that that we will execute.
And then as we execute them, you'll see revenue growth and we also see that we'll manage expenses better and we'll have tremendous earnings and tremendous cash flow. So I mean I don't think this is.
Not positive I got it and.
I can assure you I like it less than you do.
But nevertheless.
We still have a good business, we have a lot of great people, we got a lot of great products and services, we got great customers, who are global organization.
It's just large you know and things that you could turn one the island chains change the company pretty quickly now there's multiple bio that need to be changed and and so we're going through that process and I think we're making progress all over the place but.
You know we hit a soft patch and we just got to plow through that and get back to that to the growth.
The growth path.
That's helpful. Thanks Bill.
Your next question comes from Mayank Tandon of Needham and company. Please go ahead. Your line is open.
Thank you good evening, a bill just given the challenges that you've identified today with some of these acquisitions, but listen it's always maybe slow down the pace of future M&A as you Digest these operations and try to address some of the challenges that you mentioned.
Well I think I mean, I think we we we've done that for you.
Almost 20 years as a public company and.
And you know 30 334 years in total.
You know I don't think we will change I mean, I think that that.
Both the as acquisition and the DST acquisition in that.
And the.
And the Intralinks acquisitions, what will all end up being.
Very good acquisitions for us over the long haul.
You know and our earnings like I said rider have gone from.
You know 62 cents last.
Years last quarter second quarter of 18.
To 91 cents in the second quarter of 19.
You know and I know it's only.
29 cents, but what it is.
We are close to 50% 46 I think.
So.
I think it's you know wall Street to pretty tough place. If you don't hit your forecast and we've been pretty good forecasters.
And now the place a little bit bigger and maybe we need to forecast a little better.
Right makes sense well in that vein would you consider maybe in the short term focusing on a stock buyback is your stock were to come under pressure, which it probably will given the downward revision to guidance just to maybe broader thoughts on capital allocation going forward.
Well I think I think that that that will certainly be a discussion at our next board meeting.
And you know again.
You know how it goes right that pendulum swings and it always swing too far one way and it always swing too far the other way and.
You try to do.
Buybacks when you think your stock is really undervalued.
Otherwise, we think that there's better uses for our cash flow.
Got it thank you.
Your next question comes from Jackson Ader of Jpmorgan. Please go ahead. Your line is open.
Thanks, Good evening guys. Thanks for taking the questions.
Bill if we if we put the.
You know the market driven had linzess side as we look at as an Intralinks just.
Just in terms of maybe new logo wins or new logo.
Deals.
Is there any kind of competitive competitive pressures that you're feeling or do you feel like when rates in those businesses for new deals are still strong.
I think I think there is still strong I mean, obviously, we don't click to 70 and and we have a good focus on their end and.
You know I think my question or does a good job of runs that fills organization for for Jeff and.
And Bob Trotsky runs the sales organization for Leif Oleary overt Intralinks and I think Bob does a good job.
You know I think it's you know it.
It's an execution game.
You know and you got to execute all the time and its everyday and.
And it's a focus and it's also a CLO so I.
I think we have a good team, we've got smart people and I think theres still good markets.
And I think that.
You know this is just.
This is just a patch that.
That.
Has come I mean, obviously, we did okay. In Q2 right. We hit our earnings number we beat our revenue number. It's just we're looking out and we're going to tell you guys. The truth you know, we're not going to sit there and if you ever quoted.
And and we will take our medicine.
Execute.
Yeah, Okay understood.
Follow up question would be on the black diamond strength double digit growth.
I believe you said that was double digit.
Organic growth at the beginning of your prepared remarks.
Where's that coming from.
Well the IRA market, great Alright market is.
Hey market registered investment advisor market as you know is really what's driving.
You know most of the financial services right, it's not de Novo banks in it.
No not new mutual fund complexes or.
Our new insurance companies right its registered investment advisors.
And.
And in some ways hedge funds still and in private equity firms real asset to the is another bright spot.
But all raise or are you know.
The big the big banks.
The big broker dealers.
They consolidate power and then they splinter and so it's I think it's been one of inter phases right now, although you're starting to see.
Some companies like Bbseven Suntrust merchant.
And who knows if thats, a new trend as well, but we win a lot of the the spin outs for the various.
Wire houses.
Yes, Okay all right. Thank you.
Your next question comes from Patrick O'shaughnessy of Raymond James. Please go ahead. Your line is open.
Okay. Thank you so what would your outlook be like for the General health of your financial services customer base going forward would you expect things to get worse before they get better at this point.
Hey, you know Patrick I think I think.
You might know.
Better than we know, but but how how we look at it is that.
Do you know that the.
Do you like the last question was from JP, Morgan and that kind of 10 billion dollar.
You know I T budget.
You know and they're a big customer of ours, but no we're not anywhere close.
2% to 10% of that.
So theres opportunity. It's a question of making sure that you are building product conservative.
But people want to buy.
The same thing with Raymond James or same thing with credit Suisse are same thing with Deutsche Bank or any of the rest of them and so you know I think that.
In general.
You guys are well capitalized I think earnings are pretty good enough financial financial space.
But you know it you know, let's see what would happen to where they're going to cut interest rate.
Quarter or half and how are they going to resolve China and China trade issues in and then you get more confidence and more bullishness and I think that that tends to help us.
Got it. Thank you and then question on M&A competitive environment looks like the the bidding for GBS. He was very competitive, but what do you broadly seeing out there in terms of.
Interest in the assets that you are taking a look at yourselves.
Yeah, I think in general there's.
No way more money chasing we few quality assets.
Now, we like TBS T., we like their management team.
But you know as I said bidding started out it.
250, Australian and I think ended up at 385.
And we've got to 360, but we felt like we were stretching to 360.
So.
As much as we would have.
I'd like to have bought it at 360.
We're not really.
No.
Crime and our food that we lost at a 385.
So we tend to be disciplined about what we do when we were disciplined about is that we were disciplined about intralinks.
But that doesn't mean that always pans out exactly like we haven't forecast until we have a little more work to do and will do it.
Okay. Thank you.
There are no further questions at this time I would like to turn the call over to Bill stone for closing remarks.
Well I appreciate everybody coming on the <unk> on the call and hopefully you heard the.
The the straight talk that were pretty well known for.
And.
We hit this quarter, but but I know, we disappointed as far as our guidance is concerned and and you know we're going to get back on the train and work hard for our shareholders.
We appreciate your interest and hopefully we will talk to all of you at the end of next quarter. Thanks.
This concludes today's conference call you may now disconnect.