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SS&C Technologies Holdings Inc
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Ladies and gentlemen, thank you for standing by and welcome to the SS&C Technologies’ Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Justine Stone. Please go ahead.
Hi, everyone. Welcome and thank you for joining us for our Q3 2020 earnings call. I’m Justine Stone, Investor Relations for SS&C Technologies. 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, we need to review the Safe Harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the Safe Harbor provisions under 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, October 28, 2020. 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 everyone for joining us today. I hope you and yours are home safe and healthy. I’ll discuss our results for the quarter, then walk through our assumptions for the remainder of the year as we continue to navigate to COVID-19 world.
Our results for the quarter were up $1,156 million in adjusted revenue up 0.5% and $1.10 in adjusted diluted earnings per share up 18.3%. Our adjusted consolidated EBITDA was $463.3 million – $466.3 million and our adjusted consolidated EBITDA margin increased to 40.3%. I think that was up 180 basis points.
Our Q3 adjusted organic revenue was down 1.4%, and while we have seen some sales improvement, particularly within the reasonable businesses, we have continued weaknesses in our perpetual rectified when we can get back in front of people and we face some COVID specific headwinds in our healthcare business. Obviously, people have not been able to fulfill as many prescriptions as they did prior to COVID.
Alternative fund administration had a strong quarter with 4.3% organic growth and the rebound in the M&A market helped drive Intralinks growth to 5.9%. Organic cash flow was $755 million for the nine months ended September 30, 2020. Our secured net leverage is 2.52 times and total net leverage is 3.58 times. We bought back 3.1 million shares of common stock at an average price of $61.44 per share for $191.9 million. We still prioritize high-quality acquisitions and are evaluating a number of assets.
In September, we brought on Frank Egan to be Managing Director of Mergers & Acquisitions. Frank has over 35 years of experience in investment banking and venture capital. And he will help us both source new deals and work with our business unit managers to evaluate different acquisition prospects.
The pandemic have caused a lot of uncertainty in our global economy and major swings in the stock market. Despite this, SS&C has preserved our core DNA. Our sales force is hungry, and our technology teams are innovative. Over the past couple of months, we’ve signed two of the largest deals ever in the retirement space. We believe retirement will continue to be a high area for us and we hope to build solid references that nationwide and ICMA.
The industry continues to adapt Eze Eclipse and we signed a record 20 new clients in September. As you know, we sell Eze Eclipse on a term basis. So, the revenue will be radically earned over the next few years. We have integrated Black Diamond and InnoTrust and we have begun to get some traction. Thanks and trust companies are competing with warehouses and RIAs, and we anticipate this being an ongoing trend in 2020.
Our alternatives business set a new record high for alternative assets under administration at $1.89 trillion, surpassing our previous record set last quarter so much for the demise of the alternatives industry. We believe alternative asset managers are well positioned in these volatile markets. Our 2020 scenario analysis can be found on Pages 4 and 5 of our earnings results slide. We continue to use 2021 scenario as our baseline with an incremental increase or decrease of about $25 million dependent upon the state of the economy, which obviously is also dependent upon the global pandemic. We anticipate earnings per share to come in at about $4.21 as our baseline, up $0.11 from last quarter’s estimate.
I’ll now turn the call over to Rahul to discuss the quarter in a little more detail.
Thanks, Bill. While a majority of our workforce is still remote, we have open four international offices and are in the planning phase or several more. We are all anxious to return to normalcy, but the health and well being of our employees is our first priority. We’re monitoring guidelines from governments and health authorities around the world including the CDC here in the United States, and will not open an office unless it’s safe to do so.
SS&C continues to innovate and our employees continue to collaborate despite working from home. Within Intralinks, we have enhanced our investor vision portal with expanded general partner capabilities, launched in Intralinks steel marketing and roadshow offering and integrated zoom web conferences. Integration between algorithmics and singularity brings embedded risk analytics to our singularity product. We have already signed one client using this expanded functionality and are building momentum.
We’ve also rebranded our Global Transfer Agency business to Global Investor and Distribution Solutions, GIDS. GIDS delivers transfer agency and best of servicing powered by a single global servicing platform. Nick Wright, previously leading financial services international, has assumed the newly created role of Head of GIDS to bring together SS&C’s transfer agency capabilities around the world.
Now, I will mention some key deals for Q3. A $40 billion in assets hedge fund and current fund administration client licensed Geneva for their internal operations. A long-term Advent client upgraded their APX license to a cloud delivery solution at a Genesis for rebalancing capabilities, and BD Link as an investor portal and existing large strategic client looking to consolidate vendors extended our transfer agency services to their European operations.
The Boutique Superannuation Fund based in Australia licensed our Bluedoor solution for its ability to meet their complex requirements, and existing SS&C health clients absorbing a number of acquisitions and the resulting increased membership required additional licenses and infrastructure to support that growth.
A large hedge fund based in Boston expanded their fund administration services, a $4 billion in assets hedge fund show the SS&C’s fund administration services including middle office regulatory reporting and tax preparation, citing a reputation and commitment to implement on a tight timeframe. The European alternative investment manager converted to SS&C fund services from a competitor due to our expertise and ability to meet loan servicing requirements. A large DST insurance client required a reporting solution and chose to license vision. It was a successful cross-sell offer between DST and our Institutional and Investment Management Group.
I will now turn it over to Patrick to run through the financials.
Thank you. Results for the third quarter 2020 were GAAP revenues of $1,152.8 million, GAAP net income of $159.4 million, and diluted earnings per share of $0.60. Adjusted revenues were $1,156.2 million including the impact of the adoption for the revenue standard 606 and for acquired deferred revenue adjustments for the acquisitions.
Adjusted revenue was up 0.5%, adjusted operating income increased 5.5% and adjusted EPS was $1.10 and 18.3% increase over Q3 2019. Adjusted revenue increased 5.4% – $5.4 million over Q3 2019. Our acquisitions contributed $29.8 million in the quarter. Foreign Exchange had a favorable impact of $6.5 million, or 0.6% in the quarter. Organic revenue declined on a constant currency basis was 1.4% driven by some weakness and DST asset management and healthcare businesses. These were offset by strength in the fund administration and Intralinks businesses.
Adjusted operating income for the third quarter was $448.8 million, an increase of $23.2 million or 5.5% in the third quarter. Foreign exchange had a negative impact of $3.2 million on expenses of the quarter. Adjusted operating margins improved from 37% in third quarter of 2019 to 38.8% in the third quarter of 2020. Driven by lower personnel costs, lower costs related to independent contractors, lower out of pocket expenses and lower travel expenses.
adjusted consolidated EBITDA, which was defined in Note 3 in the earnings release was $466.3 million or 40.3% of adjusted revenue, an increase of $20.5 million or 4.6% over Q3 2019. Net interest expense for the third quarter was $54.7 million and includes $3.4 million of non-cash, amortized financing costs in OID.
The average interest rate in the quarter for our amended credit facility and the senior notes was 3.0%, compared to 4.84% in the third quarter of 2019 and resulted in interest expense decrease of $43.8 million.
We recorded a GAAP tax provision for the quarter of $58.6 million or 26.9% of pretax income. Adjusted net income as defined in note 4 of the earnings release was $294.2 million and adjusted diluted EPS was $1.10 and the effective tax rate used for adjusted net income was 26%. Diluted shares increased $266.7 million from $265.8 million in q2. The impact of an increase in the average share price and option exercises was partially offset by share repurchases.
On the balance sheet and cash flow as of September, we had approximately $184 million of cash and cash equivalents, and approximately $6.9 billion of gross debt for a net debt position of approximately $6.7 billion.
operating cash flow for the nine months ended September 2020 was $755.1 million. For the nine months, we had net debt payments of $330.3 million, compared to $629.1 million in 2019. treasury stock buybacks totaled $219.8 million for purchases of 3.6 million shares at an average price of $61.07 per share, compared to treasury stock buybacks of $60.3 million for 1.3 million shares in 2019.
In the nine months, we declared and paid $99.9 million of common stock dividends as compared to $76 million in the same period last year, an increase of 31.4%. Year-to-date, we paid interest of $212.7 million, compared to $294.6 million last year due to the lower debt levels and lower average interest rates.
In the nine months, we’ve paid income taxes of about $182.5 million compared to $180.3 million in the same period of 2019. Our accounts receivable DSO improved in the quarter to 50.4 days compared to 53.3 days as of June 2020.
capital expenditures and capitalized software totaled $80 million or 2.3% of adjusted revenue, compared to $99.1 million or 2.9% of adjusted revenue in the prior year. Spending was predominantly for capitalized software, IT infrastructure and leasehold facility – facilities leasehold improvements. Option exercise increased this year to $129.6 million for proceeds and 4.2 million shares compared to $74.5 million of proceeds and 2.7 million shares last year.
On an LTM consolidated basis, EBITDA, which is used for covenant compliance was $1,876 million as of September, and includes $8 million of acquired EBITDA and cost savings related to our acquisition. Based on net debt of approximately $6.7 billion, our total leverage ratio was 3.58 times and our secured ratio was 2.52 times.
On outlook for the year, that’s got basically these assumptions included and assumed in our outlook. We assume that markets continue to be volatile, large scale outsourcing deals and licensed channels are impacted. AUA levels remain flat and fund launches are somewhat delayed.
As we’re focusing on client service, retention rates will continue to be in the range of our most recent results. foreign currency exchange will be at current levels. adjusted organic growth, revenue growth for the year will be in the range of negative 1% to negative 2%. Interest rates on our term loan facility will approximately be one month LIBOR plus the spread, which is currently as 175 bps.
We will manage our expenses during this period by controlling variable expenses and staff hiring. We’ll continue to invest in our business for the long-term with capital expenditures of approximately 2.4% of revenue, and R&D expenses are approximately $400 million on a GAAP basis. We expect the tax rate to approximately be 26% on an adjusted basis.
The first scenario assumes that the economic conditions start to improve in the fourth quarter of 2020. Under these assumptions, we expect approximately the following results. adjusted revenue of $4,650 million, adjusted net income of $1,130 million, diluted shares of $267 million, and operating cash flow $1,130 million.
The second scenario assumes that the economic conditions continue the same as current conditions. Under this assumption, we expect the following results adjusted revenue of $4,625 million, adjusted net income of $1,120 million, diluted shares of $266.3 million and operating cash flow of $1,115 million.
The third assumption assumes that economic conditions don’t start improving until later in 2021. Under this assumption, we expect possibly the following results. Adjusted revenue of $4,600 million, adjusted net income of $1,110 million, diluted shares of $265.5 million and operating cash flow of $1,100 million.
And now I’ll turn it back over to Bill for final comments.
Mr. Stone, do you have any closing remarks?
Thanks, Patrick. In the past 34 years, we have put together a remarkably diverse portfolio of products and services, supported by a diverse group of talented professionals. each year has presented challenges, but perhaps no year more so than this year, an election year, a global pandemic, civil unrest. SS&C lack of fine timepiece just keeps ticking away.
adjusted EPS up 18% for the quarter and we suspect 2020 will be up 10% for the year. SS&C is a transaction processing and accounting engine, rates, dividends, interest payments, pharmacy claims, tax returns, Medicare, Medicaid, compliance checks, mutual fund redemptions and subscriptions, and hundreds of other regulatory tax and commercial transaction. The world has more people generally doing more things. SS&C will continue to be a trusted partner to our clients, a strong and successful company for our employees and a haven for value for our investors.
And with that, we’ll open it up to questions.
[Operator Instructions] Your first question comes from the line of Ranya Kumar with Evercore. Please go ahead.
Good evening. thanks for taking my question. It looks like the organic revenue in the quarter came in a lot better than what the street is modeling and if you can maybe, talk a little bit about the drivers of that organic revenue. How much of that you know came from growth from the fund administration business – these business enrollings and DSP that would be really helpful? And separately, if you can also talk about what the underlying organic revenue growth assumption is, for the fourth quarter and the drivers for your baseline case.
Rahul, do you would take that?
Bill, I can certainly start and maybe, Patrick can comment on the underlying assumptions. But I think that the businesses, we had pretty good performance across the board in q3, but the businesses that the highlights are from the administration had a – really a pretty good quarter. And we also saw within Intralinks, a bounce back or starting to build some momentum in the M&A business again. and so intralinks had a pretty good quarter as well and Patrick, if you’d comment on the guidance or the scenarios rather.
Sure. I think that the – I’ll talk about the midpoint of the scenario – of the scenarios, we expect adjusted organic growth to be negative about 5.5%. And the difficulty in the fourth quarter is that there’s a very difficult cost compared to q4 2019 when revenue was $1,212 million and we had very strong license sales in that quarter. But we expect in our funding ministration business, growth to continue and be around 5% for the full year and also influence business and seeing some improvement in the DST business.
Got it. That’s very helpful and if you can call out the actual growth rate for the fund administration business in the fourth – in the third quarter. And separately, if you can talk a little bit about the growth that we saw in DST and it’s possible to get back to at least low single-digit top-line growth in 2021?
I’ll give you, some of the alternatives for administration businesses up 4.3% in the quarter, attended DST business on an adjusted basis was down 3.8% in q3.
Go ahead.
2021, I think, these deals that we have had press releases out on are very large deals, and the revenue really starts to kick in throughout the fourth quarter and then really kicks in, in 2021. So, we have some reason for optimism and we believe that we have a lot more prospects in the pipeline.
Your next question is from the line of Brad Zelnick with Credit Suisse. Please go ahead.
Hi, this is Marco on the line for Brad. thanks for taking my question. I wanted to talk a bit about the hiring of Frank Egan. This is for you. Bill. So, what excites you about this hiring? Is there perhaps a shift in M&A strategy or is it something changing in the environment? Thanks.
Well, I think, Frank has been a pretty senior person at a number of different investment banks, including UBS. And then he founded something called Lake Ridge capital and ran that venture capital funds for a number of years. He’s very well connected in both FinTech and in healthcare. And so he brings a network of people and capabilities that we didn’t really have in the organization before. And I think that he’s helping our individual business units on how to frame, how to make an offer, and then how to move towards close in a confident way, where the target is comfortable with what we’re going to do. So, we’re excited about it. He’s been here a couple of months. I think, in general. All of us are pretty pleased with his performance.
Great, thank you. For my follow-up, Patrick, I wanted to ask about the transition of contractors to in-house employees that you spoke of, how much would you say that contributes to margins this quarter? And how should we think about the potential for savings going forward? Thanks.
I think most of the – take all the contractors were transitioned to in-house employees in the quarter and the savings was about $6 million in the quarter somewhere in that neighborhood.
Your next question is from the line of Jackson Ader with JPMorgan. please go ahead.
Hey, guys. thanks for taking my question. Just a quick follow-up on some of those retirement services deals bill that you talked about? Can you give us a sense, how those contracts are priced? Are they based on dollars per account, similar to the mutual fund accounting businesses that DST has and then any particular revenue recognition, the oddities that we should be aware of in those retirement businesses there?
I think in general, it’s again, it’s matrix tournaments, the number of participants, the size, the assets, and the number of transactions. So, these are all large deals and JPMorgan also came out with the Everyday 401(k), or something along those lines that we’re also going to administer that for you guys. And again, these are large scale deals. I mean, JPMorgan is a startup guys, and they have a lot of market power. So, there’s been a great anticipation and nationwide has a big business. So, we’re expecting tens of millions of revenue in 2021 and then acceleration to 2020.
Got it, okay. Thank you. And then on the fund administration business, I think this is a second quarter in a row that the AUM has actually outpaced the organic revenue growth. And so I’m just curious, is this a signal of pricing pressure? Is it a signal of maybe, the types of assets that are flowing into your customers? Maybe where more plain vanilla, you’re not able to get the same type of basis points on the assets under administration? Any comments you have there?
Bill, I could take a shot at that. So, I think what’s happening is our private equity and real assets, businesses continue to grow quickly. Some of the kinds of mandates for getting in there are for things like limited partners and private capital and things like that, that are very, very profitable, but don’t have the same yield in terms of basis points, and that’s probably what you’re seeing.
Okay, that makes total sense. Thank you.
Your next question is from the line of Alex Kramm with UBS. Please go ahead.
Hey, good evening, everyone. Just a couple quick ones, first, on retention, notice that ticked down I mean, 95.3 is still a very high number, but just curious if you would call out anything why that’s come off a little bit. I mean, again, tough environment, but just curious, any particularities?
I just say that there’s been a couple of accounts that we were drawn from and that makes up the bulk of it.
Okay. and then and then maybe, just on the guide, I guess the updated guides. I know these are scenarios. But at the same time, we’re – I guess at the end of October with two months left in the year. So, just curious, the $50 million range. What are the biggest swing factors with two months left is to have such a wide range? Like what could go right, what could go wrong still in this year?
We could start science and large scale licenses, where we take a very large chunk of revenue into the fourth quarter and we could not sign some large scale licenses, where we take very large chunk of revenue in the fourth quarter. And I think that’s just about it.
Okay. That’s fair. Thanks.
Your next question is from the line of Peter Heckmann with D.A. Davidson. Please go ahead.
Okay, good afternoon. Thanks for taking my questions. Patrick, did you comment on the closing of the unit of, I think, it was capita, the timing of that in the quarter and what type of revenue that control – required revenue that contributed?
Our capita has not closed.
It’s not closed, okay.
Capita has not closed. It’s still hung up with some regulatory approvals, some other approvals and we’re not sure at this point when it’s going to close.
Okay. So, there is no acquired revenue from capita in your updated guidance ranges?
No. There’s really no changes from our previous guidance. our last acquisition, I think, Innovest in May.
Got it. Okay. All right, that’s helpful. And then just the – I saw the recent UK win come across, it reminds me a little bit of the St. James contract is the replatforming of wealth manager still ongoing within the UK and do you feel that you can use some of the successes to gain share there, is there an opportunity for DST business?
We wouldn’t just say – we would say all of our money management businesses are participating in the capabilities. but we are packaging together for McDonald’s and other large scale UK money managers and actually, throughout New Ireland and Scotland and into Europe, and we also have a lot of opportunities in Australia in this moment and in the rest of Asia. So, I think, some of the pandemic slowdown stuff is really that you don’t get a chance to get caught up and be able to submit the faster, but there’s some first-class place and we have a great opportunity to have a great partnership with them and then also leverage that for more business throughout the UK and Europe.
Got it, got it. and then and you’re breaking up there just a little bit just. But it just in health solutions, I guess you’ve talked to, you called out a couple of wins there and maybe, some opportunities, but is that a business that you think can grow high single digits over the next three or four quarters?
We have the pipeline for it to be able to close at higher rates even than that. I think, we have some momentum with the question of, could be locked-in on the contract, and then making sure that the revenue streams are coming in, but we have some momentum in healthcare and we’re cautiously optimistic about what we can do.
Got it. All right. We’ll look for an update on that next quarter. Thanks.
your next question is from the line of Mayank Tandon with Needham. Please go ahead.
Thank you. Bill, just looking at the portfolio offerings that you have, any noticeable shifts in competition, implications for pricing, and then how your win rates been trending across the various segments of your portfolio?
Yes. I think, the strongest areas continue to be wealth management, where you see black diamond and then a few of the other add-in products that we’ve built around and acquired around Black Diamond still want to go in and other products like that. And then you have real assets that have done a very nice job and continued to have a very full pipeline.
Now, we also have a lot of opportunity in private equity. We think that continues as Rahul had spoken about that prior, and it’s a very full pipeline. And still Mayank, on the dollars basis, still 70% of the dollars in private equity are still administered in-house. So, there’s a real opportunity for us to execute into that business even more so. And I think we believe retirement is going to be a very nice sweet spot for us, because the deals are large and the contracts are long and as are the tightness of the related relationships. That’s really, that’s the kind of the essence of the business, by kidding, Innovest, we get InnoTrust. We have 16 Diamond RIAs and what they’re finding as they get into high net worth individuals. There is a lot of them have trust, which means you need trust accounting. and InnoTrust is a very powerful product and we’re excited about our opportunity to cross and upsell into those 16 plans.
That’s a helpful color. And then if I could just ask about 2021, as we’re trying to frame our models of the various scenarios that you laid out, when you say, a mid-2021 recovery, or an early 2021 recovery or recoveries, backend weighted? What does that mean in terms of the organic growth and margin levels when we talk about these recovery levels for 2021?
Yes. I think Mayank again, the margin levels are really, SS&C manages its business. So, we can manage our expenses and as we’ve built many times, we have some flexibility and how much money we spend. So, we’re not as concerned about the margins. We’re not as concerned about the earnings. But we have a very good sales force and in the global pandemic, that hasn’t crippled us, it certainly has not put wind in our sales. We’ve hired a lot of new salespeople and we’re training them to zoom, but now they don’t get the interaction and the ability to be able to bounce ideas after on each other and be able to see what’s working in the rest of the sales force. So that’s been the biggest issue for us is to be able to close deals, where people want to reach out to you in the eye and make sure X, Y and Z, where is – in these large scale and medium scale, fund administration businesses. We’re such a colossus in these businesses that we really have lots and lots, and lots of breath out of the references and we’re doing the work, right, whereas if you go out to take license that you have to do the implementation, you get concerned that you’re not going to have people on site from us and it adds to the trepidation. So that’s the real challenge with the revenue side.
Got it. Thanks, Bill.
Your next question is from the line of Ashish Sabadra from Deutsche Bank. please go ahead.
Thanks for taking our question and a good quarter. Patrick, my question for you for the fourth quarter organic guide. If we exclude that one-time difficult comps from license headwinds – or license revenues in the prior year, what would the organic growth would have been excluding that was one – like difficult comps? Thanks.
I think last year – yes, I think about, yes, that’s about right. So that’s about 3.5% impact or so.
Okay. That’s helpful. And leaving…
Maybe, 3% to 4% impact.
3% to 4% impact, that’s helpful. And maybe, a question for you, Bill, if you can size the DST prospect pipeline, you talked about $60 million to $65 million pipeline last quarter, obviously you’ve had some really good large deal events. And so what’s the prospect pipeline and as we think about, as you mentioned, as you close these prospect pipeline and the new deals, the follow-up question was, how do we think about the DST growth next year? Can it get back into a growth mode or low single-digit growth next year? Thanks.
I think we have the opportunities, it’s – again, it’s a very competitive business, but the wins at ICMA ended and at nationwide, and at JPMorgan for that matter, indicate that we have a superior offering and we have to get out and get after it. Now, we have a talented group of executives working in that business with Mike Sleightholme and Kevin Rafferty, and John Geli, and a number of others, but those three guys are leading a very talented group of people that are in there selling and selling hard. And we put the financial services fails in North America under Rob Stone, who’s also a very talented sales executive. And I think that, we’re getting some – we’re getting focused, we’re getting tracking, and we’re getting increased intensity. So, I’m optimistic about where we’re going with this. And I think the addition of things like algorithmic embedded analytics and bending risk, and things like InnoTrust, which gives, the ability to handle, 1940 Trust Act, portfolios and be able to answer for different states from their trust in a speech.
Well, I think there’s a lot of stuff like that that SS&C has gathered, like, for that or that does handwritten notes and being able to immediately converted into machine readable. I mean, there’s a lot of things like that, that gives our solution, a superior look, a superior feel, and then superior productivity. And I think that’s the optimism.
Bill, thanks for the color and congrats once again on the good quarter.
Your next question is from the line of Andrew Schmidt with Citi. Please go ahead.
Hey, guys, thanks for taking my questions. Just a question on buying behavior in the sales cycle. It seems like you guys pulled through some nice wins over the past quarter and seems like the – obviously there’s still some pressure, but it sounds like the sales cycle and closing –close rates and things like that are start to normalize. I guess, just to get your perspective on that. And then, if there is improvement, what have you seen into the fourth quarter from that perspective? Thanks.
Again, Andrew, I think, you’re trying to be perspicacious about this, I think, is very difficult, because, everybody’s crystal ball is a little cloudy. You know, and when you say things are coming back to normal, I will tell you 80% or 90% of our sales meetings are now from Zoom or WebEx, whatever Microsoft is whomever is, right? But some sort of collaboration software where people are in remote places. And as our preparation meeting, all of our preparation meetings are through Zoom and, collaboration software. And so, back to normal, seems like a very difficult – a very, very difficult Standard Time. And the further we get away from February of 2020. The harder it is to remember what normal was, right?
So, traveling for business in an airplane, I have not done in six months, maybe that hasn’t happened in 30 years. So, I just think that we need not to get precipitous, and we need to be able to work methodically as data true or supporting our teams and our customers. And then when you see spots of lightness, pounds. So, I think it’s much more of a kind of a watchful waiting, we’re watchfully waiting, right, and like a hawk in the tree, until they see movement on the ground that, they’re not going to lift that. And so that’s what we’re trying to do. We’re trying to be wise. And in October 2020, that’s a difficult proposition.
Sure. That makes a lot of sense. I guess, in a virtual selling environment have you seen client sort of a gap this sort of environment in terms of buying patterns? Or is it still very much tenuous from a just a virtual sales engagement perspectives?
Well, it’s just longer, right? It just takes longer, and then there’s a contract. Right? And then that’s done virtually too. So, the links of those kinds of things all kind of stretch out and, I know, Rahul has been in the midst of a number of it, and I think, maybe, Rahul, you could kind of give your perspective.
Yes. I think just to add to some of that, there are signs that people are getting more comfortable. So, I think people are adjusting to the – and like Bill said, a little while ago, some of the things that they – some of their challenges, those challenges do need to get solved. Right to put, but at the same time, this is all about rate of buying behavior more than anything else. So, we are seeing prospects, make decisions and sign contracts and move forward. And maybe there’s – maybe the rate of that happening is a little better than it was three, four months ago for sure. But it’s not, it’s nowhere close to what it would be in that normalized environment. And I think that’s, that’s really what we’re facing.
Understood. Understood. Thank you for that perspective. And then just a question on capital allocation. We saw the buyback this quarter, should we expect consistent buybacks? And then I guess, in terms of the M&A pipeline, just any update there in terms of prospects and things like that?
Well, again, that’s another, that’s another wise, discussion point, right. So, we’ll sit down, we’ll talk in there, we can buy back that, but as Patrick pointed out, or that is, one month LIBOR plus our spreads in one month LIBOR right now [indiscernible]. So, our interest rate on our $4.8 billion in term loan B debt is 1.9%. Last year, I think we generated $5 a share in cash, $5 per share in cash. So, we want to be cognizant that, if we have a quality acquisition that we can give it as at a fair price, and we want to make sure we have the wherewithal to do that. And then we’re going to split the rest of our cash flow, which we’re paying down debt that looks like now we can buy something [indiscernible] and then also buying back shares.
Okay. Thank you very much, guys. appreciate the comments.
Your next question is from the line of Chris Shutler from William Blair. Please go ahead.
Hi, good afternoon. Just looking at the fourth quarter implied net income range. I’m coming up with a range of $266 million, $286 million. You did $294 million in the third quarter. So, I guess the question is, why would net income come down from Q3 to Q4?
So there’s a little bit of decline in sequential revenue at the midpoint scenario, right. And the first quarter also typically has higher costs related to employee reviews and raises that are effective on October 1. So, we’re going to see that increase in compensation and to other expenses that kind of go up sequentially in Q4 and then at the midpoint of revenues down a little bit.
Okay.
So, that beginning – October 1, I think our races for 2020, while more modest than they are generally, we’re still in the $30 million to $40 million range. So, $8 million to $10 million a quarter.
Okay, got it. And then Bill, I just want to come back to the hiring of Frank Egan one more time. You’ve obviously led the R&D effort for a long time at SS&C and you’ve been a very large, acquisitive growing company for years. So, maybe just would you mind putting a finer point on why you’re brought on Frank? I guess, I’m still not clear on it.
Well, Chris, I think SS&C is a way bigger place, right? Where we’re in $4.6 billion, we have upwards of 25,000 employees. We have 150 offices. We’re 35, 40 countries, right? There’s opportunities all over the world. And we’ve done a number of acquisitions where those management teams are used to buying stuff too. So incoming numbers of acquisitions, and then the ability to really project, how I think or Rahul thinks, or Patrick think, we still have full time jobs, right? I mean, we still try to manage the business. We try to help the sales force on call. We try to help the development people get the right people in and be able to really get the high enough level people lead our prospects and our clients to make sure that what we’re building people are going to buy, right? We get as many developers as we have, that have a lot of talent, and you got to be careful, you don’t have a bunch of science projects.
That’s really cool. And you couldn’t sell it to your mother, right. That’s the business, right. That’s the management of the business. We might have a – we do, we have opportunities to buy things in Germany and France, all over the United States, in Asia, right and in Mexico, and all over the place. So, I think Frank’s job so far in the first 60 days, his job is to help a business unit managers understand, how you’re going to go about negotiating this? How are you going to make that target feel well, feel good? How you’re going to keep Patrick informed, and Joe Frank informed for the finance and legal, like to have a cadence through this whole thing? So it’s not like I’m getting out of it. I’m not. And it’s a chance I might have some veto power, right? We need more discipline, when we’re going to have so many opportunities around the world.
All right. Understood. Thanks so much.
Your next question is from a line of Surinder Thind with Jeffries. Please go ahead.
Thank you. Just a clarification on the commentary on capital allocation. From my perspective, obviously some purchases were a little bit larger than I was anticipating. But on a go forward basis, as we think about the opportunity set that’s up for you. Can you help me understand the tradeoff between share repurchases versus maybe just paying down debt? I understand that debt is effectively free 1.9% at this point, but maybe that allowing yourself to increase flexibility in terms of maybe doing even a bigger deal? Or, obviously one of the challenges with the from an outsider’s perspective has been just leverage ratios and stuff.
Well, I think, hey Surinder that’s a really good question. And that’s where you try to be wise. You know, that’s why we spent $330 million on paying down debt by fact that and we spent $191 million on buying back shares. We’ve just been offered that $750 million to buy back shares and no – we don’t send out press releases on authorizations that we don’t have any intention on acting upon. That doesn’t mean we’re going to buy $750 million worth of it [indiscernible] I don’t think we will. But at the same time when you’re generating $5 a share in cash, that’s a pretty compelling, see if a tenant now assistance to more economically valuable to you. But your point is still well taken right that the market prefers that we have less debt that we have less leverage and that we pay down debt faster, but aren’t many prices that pay down debt the way we did. And we’re focused, if we’re disciplined, and we’re not – we haven’t changed our general philosophy that.
First, our target is good acquisition. Second is we want lower leverage. Third is, is when our stock appears to be undervalued, which we believe it is. But we’re not in charge of setting the value of our stock markets and charges of setting value of our stock. But we’re generating lots of cash, when, in big new deals, we got a lot of great technology coming out, we got a great workforce, ambitious, we’re disciplined. And I think you can go back to 2015, with a $1 billion in revenue in 2010, we went public with it $329 million, 2005, when we went private with Carlyle, we did $95 million.
So, we have a history of growing, and I believe will keep growing, because that’s what we did. It’s in our DNA, it’s who we are. We have other entrepreneurs that like to join us, Mina Wallace [indiscernible] Innovest, all kinds of different people that are still with us that we have bought their company. So I think that’s a great, the first group of products and services and a diverse group of people. And we’re just excited about where we sit, and how we perform vis-à -vis our competitors in defense sector.
That’s very helpful, Bill. And there’s a quick follow on in terms of just really think about the, where you’re seeing opportunity in terms of the mix. And there’s earlier question about how maybe the sales process has changed with time? How much of your new business that you’re looking to win is maybe with existing clients versus trying to bring new clients in the door at this point? And is it the new clients that are maybe hesitant to sign the bigger deals at this point, or any color there would be appreciated? It’s just – it’s one of those things where maybe not this quarter or now, but as we kind of get more comfortable with living with the coronavirus that sales just kind of ultimately gets back to a normalized place, regardless of what the environment might be like.
As we get bigger, obviously, right, more and more people are our clients, I think we have 4,000 to 18,000 now, and so, obviously, our opportunity in the cross sell, upsell, in our current client base continues to grow. Now, same time, we’re $4.6 billion in revenue in my estimation of transaction processing, [indiscernible] $100 million in the United States and $100 million outside United States. And I would guess, in healthcare, transaction processing is in the United States, and I don’t really know what it might be outside. So, if you take $4.6 billion, and you divided by $300 million, we represent 1.5%. So there’s plenty of opportunity, it’s a question of being able to have the right products at the right time at the right place, and then have a need, right, nationwide had a need or ICMA had a need, or JP Morgan had a need, or, you have to have a neat Brooks McDonald or other ones, right. Really have to have a need, and then we have to meet it. And we have to meet it at the right price with the best solution. And I think in general, we do that, and we do that very well.
Thank you, Bill.
And your final question comes from the line of Crispin Love with Piper Sandler. Please go ahead.
Thanks for taking my questions. So the monthly redemption data seems to be mostly unaffected by the pandemic over the last several months. I was just wondering if there’s anything interesting going on underneath the surface in terms of the types of funds that are raising assets versus those that are seeing some outflows?
We’re continuing to see that as I mentioned earlier, we’re continuing to see broad based flows. So, really all of the different parts of our business, whether it’s hedge funds, and different strategies within hedge funds, private equity, real assets, we’re seeing fund flows into, the private equity and real assets have tended to raise some larger funds. And so that maybe it’s skewed a little bit in that direction. And within the hedge fund market, the credit focused funds continue to do pretty well, but it is pretty widespread.
Thank you. That’s helpful.
And there are no further questions at this time. Mr. Stone, do you have any closing remarks?
I would just do again, appreciate everybody being on there. And, as always, we work very hard for our shareholders and we appreciate your interest in our company. Thank you. Stay safe. Bye.
Thank you. And this does conclude today’s conference call. You may now disconnect.