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I would now like to turn the call over to our CEO, Ron Cogburn. Ron?

Ron Cogburn -- Chief Executive Officer

Thanks, Jim. Good afternoon, and thanks everyone for joining us today. Let's start with Slide 4 and discuss our Q2 2019 financial summary. We formed Exela just two years ago, and since that time, we have worked on executing a significant and exciting transformation of our combined business. This journey includes a number of notable achievements and positive data points, the results of which I will discuss in conjunction with my review of our Q2 2019 results.

Enabled by Exela's proprietary technology, our formula for transformation starts with human capital and then the rationalization of both facilities and duplicate vendors. The final piece of our transformation is our ability to use our proprietary technology to transition from third-party software to our own internally developed platforms.

Our revenue, excluding the postage and postage handling and low-margin contract exit, grew by 4% in the first half of 2019. This underlines the stability in our revenue, which, combined with a robust pipeline provides a healthy base to build upon. While we are excited about the new wins this year, some of this revenue, or ACV, will be delivered next year.

Based on the items I've just mentioned and considering the unpredictable nature of our postage revenue, we are updating our 2019 revenue guidance to $1.59 billion to $1.61 billion and 2019 adjusted EBITDA guidance to $290 million to $300 million. We have strong visibility into this revenue, which, in turn, will help us to prioritize our operations and focus on liquidity and cash generation.

Reflecting on our progress to date, we have experienced many successes on our ongoing journey. I believe, we are all well positioned as we work to transform and continue to grow as a global leader in the business process automation.

Looking specifically at the second quarter results, revenue for Q2 2019 was $390.2 million and $394.6 million on a constant currency basis. Adjusted EBITDA was $69.4 million and $69.7 million on a constant currency basis. Our adjusted EBITDA margin increased by 70 bps on a year-over-year basis to 17.8%. Our total liquidity improved markedly on a sequential basis by $39.4 million to reach $97.5 million at the end of the second quarter.

This quarter, we wanted to show the impact of a couple of factors creating a drag on the growth rates of the consolidated business. The two items we are highlighting are pass-through revenue related to postage and postage handling and our continued exit from low-margin contracts. Revenue, excluding postage and postage handling and the previously announced contract exit, was $650 million in the first half of 2019, resulting in a 4% year-over-year growth rate. This compares to the consolidated results for the second quarter of 2019 that show a decline of 4.9% on an as-reported basis.

As we look at our business, excluding these two items, this is an important part of our story as well as a clear indication that our transformation efforts are working and will take another 12 months to 18 months to complete. On an adjusted EBITDA margin basis, the story is very positive. Net of postage and the previously announced contract exit, adjusted EBITDA margins were 22%. Now this is the margin level that has been our target since the inception of Exela in July of 2019.

Now let's turn to Slide number 5 and talk about our optimization and restructuring charges. The quarter we are discussing -- this quarter, we are discussing our optimization and restructuring, or O&R as we like to refer it, costs in more detail to provide color on our ongoing transformation as we work to drive down the operating cost through automation. In the second quarter, optimization and restructuring expense totaled $18.7 million. We have provided a more detailed breakdown of the O&R charges, which can be broken down further into the following three categories split by headcount, vendor and facilities.

Category number one, M&A related charges, which essentially includes all the initiatives that are attributable to the recently completed acquisition and include shared services consolidation and related activities. $1.1 million worth of O&R cost in Q2 are expected to go away once those initiatives are completed.

Category number two, process transformation. These expenses remain the single largest bucket, which represents the continuous reduction in COGS related to headcount rationalization through the deployment of our in-house proprietary technology. As referenced, in deploying our technology and upgrading our delivery capabilities, we transform the process through which revenue is delivered. In other words, we make it more efficient.

As a result, once this change is implemented at the industry and offering level, this is replicated for all of our customers in that industry and offering, which enables us to reduce headcount. In addition, with the lower headcount, we can execute our planned facility consolidations and related vendor spend reductions. In total, $17.6 million worth of process transformation cost in Q2 are expected to be shared through the initiatives and should be realized as cash flow through the P&L once the initiatives are completed.

Let's look at category three, customer transformation. Now this is the smallest category, which represents any specific customer transformation. These are more intermittent in nature and will appear, in particular, quarters once the process transformation is complete and specific customers need a transition period for the work to be moved from 1 location to the other. We have also shown the split of the O&R by way of COGS and SG&A. $14.2 million of O&R is attributable to COGS and $4.5 million related to SG&A to help illustrate the pro forma impact on our gross profit dollars and operating income once all these initiatives are realized.

Now let's turn to Slide number 6, our business transformation. Many of you have asked in our prior interactions how much transformation has been accomplished to date? And how much is left to achieve? This slide is an extension of the previous slide and provides the snapshot into the progress that we have made as well as quantifying what maybe the pro forma impact of the savings on the gross profit dollars. The slide breaks down our business into three gross margin buckets and is also correlated to the transformation life cycle. We have done this to show the level of transformation and impact on the gross margins of each.

From the left, the first three bars represent the business broken down by their respective gross margin profiles as they stand today. The rightmost bar, which represents where the consolidated business stands today, is at 28% gross margin net of postage and postage handling revenue. Once the $14.2 million of O&R charges have been realized, the gross margin of 28% is expected to climb up another 450 bps or so to reach levels of about 32%.

Next, let's jump to the left side of the slide starting with the first column. 45% to 50% of our business is already around 35% gross margin levels, which is 8 points higher than the consolidated gross margin. This represents the process transformation and operation improvements that we have made and been executing in the last decade. The second column represents 35% to 40% of the business. Now this business is at the lowest gross margin of the three and is still approximately 15% with the transformation span just over the last couple of years.

Finally, the third bar from the left represents 15% to 20% of the revenue at approximately 30% gross margins with a span of at -- for over the last five years. Now our focus is on this second bar and replicating our successful strategy to implement technology and process transformations, which bring up the gross margins to that same 35% level for the -- similar in the longer-tenured businesses. This represents a tremendous opportunity to expand the gross profit dollars. However, I want to highlight the fact that these are heavy lifting improvements that will fundamentally transform COGS and they require an investment and time.

In summary, over 60% to 70% of our revenue is already at a 30% gross margin or higher. The Company is focused on improving the gross profit profile for the remaining business as we deploy our technology and transform that business to capture additional profits.

Now let's turn to Slide number 7. Headcount is our largest cost component of our business. And the technology we use to provide automation to the business processes enables Exela to work toward a lower total variable cost. Now this action, along with the growth of the business help drives -- helps us drive growth in our revenue per FTE. Another part of our strategy is to optimize headcount geographically. We are right shoring and as expected, we are increasing headcount in Asia by simultaneously working to lower headcount needs in North America and in Europe.

In Asia, we are seeing the majority of headcount increase within delivery and operations. The remainder of the growth in headcount is through the expansion of technology teams in both Asia and near shore European countries.

Now let's turn to Slide number 8 and talk about our top 200 and customer segmentation. Let's take a moment and look at the positive affect our strategy is having on our customer segmentation. Now as you will recall, in 2018, our focus of the top 200 customers yielded an impressive growth rate of 12% on an organic basis year-over-year. The remaining customers in the all others category declined by 13%.

Now halfway through 2019, Exela has transformed the statistic of all other basket to one of a positive growth year-to-date on a year-over-year basis. Now that's quite an achievement for just the first six months. We accomplished this turnaround through applying the same strategies that we utilized on the top 200 to grow these customers.

We believe our focus on Digital Now resonates with the customers and is having a positive impact. We're very encouraged by the investments and the focus on the top 200 customers and expanding it to the rest of the business. An example of that success is a recent win with one of the largest banks in the US, that has validated our strategy once again. Exela was asked to help this bank accelerate their digital transformation beginning in the mailroom, with our deployment of Digital Now and our DMR solution.

Now with access to the data, we could optimize the flow of information with our workflow automation, our payment processing, our AI and our workflow management. This bank is now taking advantage of more of our seven-layer technology stack creating greater value for them as well as their customers.

Now let's go to Slide number 9 and talk about our customers scorecard and revenue. Our strategy to grow within our existing customers continues to gain strength. In some cases, like the new wins I've mentioned that are ramping this year, customers have made the decision to outsource processes that had never been considered to be outsourced before in their organization. These avenues of revenue are significant for us. Our diversified revenue base for the first half of 2019 has remained fairly constant with 35% of the revenue with our top 20 customers that have an average tenure now of more than 16 years. The top 100 and 200 customers represent 60% and 72%, respectively.

Our growth in Europe continues with the revenue there representing 18% now and with Americas representing 82% on the first half of 2019 basis. Our strategy to increase our wallet share with our top customers continues to have success with nine customers now over $12.5 million for the first half of 2019. And my favorite statistic and the seedbed of growth for the Exela is our customers with more than $1 million in annual revenue. Through the first half of 2019, that count has now risen to 264 customers with over $0.5 million in revenue to date. So the trend is very clear. This increase demonstrates the effectiveness of our efforts to grow within our existing customers and to gain wallet share.

Now our strategic deal teams are focused on identifying opportunities to expand within our top customers, while partnering with them on their digital journeys. We continue to increase the numbers of statements of work, and master service agreements with our existing customers. Our conversation with our customer centered on our platforms and solutions that address their mission-critical challenges, such as revenue cycle management, digital mailroom, HR requirements, workflow automation and information management, just to mention a few.

You've heard me say and we do have a great customer list with over 60% of the Fortune 100, and our ability to grow within these customer has -- customers has measurable and positive results.

In closing and before I hand the call over to Jim Reynolds for a discussion of the financials, halfway through 2019, Exela is effectively continuing its rollout of our Digital Now suite of solutions. After two full years and now in our third year of operation, Exela will continue to transform our business and execute on our growth and savings plans on a global basis.

We're excited about 2019, which has gotten off to a solid start and we're focused on pursuing additional opportunities in achieving greater market penetration through automation. We're looking forward to continuing to enable our customers on their digital journeys, and we believe Exela with Digital Now is well positioned for growth going forward.

And now, I would like to hand the call over to Jim Reynolds, who will discuss our financial results in greater detail. Jim?

Jim Reynolds -- Chief Financial Officer

Thanks, Ron. Moving to Slide 11 and looking at our P&L. Second quarter revenue totaled $390.2 million. On a constant currency basis, revenue was $394.6 million.

Looking at our segments. Revenue for ITPS segment was $309.2 million, a decrease of 6.3% year-over-year from $330.1 million. This decrease was driven by the impact of the low-margin contract exit we discussed in the third quarter of 2018, offset by growth from acquisitions and existing customers.

Our Healthcare Solutions segment grew 12.6% on a year-over-year basis, totaling $63.4 million, up from $56.3 million in the second quarter of 2018. The quarterly results in healthcare were consistent with our expectations based on our investments in this segment.

Our Legal and Loss Prevention segment, or legal, totaled $17.6 million in the second quarter with a year-over-year decline of 26.4%. Results in legal are event-driven and project-based, which causes our revenue to be lumpy between quarters.

Gross margin for the second quarter improved on a year-over-year basis by 10 bps to 23.6%. The slight margin improvement was due primarily to continued transformation in benefits from ongoing cost savings initiatives.

SG&A for the quarter totaled $51.6 million and was 13.2% of revenue compared to 11.4% in the second quarter of 2018. The increase in SG&A was driven by our continued investment in our customer-facing organizations, higher non-cash stock compensation and one-time customer exit costs.

Our depreciation and amortization expense was down by approximately $9.2 million on a year-over-year basis due to the fact that in prior years, we had accelerated amortization of trade names that are no longer being used. We expect D&A to continue at this level going forward.

Operating income for the second quarter of 2019 was $12.3 million compared to operating income of $11.9 million in the second quarter of 2018, representing an increase of 3.4%. This was driven by $9.2 million of lower amortization, offset by lower gross profit of $4.3 million and higher SG&A spend of $4.8 million for the comparable period.

Our EBITDA in the second quarter was $36.9 million and was impacted by severance charges of $1.6 million as well as non-cash charges of $8.7 million. Adjusted EBITDA for the quarter totaled $69.4 million, a decrease of 1% on a year-over-year basis. Adjusted EBITDA margins for the second quarter were 17.8%, an improvement of 70 bps from 17.1% in the second quarter of 2018.

On our next slide, Slide 12, I want to discuss in greater detail the differences between EBITDA and adjusted EBITDA. The primary variance between the two are optimization and restructuring charges. This quarter, we have provided an additional level of detail within optimization and restructuring expenses breaking them down by COGS and SG&A as well as their type, which was discussed earlier.

During the second quarter of 2019, optimization and restructuring expenses totaled $18.7 million compared to $8.9 million in the second quarter of 2018. Of the $18.7 million, $17.6 million related to cost associated with process transformation. The remaining $1.1 million is related to M&A transformation. Customer transformation was less than 50,000 in the second quarter. We expect the level of optimization and restructuring expense related to process transformation to decline toward the back half of 2019 as the automation initiatives continued to get executed and realized into the P&L. We still have a lot of work to do as approximately 35% to 40% of our net revenue as gross margins at approximately 15%.

To summarize, we have an attractive opportunity to transform this part of the business through the deployment of our technology and automate our labor-intensive processes.

Another large bucket within our adjustments are non-cash and other charges. This bucket includes costs associated with cash severance and one-time debt extinguishment cost and customer exit costs.

Turning to our next slide, 13. Exela generated $10.2 million of net cash during the quarter, and we ended the second quarter with a cash balance of $23.4 million, an increase from $13.3 million at the end of the first quarter of 2018. Driving the increase in cash was $32.4 million in cash flows from operations. During the quarter, we did increase our term loan and had net proceeds of $29.5 million, and we used the proceeds to pay down the revolver. We also used $15.5 million during the quarter for investing activities, including CapEx. We made $8.4 million in principal payments on debt, including the mandatory amortization on the term loan.

Moving to Slide 14. Liquidity at the end of the second quarter was $97.5 million and increased $39.4 million sequentially. Our total net debt was $1.446 billion.

During the second quarter, we bought back 237,962 shares. Under our stock purchase plan, since inception, we have now purchased a total of 2,787,147 shares.

Moving to Slide 15. As we discussed earlier, some of our revenue is less predictable in nature and has little to no margin contribution. We are winning new business, but some of this ACV is only scheduled to be delivered next year. In consideration of all these factors, we're updating our 2019 revenue guidance to be between $1.59 billion to $1.61 billion and our 2019 adjusted EBITDA guidance to $290 million to $300 million. This, again, represents the fact that we have higher visibility into the base business and the unpredictable postage and postage handling business has a lower contribution.

Our CapEx is expected to be approximately 2.5% of revenue. The capital allocation policy is to still pay down debt. We ended the second quarter with $97.5 million of liquidity, and our continued focus on savings initiatives is expected to drive incremental cash flows. We expect our net leverage ratio to be approximately 4 times, in line with the current levels.

This concludes our formal comments. Operator, with that, please open up the line for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and answer- session [Operator Instructions] And the first question comes from Dan Dolev from Nomura Instinet. Please go ahead, sir.

Dan Dolev -- Nomura Instinet -- Analyst

Hey, guys. Thanks for taking my question. Appreciate it. So can we talk about the guidance for a second. I think personally, you lowered the guidance, which is realistic and fair. It does still require a ramp in growth in the second half, I think, about 100 basis points of margin growth. Can you maybe talk to us a little bit about the level of confidence that you have that you will achieve that in the second half? And then I have a follow-up. Thank you.

Jim Reynolds -- Chief Financial Officer

Yeah. Thanks for your call, Dan. Our size and our quality and our pipeline has improved and continues to improve. Our business process has driven with higher ramp times and customers are more cautious in the fourth quarter. Based on where we are, we feel it's prudent to guide down for the year. If you look at the incremental results, Q2 was negatively impacted due to some one-time non-cash items of about $8.7 million. So when we look forward to the second half of the year, those items will not be remaining and we'll continue to have savings flow through that will help generate incremental GAAP savings.

Dan Dolev -- Nomura Instinet -- Analyst

Understood. And I appreciate it. And then my quick follow-up is on the organic growth. I know I've been asked -- I've asked that before, but can you maybe tell us a little bit the kind of the rate of organic growth in -- especially in ITPS? And then maybe if you can comment on that? It's very interesting to see that ex the pass-through, the growth was better, the 4% in the first half. Maybe if you would be able to give us sort of the trends 1Q to 2Q? And that's it. Thank you.

Jim Reynolds -- Chief Financial Officer

Sure. With respect to our ITPS, we reported it being down by about $20 million. A good chunk of that, approximately $12 million related to the low-margin contract that we exited. The other piece of that, there is a chunk that flows through currency. That was approximately $4.4 million for the Company in total, of which a majority is in the ITPS. And then, we did have acquisitions that helped ITPS and that revenue was about $12 million quarter-over-quarter.

Dan Dolev -- Nomura Instinet -- Analyst

You mean year-over-year, you mean?

Jim Reynolds -- Chief Financial Officer

Year-over-year, I'm sorry. Correct.

Dan Dolev -- Nomura Instinet -- Analyst

Got it. And then just last thing on that last question that I had on the ex pass-through, the ex postage growth, it was quite nice at 4% for the first half. Any comment on 1Q versus 2Q? Because I don't believe you gave that statistic last quarter. Thank you.

Jim Reynolds -- Chief Financial Officer

No, we did not. We wanted to discuss it this quarter. We thought it was important that we show what the true margins look like. Obviously, we're being penalized by pass-through of revenue with little or no margin. So our true margins are much higher than they are when we report.

Dan Dolev -- Nomura Instinet -- Analyst

Understood. Thanks again. Appreciate it.

Operator

[Operator Instructions] Our next question comes from Joseph Foresi from Cantor Fitzgerald. Please go ahead, sir.

Steven Halper -- Cantor Fitzgerald -- Analyst

Hi. This is Steven coming on for Joe. I just have -- you've talked about the business transformation when you are looking at, was this 15% to 20% of the Company -- sorry, 35% to 40% of your revenue trying to expand that gross margin. Can you provide some color on what makes up that part of 35% to 40% of revenue?

Ron Cogburn -- Chief Executive Officer

Yeah. So -- it's Steven, right?

Steven Halper -- Cantor Fitzgerald -- Analyst

Yes.

Ron Cogburn -- Chief Executive Officer

Yeah. You're talking about Slide number 6?

Steven Halper -- Cantor Fitzgerald -- Analyst

Yes.

Ron Cogburn -- Chief Executive Officer

Yeah. And so the way you look at the business, and I think from the beginning of the formation of Exela, we talked about part of our business that was right for digital transformation and that's really what we've talked about. The former Novitex Group was really made up of a couple of big buckets. You had mailroom, mailroom logistics, you had print reprographics. And as we indicate here, those gross margins were lower, and I think we've always stated that.

So for us, and we look at what we had done historically for the last 10 years, our gross margins being 35%, we know that over time, we're going to be able to transform this. We're going to be able to put automation where there is no automation.

The grouping on the far, I guess, the third bucket that has to do with more of our European footprint that we picked up about five years ago. And you can see with the benefit of automation and transformation, we brought those margins up to around 30%. So when we look at this bucket, this 35% to 40% of revenue, there is a great opportunity to be able to transform and lift those margins to the goal of being around 35% like we have for the rest of the business.

Steven Halper -- Cantor Fitzgerald -- Analyst

Okay. Sounds good. And I just have one more quick one. So you had stated that some projects in the legal segment has been generating lower revenue. Can you provide some color on those?

Jim Reynolds -- Chief Financial Officer

Yeah. If you look at 2018, there were a number of large notification projects that we finished up. So we had not as many projects running through legal. We still have a good pipeline. Our business unit is well respected. It's one of the top in the industry. So when there are large cases, we typically get our fair share. So we're confident that, that is a strong business, but the business has shifted over the past year and not as many large settlements.

Steven Halper -- Cantor Fitzgerald -- Analyst

Okay. All right. Thank you for taking my questions.

Jim Reynolds -- Chief Financial Officer

Thanks.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ron Cogburn, CEO, for any closing remarks.

Ron Cogburn -- Chief Executive Officer

Thank you, operator. We look forward to speaking, again, next quarter, but in between now and then, if you have the opportunity to visit one of our innovation centers where you can showcase the technology, the automation and the processes that we work through, please reach out to Jim Mathias, our Head of Investor Relations and let him know because we're in the city or on we're on the West Coast or we're in Europe, where we have these centers. So please avail yourself of that because it really does help put some color on each of the stories. Thank you, and we'll see you next quarter.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Jim Mathias -- Vice President of Investor Relations

Ron Cogburn -- Chief Executive Officer

Jim Reynolds -- Chief Financial Officer

Dan Dolev -- Nomura Instinet -- Analyst

Steven Halper -- Cantor Fitzgerald -- Analyst

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